Tencent in talks to offload Marvelous and other global game bets

[TOKYO/NEW YORK] Tencent Holdings is negotiating exits from several game studio investments in Japan, including Tokyo-traded Marvelous, as part of a reassessment of the company’s global portfolio, sources with knowledge of the matter said.

The Chinese game-publishing giant is evaluating its minority holdings in many studios and in some cases is preparing to sell stakes back to the original management team, even if it means incurring a loss, some of the sources said.

Tencent is navigating a prolonged slump for the games industry at the same time as it’s playing catchup in the capital-intensive artificial intelligence race against peers Alibaba and ByteDance. The company is casting a critical eye over its investments and assessing which still hold promise to be high performers, while also making new bets where it sees potential for growth.

Among the criteria for Tencent to exit an investment, the company considers whether its envisioned synergies with a portfolio company may have lapsed, according to one of the sources, who asked not to be named discussing private deliberations.

Marvelous highlighted a flurry of deals that Tencent struck in Japan around 2020 in a push to acquire minority stakes in creative houses it deemed undervalued. It’s now on the chopping block along with other names in the country that Shenzhen-based Tencent sees as underperforming, according to the sources.

Tencent’s bets on marquee studios like closely held PlatinumGames and Elden Ring maker FromSoftware and its parent Kadokawa remain unaffected, the sources said.

“Video games are core to Tencent’s business,” the company said. “We remain fully committed to working with our investees and maintaining our strong presence in the Japanese game market over the long term.”

A Marvelous spokesperson declined to comment.

Tencent is adjusting its approach in several ways, including developing closer working relationships with its portfolio teams. Instead of a hands-off investor role, the company has increasingly sought to orchestrate a model where it effectively co-produces hit titles with foreign studios, helping them recruit creators and lending development resources.

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The company is also increasingly interested in titles with user-generated content, such as Minecraft and Roblox, according to the sources. These games are dynamic as players constantly refresh them with new material.

Tencent is still adding to its sprawling international games empire in small ways, such as via subsidiary Miniclip pursuing casual-game acquisitions, its early-stage Venture Lab investment vehicle and overseas bets from homegrown tentpole studios Timi and Lightspeed.

Investment in the games sector has dried up after a big expansionary period triggered by the pandemic’s surge in demand, and Tencent’s changes mirror similar moves at domestic rival NetEase and Xbox operator Microsoft. NetEase spun out and shuttered many of its video-game studios last year, with CEO William Ding casting off titles that were unlikely to generate hundreds of millions of US dollars per year.

Microsoft is now also in discussions to offload studios it has backed, a sharp reversal from a bullish approach that saw it acquire Activision Blizzard for US$69 billion less than three years ago. BLOOMBERG