Southeast Asian internet company Sea Ltd’s entertainment unit Garena on Monday signed an agreement with Chinese internet giant Tencent that will allow it to publish and distribute the latter’s mobile and PC games in Indonesia, Taiwan, Thailand, the Philippines, Malaysia and Singapore.
The five-year arrangement will further strengthen the strategic partnership between Tencent and Garena, which already publishes some of the most successful games from Tencent’s portfolio including, Arena of Valor and League of Legends, in its core markets, Sea said in a statement. Sea counts Tencent as its biggest shareholder.
The move is strategic for Tencent which is facing a bleak outlook for its gaming unit back home. China has imposed regulations on approval of new games in March as part of a regulatory overhaul and to tackle addiction among youth. The hiatus is expected to last for another four to six months amid a broader government reshuffle, media reported.
Gaming, which had been a major revenue driver for Tencent for years with almost 40 per cent share, saw its share drop in Q3 due to a prolonged freeze on gaming licences. Although overall revenue rose by 24 per cent to 80.6 billion yuan ($11.6 billion) in Q3, this represented its slowest quarterly growth in more than three years.
The uncertainty pertaining to gaming regulations at home may further bring the company’s margins under pressure. Therefore, it is turning attention to Southeast Asia, which offers a promising growth in online gaming business. The region has become the fastest growing market for PC and mobile games, with industry revenue projected at $2 billion by 2021. As per the reports, the number of PC online gamers in Southeast Asia will rise to 163 million by 2021, owing to growing popularity of e-sports.
As part of the latest agreement, Sea and Tencent intend to work closely together to identify strategic opportunities to distribute and promote top titles from Tencent’s portfolio in the relevant markets, it added.
Tencent reportedly released 10 new games in the third quarter, and has 15 games with monetisation approval in the pipeline. It is yet to receive approval to charge for its popular survival-themed battle game PUBG Mobile, which some estimates say could rake in up to $1 billion a year. PUBG Mobile has reportedly become one of the most popular smartphone games in overseas markets (excluding China) as ranked by monthly active users.
“Garena operates across some of the fastest-growing markets globally, and has a deep understanding of the dynamics in these regions. Our long-term partnership and collaborations with Garena on key titles have been successful, and we are glad to further deepen our strategic partnership through this arrangement. We look forward to closely working with Garena in offering users new and exciting titles in the years ahead,” Lau said.
Founded by chairman and group CEO Forrest Li in 2009, Sea began as an online gaming company named Garena, which is still the key revenue generator for the group. The company later branched out into digital services with Airpay in 2014 and e-commerce with Shopee in 2015. The company raised more than $1 billion in an October 2017 listing on the New York Stock Exchange.
Revenue at digital entertainment unit Garena grew 18 per cent to $108 million during the quarter, aided by game development and efforts to move to mobile titles. In June, 73 percent of its adjusted revenue from digital entertainment came from mobile games, while 13 percent was generated by self-developed games such as Free Fire, Bloomberg reported.
“Tencent is a global leader in the video games industry, with a portfolio that includes some of the world’s most popular and engaging titles. This arrangement further solidifies our strategic partnership with Tencent to bring top quality IP to the large and growing games community in our region,” Li said.
Tencent owns Fortnite developer Epic Games and also operates social media and payments app WeChat, which boasts more than 1 billion monthly active users. The company is currently undergoing a third round of restructuring since the company was founded in 1998, which involves the consolidation of its three content business groups into one unit and the creation of a new group for cloud and smart industries.