Tencent Holdings is spending $8.6 billion to gain control of Supercell - the Finnish maker of mobile games including Hay Day, Clash Royale and Boom Beach - from SoftBank Group. To see how that portfolio may fit into Tencent's emerging entertainment empire, look at how the Chinese company leveraged World of Warcraft and League of Legends into global powerhouses.
League of Legend's 67 million monthly users helped Tencent earn $9 billion (roughly Rs. 60,617 crores) in game revenue last year, and the Tencent-backed movie Warcraft is setting box-office records in China since this month's release. Acquiring Supercell reinforces Tencent's entertainment aspirations against Alibaba Group Holding and Baidu, and comes after Tencent bought the rights to 300-plus Japanese anime franchises in a push to become a worldwide multimedia brand like Marvel, DC and Disney.
"Tencent has taken on a strategy to convert good IPs into movies and anime," said Mark Tanner, founder of China Skinny, a Shanghai-based research and marketing agency. "It's creating a world of superhero characters for entertainment."
Supercell occupied the top spot on researcher App Annie's rankings of publishers for two years running. Clash of Clans was named an "essential" app by Apple and was promoted during the 2015 Super Bowl in a commercial featuring Academy Award-nominee Liam Neeson. Yet the game hasn't been among the 10 top-grossing apps in China and Japan's iOS Store since 2015, which is where Tencent's clout can help.
The company's QQ and WeChat instant messaging apps have more than a billion users combined, and it could use those apps to promote Supercell games, Tanner said. That distribution system helped Tencent's mobile-game revenue increase 16 percent to 8.2 billion yuan ($1.3 billion) in the quarter ending March 31, compared with the previous three months. China's mobile gaming market expected to reach 68.8 billion yuan by 2018.
"We do see there's an opportunity for IPs of games and movies and video to cross and splice with each other, in the right way," Martin Lau, Tencent's president, said during a conference call Tuesday.
Shenzhen-based Tencent is no stranger to overseas acquisitions. It invested in Glu Mobile, producer of the Kim Kardashian and Katy Perry smartphone games, and owns a stake in Activision Blizzard Inc., whose most famous franchises include Call of Duty and World of Warcraft.
The latter game inspired a movie directed by David Bowie's son, Duncan Jones, and its receipts topped that of the latest 'Star Wars' installment during initial weeks of release. 'Warcraft' may generate as much as 2 billion yuan at the Chinese box office, according to Nomura Holdings.
Another recent game adaptation, 'The Angry Birds Movie,' debuted at No. 1 in the US box office last month. The movie, made by Sony Corp., has earned about $328 million worldwide - including $74 million in China for its biggest overseas total, according to Box Office Mojo. It came after more than a dozen Angry Birds games were developed by Finland-based Rovio Entertainment Oy.
"More investment means Supercell can be more creative with possible expansions into other entertainment verticals," Junde Yu, managing director of the Asia-Pacific region for App Annie, said in an e-mail. "Could a Clash movie be on the horizon?"
There's also the competition with The Walt Disney Co.'s Marvel franchises, which take superheroes Spider-Man, Captain America and Iron Man from classic comic books and transfer them to smartphone games, console games and movies that earns billions of dollars. The most popular ones include the Avengers series.
A competing slate of Batman and Superman movies and games, based on the DC Comics characters, is being made by Warner Bros.
Nintendo, creator of the iconic Super Mario and Zelda characters, is making another push into the film business as console sales sag. The Japanese game maker said in May it's in talks with multiple partners and plans to take the lead on production, rather than licensing out content. A live-action Super Mario Bros. starring Bob Hoskins flopped upon its 1993 release.
Tencent isn't the only company to sense potential in hot gaming properties. Activision Blizzard bought King Digital Entertainment for $5.9 billion last year and Microsoft Corp. acquired Minecraft developer Mojang AB for $2.5 billion in 2014.
Tencent's multimedia ambitions don't apply to all of Supercell's games, and the intellectual property still will be owned by Supercell, Lau said. "We need to be very careful in thinking through what makes sense and what doesn't make sense," Lau said.
Yet there is room to start small - like streaming competitions between players. In 2011, Tencent bought a majority stake in League of Legends' owner Riot Games Inc. and then scooped up the remaining shares last year. The League Championship Series has become the biggest competitive game globally, with viewership totaling 334 million last year, according to the company's website.
"Supercell could catapult Tencent to becoming owner of one of the most successful mobile-game developers in the world," said Yu Jianpeng, a Hong Kong-based analyst at ICBC International Research Ltd. "Supercell is great at content creation and an expert when it comes to global expansion, there's so much Tencent could learn."
© 2016 Bloomberg L.P.
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