Feb. 9 (NBD) -- Chinese Internet behemoth Tencent has reached a strategic partnership agreement with Shanghai-based Shanda Games (hereinafter referred to as "Shanda"), according to a statement made by Shanda Thursday.
Under the terms of the agreement, Tencent will acquire an undisclosed stake of Shanda for 3 billion yuan (474.7 million U.S. dollars), and the two parties will deepen cooperation on current businesses.
Tencent eyes Shanda's quality game IPs
A source close to Shanda told NBD that the acquisition shows Tencent's optimism about the future of the online game developer.
Data shows Shanda's revenue was 3.86 billion yuan (610.8 million U.S. dollars) and its net profits surged by 113 percent year on year to 1.62 billion yuan (256.4 million U.S. dollars) in 2016. It is projected that the online game producer's net profits for 2017 will surpass 2 billion yuan (316.5 million U.S. dollars).
Founded in 1999, Shanda emerged as one of the largest online game operators in China following its introduction of The Legend of Mir II, a popular online game developed by a South Korean studio, in 2001.
Shanda maintained its leading market position until Chinese tech giants Tencent and NetEase started rolling out games of their own. It possesses a lot of highly-praised quality game IPs, including Dragon Nest and The World of Legend. That's why Tencent buys a stake in Shanda, industry insiders analyzed.
The importance of quality IPs to game enterprises is self-explanatory.
According to the report on mobile game industry April-June 2017, co-released by CNG and the Game Publishers Association Publications Committee of The China Audio-Video and Digital Publishing Association, China's mobile game market generated revenue of 28.63 billion yuan (4.5 billion U.S. dollars) in the second quarter of last year, up 44.3 percent from a year earlier. Of that, revenue from IP-based mobile games accounted for more than 60 percent, coming in at 17.36 billion yuan (2.7 billion U.S. dollars).
IP-centered pan-entertainment gaming is becoming a top priority of many game developers.
It is noticed that Shanda announced a change to its management team a few days beforethe deal with Tencent. Tang Yanwen was named the company's co-CEO and will take charge of the gaming business.
M&A, major means for expansion in gaming industry
The strategic cooperation between Tencent and Shanda will currently focus on equity interest and platforms, but will likely expand to game development, operation, and distribution in the future, the above-mentioned informative source added.
In fact, the two companies cooperated last year, when Tencent published a number of games owned by Shanda, including Dragon Nest and The World of Legend.
Shanda didn't disclose any cooperation details when contacted by NBD.
Game industry observer Zhang Shule said to NBD that Shanda's game IPs are all quality resources for Tencent, while to Shanda, the combination of game IPs and social network traffic will help it reach out to more consumers. The concept of gaming peripherals was first put forward by Shanda, and can be better explored based on Tencent's network.
Currently, Tencent is absolutely a leading player in the game market, holding 20-30 percent share of the market, said Guo Chengjie, vice president for interactive research at market research company iResearch Consulting.
Mergers and acquisitions (M&As) were an important means for the Chinese tech giant to grab a bigger share of the game market.
According to NBD's incomplete statistics, Tencent acquired or invested in more than 30 game companies including Activision Blizzard, Inc., Kingsoft Network Technology Co., Ltd. and Qingtianzhu Network Tech Co., Ltd., between 2010 and 2016, mostly PC-client and mobile game ones.
Guo commented that purchasing a stake in Shanda is an extension of such strategy for Tencent.
Moreover, Tencent has its own R&D team, which is great and has produced a number of hit games like King of Glory, Guo said.
A research report issued by TF Securities reveals that the tech giant will bring five core games to the market this year.
In addition to Tencent, another gaming industry leader NetEase is also seeking expansion via M&A.
NetEase founder Ding Lei revealed that NetEase Games is looking for overseas acquisition or investment targets, for which it is hiring talents globally, Bloomberg reported. The game company expects 30 percent of its revenue to come from overseas markets by 2020, said Wang Yi, vice president of Netease Games.
Industry insiders said it is hard to say whether M&A can guarantee benefits, because in the gaming industry, only top players produce substantial earnings.