Tencent's global gambit

Hi all, this is Zheping in Hong Kong. Tencent’s appetite for big global gaming franchises is back. But first…Today’s must-reads:• Xi Jinping [View in browser]( [Bloomberg]( Hi all, this is Zheping in Hong Kong. Tencent’s appetite for big global gaming franchises is back. But first… Today’s must-reads: • Xi Jinping is [rallying the troops]( in China to fight US sanctions. • Theranos founder Elizabeth Holmes [asked for a new trial]( • Twitter told a judge that its whistle-blower [didn’t flag a spam issue]( when he worked there A bigger slice of Ubisoft China’s most valuable firm invested roughly $300 million in the holding company of Ubisoft’s founding Guillemot brothers – a transaction that allows Tencent Holdings Ltd. to [eventually double its stake]( in the French game publisher to 10%. It’s a bet on Ubisoft’s famed Assassin’s Creed franchise and further evidence of Tencent’s resurgent appetite for foreign gaming investments — at a time when the company is divesting other assets and spending more judiciously with growth at home hampered by regulations and economic headwinds. Just last week, the Shenzhen firm boosted its stake in Japan’s FromSoftware Inc., the maker of Elden Ring and Dark Souls. And last year, it agreed to the $1.26 billion acquisition of British game studio Sumo Group, known for its work-for-hire business. They're the latest in a long line of overseas deals that peaked a half-decade ago, when the WeChat operator spent billions on mobile developer Supercell, League of Legends studio Riot Games Inc. and a chunk of Fortnite-maker Epic Games Inc. While that freewheeling spending of the past may not be [returning](, a strategy does seem to be emerging. Tencent is raising billions by selling assets; executives like James Mitchell have talked about creating AAA games and global franchises that stand the test of time; and China's market isn’t rebounding anytime soon. It may only be a matter of time before Tencent pulls the trigger on another Supercell-like, multibillion-dollar takeover — the question is when, and who. There’s a real sense of urgency for a return to growth. In the second quarter of 2022, Tencent’s revenue [shrank for the first time on record](. The one bright spot? Its international gaming business – now outgrowing the domestic division, and responsible for about a quarter of total game sales. Tapping into popular franchises from portfolio companies like Activision Blizzard Inc. and turning them into mobile hits marked Tencent’s biggest global wins so far. It pulled off the maneuver with titles like Call of Duty, PUBG and Apex Legends. Ubisoft, for its part, is teaming up with Tencent on a mobile game, and that may well be an adaptation of Assassin’s Creed, [judging from Tencent’s job listings.]( But are those incremental steps enough to get the Shenzhen outfit back to its former glory? Or might it be on the hunt for bigger prey, especially now that many big game publishers have been spooked by the prospect of Microsoft Corp. taking over Activision. And what of Tencent’s own games? None of its in-house creations – those using original stories and characters rather than licensed IP – have made a big splash in major markets like Japan and the US. The anxiety is evident in Tencent’s internal competitiveness — a good example of that is it currently has four different games in the mobile battle arena genre, including a 1-to-1 copy of its homegrown hit Honor of Kings. It’s not shy about sacrificing some assets in its chase for truly global hits. In the long run, Tencent wants to beef up its presence in console gaming — the most lucrative and celebrated portion of the $200 billion global games market, but not a traditionally huge market in China. Tencent’s leadership in mobile games stems from being the dominant gaming platform at home over the years. From its partnerships with the likes of Ubisoft and Activision, the Chinese giant needs to learn a lesson about patience. Modern marquee games for console and PC can cost north of $100 million and take more than five years to bring to fruition. That’s a far cry from the rapid development cycle of a mobile hit, and a long time to go without getting any immediate return on that investment. Perhaps Tencent’s accumulation of cash is simply preparation for these long-horizon investments in content creation. It would be contrary to Tencent’s tried-and-proven model, where it peddles cosmetic items and power-ups in quickly-made games on PC and mobile. But times, and sometimes companies, change.—[Zheping Huang](mailto:zhuang245@bloomberg.net) The big story Republicans have a Peter Thiel problem. As the campaigns of Blake Masters and JD Vance struggle, the party finds itself in a standoff with one of [Silicon Valley’s most ruthless investors](. What else you need to know A high-profile push by Congress to rein in the nation’s biggest internet companies is at a critical juncture after a nearly two-year battle and[$95 million in lobbying spending](. Amazon’s big-budget show, “Rings of Power” got [divided reviews]( from audiences. Apple plans to appeal a move by Brazil to [ban the sale of iPhones without battery chargers](. Bloomberg TV examines YouTube’s reign in the [creator economy](. Join Bloomberg Live in London for the [Bloomberg Technology Summit]( on Sept. 28 to see Europe’s business leaders, policymakers, entrepreneurs and investors explain how they’re adapting to this new environment—and discuss solution-based strategies. 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