After 'Honor of Kings' failure abroad, Tencent Retools Overseas Strategy

SHENZHEN, China / SHANGHAI (Reuters) – When Tencent Holdings Ltd made its first big foray overseas with an adaptation of its blockbuster mobile game "Honor of Kings" in the summer of 2017, executives thought they had a sure-fire success on their hands .

The multi-player role-playing game, in which players hack and slash their way through battle arenas, had 55 million daily active users in China and was raking in roughly $ 145 million a month, making it the company's top grossing game.

Aimed at developing and marketing, Tencent's U.S.-based Riot Games subsidiary, has seen the international version, called "Arena of Valor", flop in Europe and North America.

Tencent has now all but written off its original plans for "Arena of Valor" and disbanded the game's marketing team for Europe and the United States, two company sources with direct knowledge of the matter said.

"In these markets, we are really just letting it live or die on its own race," one source said, adding the game currently has just 100,000 daily active users in Europe and 150,000 in North America.

The sources were not authorized to speak to media and declined to be identified.

The company has gone out of business, paying more attention to local needs and turning to partnerships, such as Singapore-based Sea Ltd. to handle marketing. It is also expanding to the desktop and console-based games.

But the sobering failure of "Arena of Valor" raises questions about Tencent's international savvy.

"Tencent lacked distribution channels and experience in user demographics, so they did not know how to compete," said IHS Markit analyst Cui Chenyu.

Tencent declined to comment.

The company, which drew one-third of its $ 85.5 billion in revenue, is growing up in its home market.

Beijing has intensified its efforts to regulate the games it sees as too addictive, while an overhaul of regulators in China has hurt the industry, with a few months in it.

INTERNAL VOLTAGES

Trouble came early for Tencent in its marketing plans for "Arena of Valor".

Its homegrown games operation had long been a strained relationship with the Riot's "League of Legends" – the world's most popular desktop-based game, the two Tencent sources one Riot source said.

These tensions grew when Tencent developed "Arena of Valor" and promoted it in Europe with e-sports tournaments featuring such gamers as Spain's Xpeke and France's YellOwStaR, best known for their exploits in "League of Legends" competitions.

Riot complained to a senior Tencent executive group, resulting in a 2-month freeze in marketing for the game, the sources said. Riot was later awarded the right to review all marketing plans, even the design of posters, and the use of certain celebrity gamers.

"We had complaints about the China market from Riot, but nothing on this scale. Maybe they think we have gone too far, "said the source.

For a game that failed to get off the ground, the promotional efforts were costly, the sources said, noting that it was worth $ 4.5 million and could have been a Tesla car. "We burnt a lot of cash," said source.

FALSE ASSUMPTIONS

Other mistakes were more fundamental. One blunder, the Tencent sources said, was to replace the "Honor of Kings" characters, which are inspired by Chinese mythology with figures from European folklore and Western comic-book heroes like Batman and Superman.

"In retrospect, this has been meaningless," said one source, adding that the company should be more confident in the appeal of Chinese culture.

"Because the game is different in China and overseas markets, it's difficult for us to organize an international tournament of the game."

Tencent also came to be more popular than in the United States and the United States did not have access to mobile phones.

Tencent's WeChat and QQ platforms, the popularity of "Honor of Kings". But efforts to replicate that have not been enough PC gamers have been on the platform, they said.

In contrast to its European efforts for "Arena of Valor", Tencent has outsourced the marketing and operation of the game in Southeast Asia to Sea, which has used its extensive and relatively low-cost sales force to promote the game. Sea said last August the game had won daily active users of 14 million.

Tencent has also become more aware of local sensibilities in the wake of its marketing missteps for "Arena of Valor". It is sure to win the support of the Dubai government for a marketing event of PlayerUnknown's Battlegrounds Mobile and took care to link the desert portrayed in the game with the local area, a source said. The event drew 60 million views online and 5,000 expected.

To strengthen its presence in the West, Tencent is one of the most important companies in the world.

Relations with Riot are also a joke, with sources saying they have been working on a mobile version of "League of Legends" for more than a year.

"At the end of the day, we are still one family," one source said.

($ 1 = 6.9147 Chinese yuan)