Electronic Arts Could Heal Tencent Fortnite and PUBG Blues – The Motley Fool

Tencent (NASDAQOTH: TCEHY), the world's largest video game publisher, struggled last year with a nine-month freeze on approvals of new games in China. This suspension prevented Tencent from taking advantage of two of its best licensed games – Bluehole & # 39; s PUBG and Epic Games & # 39; Fortnite – in his home market.

PUBG and Fortnite are two of the best "Royal Battle" titles, which have been gaining popularity over the past two years. Chinese players are allowed to play PUBG and the developed Tencent PUBG Mobile, but Tencent does not yet have the right to monetize the game with microtransactions. Fortnite has not yet been approved by platforms in China. China has resumed approval of new games last December, but regulators have still not approved microtransactions for PUBG or Fortnite.

That's why it was not surprising that recent reports suggest that Tencent was interested in Electronic Arts (NASDAQ: EA) and the new Royal Battle title of Respawn Entertainment, Apex Legends, in China.

Apex Legends hit 25 million players just a week after its launch in early February. The free game, which takes place in Respawn & # 39; s Fall of the Titans the universe, offers the same free combat mechanics and the same battlefield as the PUBG and Fortnite. But can Tencent really get regulatory approval for Apex Legends when Fortnite stay in limbo?

Why Tencent needs Apex Legends

In response to the government 's hostile attitude towards video games, Tencent restructured its operations last year to prioritize the growth of its other businesses.

However, Tencent still generated nearly one-third of its revenue from online gaming in the last quarter. He must stop the bleeding. A return on the growth of Tencent's gaming activity over the past year shows just how much China's suspension of gambling permissions has been hit hard.

Online gambling revenue from Tencent. Source: Quarterly Reports.

In the third quarter, Tencent's mobile gaming revenue grew 7 percent a year, with the launch of ten pre-approved mobile gaming. Honor of kings, its most popular title on mobile, has also been blocked in mobile players.

Unfortunately, this growth was offset by a 15% year-over-year decline in PC gaming revenues due to the lack of major new games and the tendency for players to switch to mobile devices. Tencent has attempted to revive its PC gaming activity with the launch of Capcomof Monster Hunter: World Last summer, regulators forced Tencent to withdraw the game shortly after its launch. This game has not been approved yet.

Tencent needs a new PC title to bring players back to its WeGame platform, similar to Steam. His best game, League of Legends, remains popular, but the aging title can not lead alone the PC gaming sector.

bringing Apex Legends at WeGame could kick the platform. However, the game is also violent and involves microtransactions – two key issues that could prevent it from being approved. More importantly, Chinese regulators have recently announced that they will stop accepting new gaming approvals due to the backlog of unapproved games, which could lead to Apex Legends on the back burner for a long time.

How Tencent can help EA

EA is also one of the largest video game publishers in the world, but its presence in China is not significant. FIFA and a handful of mobile games.

Tencent is currently releasing mobile games for EA FIFA, Command & Conquer: Red Alert, Plants against Zombies, and Need of speed franchises in China. Red alert and FIFA broke the latest rankings of App Annie among the 50 most lucrative iOS games in the country, but there are no such blockbusters as Tencent Honor of kings.

launching Apex Legends with Tencent in China could help EA to expand its presence in the personal computer market, to enhance the interest aroused by the previous Fall of the Titans games, and pave the way for the future Fall of the Titans launch of the game in China. It could also reinforce the presence of EA on the esports, where it is established with a minor presence with its FIFA, Madden, and Battlefield securities.

But let's not go from the front

Tencent and EA are probably eager to launch Apex Legends in China. However, an agreement is unlikely to be reached in the near future, as there is still a significant backlog of unapproved games and regulators could still block new Royal Battle games due to concerns about violence or addiction. gambling.