INTERNET: Tencent – China’s New Opiate of the Masses?

Bottom line: Tencent could be forced to take more measures to control addictive play of its popular “Honour of Kings” game, which could take a short-term toll on its gaming business.

Military critical of Tencent hit game

Internet juggernaut Tencent (HKEx: 700) has been in nonstop headlines lately for its smash hit game called “Honour of Kings”, along with its stock price that keeps reaching new highs. The company must certainly be feeling a bit uneasy from all the publicity, especially since Tencent tends to be quite low-key in line with the style of founder Pony Ma. But equally worrisome is the negative publicity “Honour of Kings” has been getting due to its addictive nature.

There’s a reason that Tencent and some of its major peers can continue to post strong double-digit growth despite their huge size. In Tencent’s case the reason lies at least partly with its phenomenal success as a game developer and operator, and also its related ability to create strong online communities from such gamers. 

In this case, those two elements have combined into a sort of perfect storm named “Honour of Kings”, which uses a newer format that allows groups of people to form teams and then play each other remotely from their smartphones without all having to be in the same place. I’ve never played the game, but am told it’s quite addictive due to its highly social nature and the ability for teams to assemble anywhere and at any time.

The title has been building up steam for quite some time now, and is probably a major factor behind why the company was able to post 24 percent revenue growth for games in its latest quarterly report. That number might look so-so for a start up company making millions of dollars in quarterly revenue, but is quite impressive when one considers that Tencent made 22.8 billion yuan ($3.4 billion) in gaming revenue for the three-month period.

As the hype around “Honour of Kings” grows, Tencent’s stock continues to explore new highs, including its latest record during the Monday trading session that included a 3 percent rise. At current levels the company now has a market value of just over HK$3 trillion, fast approaching the $400 billion level, making it one of the world’s 10 most valuable companies.

Ominous Signals

But amid all the hype, a growing number of official voices are sounding concerns about the game’s addictive nature, in what looks like an ominous sign. First it was the People’s Daily, the official newspaper of the Communist Party, that voiced concerns several weeks ago. (English article) Now the powerful but low-key military has added its own voice, again criticizing the game for getting too many soldiers hooked. (Chinese article)

A new story in the Jiefang Junbao, which appears to be one of the top military newspapers, describes how recently liberalized rules around the use of smartphones by soldiers has created a new wave of addiction by young recruits. It describes how many switch on their smartphones as soon as their weekends arrive, and then become fixated on the game. It even likens their behavior to the use of opium, a highly charged word in a society where that drug harkens back to a humiliating period for the country under the dominance by the colonial powers.

Tencent, realizing that things were perhaps getting a bit out of control, took preemptive steps last month and limited daily play by minors to one hour for the youngest gamers and two hours for teenagers. But clearly that doesn’t apply to these military personnel, who are all over the age of 18 and thus considered adults.

The military editorial seems more like it’s making observations, rather than the earlier People’s Daily ones that were more openly critical. But either way, the addition of another such powerful voice to the chorus can’t be good for Tencent. At the end of the day, every game has a certain life cycle, usually 4 to 5 years, and in all likelihood “Honour of Kings” has reached its peak and will start to decline soon. Still, more negative publicity and possibly even controls on the game could dent Tencent’s revenue, though such a setback is likely to be relatively small and short-lived.


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