(Bloomberg) -- China scythed nearly $600 billion off Tencent Holdings Ltd.’s market value in its crackdown on tech and gaming. Now the country is betting on its biggest company — and professionalized video games — to help restore some national pride.
This week, hundreds of elite gamers are descending upon the scenic city of Hangzhou, near Shanghai, to represent their countries at the 19th Asian Games. The once-in-four-years event, effectively a regional Olympics, is the first time that competitive video games will be eligible for medals. Tencent has a hand in making or publishing four of the seven multiplayer titles that will be contested as esports.
President Xi Jinping gave his personal seal of approval to the games by attending the opening. China hopes to regain some of its international prestige by hosting a successful event, while Tencent is leveraging the gathering to juice growth across its entertainment portfolio.
“Tencent’s first ever product was QQ, which grew way beyond a messaging app to become a platform connecting users to the whole company. Esports serves a similar purpose,” said Mars Hou, general manager of Tencent’s esports division. “It’s a new language that brings young people across the world together.”
Company executives and government officials are counting on esports as an instrumental part of their post-Covid comeback, hoping to monetize players’ passion and attention with sponsorships, merchandise sales, broadcasting rights and even things like hospitality.
Tencent co-developed an esports hotel in Hangzhou in anticipation of the event, where fans can be close to the action while also playing their favorite games. The venue had occupancy rates above 90% this year while charging $50 or more per night for rooms with bunk beds and top-spec gaming PCs. These gamer-friendly hotels are sprouting up across China by the thousands each year, serving as a social outlet. “This has become a lifestyle for young people,” said Shi Yangqing, the operator of the Hangzhou venue.
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Beijing draws a distinction between video games and esports, even where they’re the same piece of software. One is a cause for concern around youth addiction, while the other is seen as a laudable competitive pursuit that promotes team spirit, according to Mario Ho, chairman of NIP Group, an esports firm backed by Chinese state funds. The 28-year-old businessman, the youngest son of the late casino mogul Stanley Ho, will serve as Macau’s coach for Honor of Kings at the Hangzhou games, while two of his NIP players compete for China.
“Esports is an entirely different section to games, because it is seen as sports,” Ho said. Elite gamers are recognized as engaging in a legitimate profession in China, and universities and vocational schools offer a slew of related degrees. Esports is “incredibly, massively favored by the Beijing government.”
Tencent already treats pro gaming as the fulcrum of its long-term strategy. When it launched the globally popular shooter Valorant in China in July, it immediately organized a series of esports matchups for the Riot Games Inc. title. Tickets for the first tournament in Shanghai – held just a day after the game’s domestic rollout — sold out within 10 minutes.
While esports as a class is still only a fraction of Tencent’s $80 billion annual sales, it feeds content into the company’s core games business as well as adjacent areas from streaming to music and social media. One of Tencent’s most-watched web series is about a couple meeting and flirting while playing its mobile mainstay Honor of Kings. The company also licenses its brands and gaming franchises at real-world locations like the esports hotel.
In July, at Tencent’s esports summit in Shenzhen, members of China’s national teams took the oath to give their all. No female players made the country’s final esports roster of 31, though 20-year-old Jiang Jiaqi from Guangzhou reached the shortlist of 125. Xu Haifeng, who won China’s first gold medal at the Olympics in 1984, hailed the young players at the gathering, saying “I often see my younger self in these esports athletes.”
Laying the groundwork for the tournament, the government in Hangzhou built a stadium dedicated to esports. The spaceship-shaped venue can host audiences in the thousands and has a 200-square-meter, 360-degree jumbotron hanging from its ceiling. Tencent also tweaked its games for the event, adding Hangzhou tourist sites and Asian Games mascots to its virtual battleground in Honor of Kings.
All that fanfare won’t be enough to mask the difficulties faced by esports as a whole, as it’s been on the same downward trajectory as the global economy over the past year. Cash from sponsors and investors has drained from the industry, as demonstrated by the collapse of Faze Holdings Inc., an organization of larger-than-life personalities and gaming celebrities that debuted on the Nasdaq in July 2022. At its peak, the Los Angeles-based company’s stock traded at $20; it has since tumbled to less than 20 cents.
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In China, the first half of this year has seen the domestic esports market – including revenue from clubs, tournaments, streaming and broadcasting – decline almost 10%, according to research firm CNG. Many esports teams have grown more cautious about offering big paychecks to woo star players. Tencent has been more careful too: last year it shut down its streaming site, Penguin Esports, as part of broader cost cuts.
But the world’s biggest games publisher has put its faith in China’s massive audience of 400 million esports fans and the wider ecosystem effects that big showcase events can yield. The last time pro gaming took over a Chinese city was in the midst of the pandemic in 2020, as the League of Legends championship attracted thousands to a soccer stadium in Shanghai and 45 million viewers online. The internet audience was about as many as watched the six games of the NBA Finals on US TV that year.
Esports will return as a medal event in the 2026 Asian Games in Japan. Between now and then, Tencent will seek to reassert its leadership as the premier games publisher and event organizer, which should help both its bottom line and its relationship with an expectant Beijing.
--With assistance from Allen Wan, Pathom Sangwongwanich, Jane Zhang and Vlad Savov.
(Updates to add social video)
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