Tencent: China’s Foothold into the Internet and Gaming

Tencent as one of China’s biggest multinational technology conglomerates has a notorious reputation among gamers for their influence and control over the gaming industry. With a diverse portfolio of publishers, developers and games including Epic Games, Riot and Ubisoft; Tencent’s increasing monopolistic hold is concerning. However, Tencent’s reach is not limited to the gaming sphere; they also have ownership of WeChat and QQ (both Chinese social media sites/networks) at the tip of their iceberg. The company represents an expansion of China’s power over the Western technology industries, as well as the technological future China is pushing towards and shows no signs of slowing down. In this essay I will examine the companies’ owners, history, business practices, research focuses and controversies to understand what to expect of the company in future.

 

Ownership

The Companies ownership is divided between Ma Heutang with 8.4% stock and a global investment group called Prosus who own 31% of the company. Ma Heutang is the Co-founder, CEO and Chairman of the company. The company has a unitary board, with many non-executive directors, with significant exception of Martin Lau who is the President and executive director of the company. The rest of the stockholding is divided between investment management firms such as Norges bank, with no other entity holding more than 3%. Notably, one of these firms, Temasek Holdings, is owned by the Singaporean government with 0.89% holding, making both Norwegian and Singapore governments financially expectant of the Chinese company. Other holders include BlackRock Fund Advisors which has been cited as a “shadow bank” by academics assessing their impact in the GFC (Chen et al., 2020). While the Chinese government does not explicitly own Tencent, it’s a company that is required by Chinese law to comply with any directive given by the government and any activities the government may seek for them to engage making them effectively restricted to the whims of its government (Nolan, 2012).

 

History

The history of the company begins in November 1998 in the Cayman Islands, where they their received original funding from venture capitalists. First major product release was Tencent QQ originally known as OICQ in February 1999, which acted as a search engine and instant messaging service which provided music, blogging, gaming, movie and voice call/text features. Bought by a South African Company Naspurs for a 47% share hold in 2001 due to the companies’ inability to be profitable at this stage. Naspurs still holds ownership but through its subsidiary Prosus. Tencent produced profits through licensing games and the QQ penguin icon, alongside it’s deals with cellular companies (Wu & Wan, 2014). Tencent would go on to hold minority stakes in Riot and Epic Games in 2011-2015 respectively with games such as League of Legends and Fortnite under their ownership now. They’ve continued to purchase shares and ownerships ranging across gaming and social media to utilities and ecommerce and music, such as in Juwai.com (a real estate site), JD.com (transactions), Tencent Video (livestream and videos) and in Spotify (Che, 2018).

 

Revenue

Tencent receives revenue from a variety of methods: game monetisation can vary from loot boxes to season passes to game editions to battle passes to game purchases to microtransactions both in their digital store front (Epic Games Store) and through the many games owned and licensed by the company. This includes the licensing of the Unreal engine to developers, of which Tencent takes a cut from its use. Social media such as Wechat provide revenue through advertising and value-adding services such as games and stickers. QQ provides revenue through membership and QQ coin. QQ has 7 membership types listed as “diamond tier” each representing different aspects of the service that receive perks such as Pink giving more perks to a user using QQ Pet; a pet simulator otherwise free with QQ. (Dai et al., 2011)

 

Research

Research areas that Tencent is engaging with can be seen through the Tencent Research Institute that was established in 2007 by Tencent. They’ve also engaged in fields such as insurance with WeSure, Health through Tencent Doctorwork and have announced work on establishing a smart “Net” city in Shenzhen, China – equal to 21 million feet of development. The Research Institute is apart of the digital infrastructure push that could bolster the Chinese post-COVID economic recovery. WeSure would allow users to file for insurance claims through the WeChat app and through the messaging services of QQ. In Health, they are hoping to utilise AI to determine biological issues that a doctor can provide help with, this service is being developed as a feature of WeChat.

Map of how Tencent fits within the internet ecology. Created by Finn McDonagh, images within map are Creative Commons or allow for sharing, editing and commericalisation.

