Tencent’s Latest Efforts to Grow in This Lucrative Market

The live streaming of video games is a market that many leading tech companies want exposure to.

For leading tech companies who own a video game businesses, owning a live streaming video game platform can serve two purposes.

First, live streaming video game platforms can sell games for developers – it’s great product placement if potential customers watch other people have fun playing a developer’s game.

Second, live streaming video game platforms can create value. Because the industry is still in its growth stages, companies with leading market share now could be worth more in the future.

As an example of value creation, Amazon bought the leading live streaming video platform, Twitch, for around US$1 billion in 2014.

Given the growth in the industry, many analysts believe Twitch is worth multiples of the purchase amount. One bullish analyst, Laura Martin of Needham, estimates that Twitch is worth as much as US$15 billion.

Given Tencent Holdings Ltd (SEHK: 700) is the one of the largest game developers in the world, the company has also made an effort to gain market share in the industry both in China and in the US.

Here’s more on Tencent’s efforts and what it could mean for investors.

Tencent’s China strategy

In China, Tencent gained more exposure to the industry in April of this year by spending US$262.6 million in exchange for around 16.5 million Class B ordinary shares of Huya Inc (NYSE: HUYA).

Due to the purchase and previous purchases, the Tencent subsidiary that made the investments would have 50.1% voting power of Huya, which is considered China’s Twitch by many. Tencent also has controlling power over DouYu International Holdings Ltd (NASDAQ: DOYU), Huya’s main competitor.

By having control of both Huya and DouYu, Tencent has the potential to feature its games more on livestreams and potentially sell more titles.

The live streaming of video games in China has a lot of potential given that the country has over 720 million gamers according to some estimates.

Tencent’s US strategy

In terms of its efforts in the US, Tencent recently launched a mobile-focused live streaming video game platform that is similar to Twitch in terms of look and features called Trovo Live.

In terms of gaming titles, Trovo Live offers the live streaming of Tencent-affiliated games such as PUBG Mobile and Fortnite and non-Tencent affiliated games such as Destiny 2 and Grand Theft Auto.

To gain momentum, Tencent has planned a US$30 million partnership programme to bring in streamers. The hope is that Trovo Live will attract popular streamers who will attract users.

A tough market

Although Tencent is a leading game developer with substantial financial resources, its success in the US live streaming video game market isn’t guaranteed.

After several years of trying, Microsoft, the owner of Xbox and a company much larger than Tencent, recently admitted defeat in the market due to poor viewership numbers.

Due to its viewership lagging Twitch by a considerable amount, Microsoft recently shut down its live streaming video game operation, Mixer.

For Tencent to succeed, it may have to execute better than Microsoft.

Foolish conclusion

Given its leading position in video games, Tencent is making a big effort to gain market share in the potentially lucrative live streaming of video games in both China and the US.