According to the report, Tencent (00700) cancelled development of this mobile game, indicating a rift in Tencent's decade-long strategy of turning popular games on game consoles and personal computers into mobile games.
The Zhitong Finance App learned that according to media reports, Tencent (00700) suspended a mobile game development project that had been in the works for almost two years and was highly anticipated in December last year, which meant that Tencent had experienced setbacks in finding new popular games. The project is a mobile game development based on Square Enix's “Neil” series, and Square Enix is the developer of the popular game “Final Fantasy” (Final Fantasy).
According to the report, Tencent's cancellation of development of this mobile game indicates a rift in Tencent's decade-long strategy of turning popular games on game consoles and personal computers into mobile games. Furthermore, the report said that Tencent cancelled the project, which had been in the works for nearly two years, in part because of the high development costs and copyright fees, it was difficult for Tencent to find a convincing profit model.
The report also revealed that as mobile game growth slows and development costs rise, Tencent discovered that development costs for many IP games have become too expensive. Copyright fees usually account for 15% to 20% of sales, while Apple's App Store takes 30% from it, and marketing and user costs also account for 30%-40%, and the profit margin is very small. In recent negotiations with IP holders, Tencent was only willing to pay less than 10% in royalties.
Tencent Chairman Ma Huateng said on January 29 that since some recent games have not met expectations, the game business has been greatly challenged. Tencent's gaming business accounts for more than 30% of its revenue. According to reports, the “Neal” mobile game development made significant progress before it was cut down, including a playable internal demo showing its powerful design in terms of story and combat. However, the cancellation of “Neal” did not lead to layoffs because employees could be transferred to other departments of Tencent.
At the end of January, Lyon released a research report saying that maintaining Tencent's “buy” rating, the total revenue growth for the fourth quarter of last year is expected to slow to 8%, mainly due to weak overseas game business, but due to increased gross margin, adjusted profit before interest and tax (EBIT) is expected to increase 28% year on year. It is estimated that gross margin will continue to expand and monetization will increase, but based on the macro environment, the target price was lowered to HK$440.