 

Controversies

Tencent has been involved in multiple converses in the recent decade including the Blitzchung controversy in which a Heartstone Esports player expressed support for the Hong Kong protests in October 2019 on a live stream, to which Activision Blizzard (a subsidiary of Tencent) responded by banning him from that tournament, forfeiting his prize money and banning him for one year. They cited a rule that prohibited players from offending the public or tarnishing Blizzard’s image. Blizzard would make an apology that lacked explicit details about the ban at BlizzCon 2019 that notably did not reference Hong Kong. The ban was reduced to 6 months, but not wholly removed as they wanted focus for tournaments to be “on the games”. Before the apology, the ban was being compared to penalties placed on Overwatch players that had been homophobic but had received far less of a punishment that Blitzchung. This has set a dangerous precedent, despite the companies claims that the political nature of Blitzchung comments was not the reason for the ban, as it demonstrates corporate compliance with China’s censorship rulings over US principles of free speech (Davis, 2020). It is worth mentioning that Blizzard Activision has only a 5% stake hold from Tencent, but given Tencent’s relation with China, this makes Blizzards harsh treatment clearly political, as its attempting to placate China by suppressing overt political protest. Importantly, Blitzchung has been cited as saying he “will be more careful” about what he says on stream, so clearly the punishment was effective for what it was designed to do (Sadovsky, 2020). Blizzard Activision had attempted to damage control the controversies with announcements designed to generate hype online and drown out negative engagements on twitter such as Diablo 4 and Overwatch 2. While much of this controversy is not directly associated with Tencent, it showed that Tencent’s financial presence over a company was enough to introduce China compliant company policy, especially given the increasing power in esports, of which Tencent is at the centre of this growth (Zhao & Lin, 2020).

A lot of the videos I have below are Jim Sterling videos as he conveys the controversies very plainly and is one of the few Youtubers who consistently covers them. Rights Reserved to The Jimquisition in each case.

 

 

 

In a separate and ongoing controversy, Epic Games is currently heading to court with Apple and Google Play over store front monetisation’s for in-app purchases. Both store fronts take a cut from any in game purchases, but Epic (and thus Tencent) deliberately began circumventing this in their app Fortnite by allowing users to buy the premium currency (V-bucks) directly from the Epic Store instead of through the Apple/Google Play stores. Apple and Google Play removed Fortnite and all other Epic store apps from their stores in response, leading to Epic suing the companies for anti-competitive practices. Apple has threatened to extend the ban to all Unreal engine made games that Epic would have no company attachment but would damage indie game developers and disincentive them from using the Unreal Engine in future. Epic released the lawsuit at the same time as a video announcement on twitter in which they parodied Apple’s famous 1984 Microsoft resistance commercial asking fans of the game to #freefortnite and support their cause.  Importantly, Epic has promoted their case as being a fight against a monopoly from the phone manufacturers in deciding what is permitted onto their devices and in bullying app developers by taking a large chunk out of profits made. This has a lot of dystopian elements such as companies attempting to mimic grassroots activism tactics to incite internet users to defend them online and actively fight for them as they pursue commercial interests of which will impact the internet users to an incredibly minor extent (Delepine, 2020). At worst, an active user of Fortnite on their phones will be unable to play that version until the legal disputes are resolved.

 

Epic Games #Freefortnite campaign video. Rights Reserved to Epic Games.

 

Another controversy that more broadly fits under Tencent’s umbrella is working conditions and treatment of employees. Riot and Epic have both been exposed for having poor working conditions and pay, as well as a managerial expectation that workers will work excessive hours of crunch that often went unpaid. With games such as League of Legends and Fortnite being big successes, this problem became exacerbated, as the crunch would no longer have a finish date as traditional game product releases would allow for. Crunch is slang used in the video game industry to describe a shift in working hours where employees are expected to work more than 40 hours a week regularly as a game is expected to launch. Fortnite and League of Legends shifted this as these games are ‘live services’ (Guiney & Xu, 2019) meaning that they are expected to constantly update and patch in order to maintain relevance and engagement, and thus has ended up in a perpetual crunch cited as reaching 100 hours a week. No legal actions are being made against these activities as these are norms of the video game industry that are only recently being given attention online. But Riot and Ubisoft have been investigated for a culture of sexual harassment and mistreatment of workers. Tencent has not made comment, but given the senior members involved, the lack of Tencent stepping in to make changes given their power in the matter is indicative of the company’s stance on the issue.

