What you need to know
- Tencent is a chief competitor for Microsoft in both gaming and cloud services.
- The Chinese firm's share price has tumbled in the past year, owing to global economic conditions and heavy regulation from the CCP government.
- Cooling regulatory pressure has seen Tencent's share price rise in recent months, although the CCP has taken a "controlling" interest in the company, which could spook increasingly sceptical Western governments.
Tencent is one of the world's biggest tech companies, with interests spanning manufacturing, to cloud, and of course video games. To that end, Tencent is essentially one of Microsoft's biggest competitors in several verticals, and is often thought of as a primary concern with regards to Microsoft's ambitions in cloud gaming service-type titles.
Tencent's gaming arm largely revolves around mobile games and free-to-play titles, with large stakes in firms like Epic Games for Fortnite and others. Tencent has full ownership of Riot Games and competes directly against Activision and Blizzard in particular, across titles like League of Legends (inspired by a Warcraft 3 mod) and Valorant (inarguably taking cues from Overwatch). Microsoft is attempting to purchase Activision-Blizzard in a deal valued at $69 billion to better compete against the likes of Tencent, which has seen its share price tumble in recent years owing to a variety of factors affecting the entire tech sector.
With regard to share price, some of the most recent news impacting Tencent has improved the firm's outlook somewhat. China's CCP government is notorious for censorship and heavy regulation on some of Tencent's key markets, but it seems that it has eased its stance recently, approving several new video game titles for the firm. In addition, the CCP has taken a so-called "golden shares" position in the company. The imposed position gives the CCP special rights within the firm, which has fired dozens of employees for corruption in recent months.
The changes have seen Tencent's share price recover quite rapidly in the past few months, although headwinds from the global economy are still likely to impact the firm's growth potential.
Despite being competitors, Microsoft recently entered into a deal with Tencent between Xbox Game Pass and Riot Games. Those who are subscribed to Xbox Game Pass Ultimate or PC Game Pass get access to every character across games like Valorant, League of Legends, and Team Fight Tactics. For consumers, the deal represents potentially hundreds of dollars in savings for those who don't have the time or money to acquire the additional content. There's no information on exactly how much this deal cost Microsoft, but was likely not cheap, as Redmond seeks to ramp up the visibility of its nascent gaming subscription offering.
Windows Central's take
As calls to regulate or even completely ban Chinese companies from Western markets grow increasingly louder, it's perhaps only a matter of time before United States political entities begin scrutinizing Tencent as it has done Bytedance and Huawei in recent years. ByteDance who own social media phenomenon TikTok has been under increasing pressure from the U.S. and other nations, faced with accusations of giving Chinese political entities direct access to data on Western users.
League of Legends and other Tencent-owned service games represent millions of concurrent users. Fair or not, the idea that the Chinese government could have direct access to the data contained in these types of titles — many of which require elevated permissions on mobile devices — could come under scrutiny.
Tencent's position on Microsoft's attempt to acquire Activision-Blizzard is as of yet unknown, but various other competing tech firms have voiced opposition to the deal, including Sony and NVIDIA. Tencent's gaming portfolio across mobile and PC most closely mimicks Activision-Blizzard's in the West, and is undoubtedly a major reason Microsoft sought to acquire Activision in the first place.
It remains to be seen if the "golden shares" situation will have any impact on how Microsoft and other Western firms choose to interact with Tencent.