 

Conclusion

With these companies, controversies are clearly a frequent occurrence, so let’s instead look to the ramifications more broadly of the company in its continuing impact. In the gaming space, they represent a Chinese domination and compliance that otherwise overrules US principles of free speech. The backlash received being countered with promotion of products that would invigorate fan base support showed that placating the internet as a company with a passionate fanbase can be frighteningly effective, and the appearance of an apology with no meaningful action can similarly appease an otherwise hostile online presence. The companies China targeted products such as WeChat demonstrate the power of data collection and point to a dystopian control over data. Having the same data from health be harvested by the same app examining your insurance has frightening consequences that may leave people without necessary health insurances plans or skeptical of seeking help in case the app directly effects their insurance from its use. Given the power this company has in expanding its hold on the internet’s future, it’s clear China is going to increasingly hold more influence on media technologies, including outside of China and will accentuate many of the dystopian fears currently felt about the internet into active dangers including in violations of privacy, use of data, surveillance and working conditions.

 

References

Ashcraft, B. (2019, October 14). Hearthstone Pro Blitzchung Says He’ll Be More Careful About Expressing His Opinions On Hong Kong. Retrieved from Kotaku: https://kotaku.com/hearthstone-pro-blitzchung-says-hell-be-more-careful-ab-1839022632?utm_campaign=Socialflow_Kotaku_Facebook&utm_source=Kotaku_Facebook&utm_medium=Socialflow

Bailey, K. (2019, October 8). Blizzard is in an Even Bigger Mess Than the NBA on China, and It Has No-One to Blame But Itself. Retrieved from Usgamer: https://www.usgamer.net/articles/blizzard-is-in-an-international-mess-of-its-own-making

Che, J. (2018). Investment about China’s IT Company – The Tencent Holdings Limited. Modern Economy, 9, 1112-1120. doi:https://doi.org/10.4236/me.2018.96072

Chen, Z., He, Z., & Liu, C. (2020). The financing of local government in China: Stimulua loan wanes and shadow banking waxes. Journal of Financial Economics, 137(1), 42-71.

Dai, J., Shen, L., & Zheng, W. (2011). Business-model dynamics: A case study of Tencent. Institute of Electrical and Electronic Engineers, 107-143.

Davis, H. (2020). Spatial Politics at Play: Hong Kong Protests and Videogame Activism. Digital Games Research Association, 46-58.

Delepine, J. (2020). Fortnite attacks Apple and Google. Economic Alternatives, 405(10), 58.

Fortnite (Director). (2020). Nineteen Eighty-Fortnite – #FreeFortnite [Motion Picture].

Guiney, T., & Xu, N. (2019). Gaming as a Service (GaaS): Investigating if GaaS is a business model or strategy, the potential definition and design and its long-term strategic impact. LUND University, 89-93.

Holland, O. (2020, June 16). Tencent is building a Monaco-sized ‘city of the future’ in Shenzhen. Retrieved from CNN Style: https://edition.cnn.com/style/article/tencent-shenzhen-net-city/index.html

Lew, L. (2018, February 11). How Tencent’s medical ecosystem is shaping the future of China’s healthcare. Retrieved from Technode: https://technode.com/2018/02/11/tencent-medical-ecosystem/

Nolan, P. (2012). Is China Buying the World? Challenge, 55(2), 108-118. doi:10.2753/0577-5132550205

Sadovsky, S. (2020). Sociology of computer game communities and their transition into the “offline” world on the example of BlitzChung Controversy.

Sterling, J. (2019, October 15). Blizzard Chose Tyranny. Retrieved from The Jimquisition: https://www.thejimquisition.com/post/blizzard-chose-tyranny-the-jimquisition

Sterling, J. (Director). (2019). Quiet Riot: A Cult of Silence (The Jimquisition) [Motion Picture].

Sterling, J. (Director). (2019). The Epic Brutality Of Unchecked Capitalism (The Jimquisition) [Motion Picture].

Sterling, J. (Director). (2020). Fuck Fortnite (The Jimquistion) [Motion Picture].

Sterling, J. (2020, February 17). J. Allen Brack’s Unrepentant Bullshit. Retrieved from The Jimquisition: https://www.thejimquisition.com/post/j-allen-brack-s-unrepentant-bullshit-the-jimquisition

Sterling, J. (Director). (2020). Ubisoft Spent Years Protecting Mental And Physical Abusers (The Jimquisition) [Motion Picture].

Wu, J., & Wan, Q. (2014). From WeChat to We Fight: Tencent and China mobile dilemma. Pacific Asia Conference on Information Systems, 265.

Zhao, Y., & Lin, Z. (2020). Umbrella platform of Tencent eSports industry in China. Journal of Cultural Economy. doi:10.1080/17530350.2020.1788625