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Huawei’s spat with Tencent over revenue sharing highlights tensions in game distribution

Written by Wency Chen, AJ Cortese Published on     4 mins read

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Feuds between game publishers and app store operators in China’s massive gaming market has created an opportunity for new types of distribution channels.

Chinese telecom and smartphone giant Huawei removed all of Tencent’s mobile games from its app store on January 1 over a dispute about revenue sharing.

Although Huawei reinstated the games soon after, the spat between two of China’s mightiest tech firms puts a spotlight on the long-existing conflict between game developers and distribution channel operators, which has given rise to other types of game sharing platforms such as Xindong’s TapTap.

Huawei, which has its app store pre-installed in every Huawei phone, insisted on a 50% cut of Tencent games’ sales, according to a Reuters’ report, but Tencent refused.

Eventually, Tencent’s games returned to Huawei’s app store after further negotiations, while WeChat’s parent company added that “both sides will continue to work together to bring better experiences and services to consumers”.

Although the details of the agreement remain undisclosed, it’s obvious that the tensions are building in the gaming sector between app store operators and game publishers over revenue sharing parity.

Unfair taxation

Earlier in September, two long-anticipated games—Lilith Games’ Rise of Kingdoms and Mihoyo’s Genshin Impact—announced that they wouldn’t be released on Xiaomi and Huawei’s app stores, since they failed to reach an agreement on revenue sharing. Lilith Games reportedly argued for a 70% cut of the revenues but these app store operators wanted their usual 50-50 split.

Outside China, a similar scenario is playing out. Epic Games, the publisher of the popular battle royale game Fortnite, was removed from Apple and Google’s respective app stores in August because Epic Games tried to bypass the 30% cut demanded by app store operators by introducing its own payment method.

Andriod-based mobile phone makers in China have held leverage over gaming studios for some time when it comes to distribution since US sanctions restricted the devices from accessing the Google Play Store. The top players like Huawei, Xiaomi, and OPPO occupy such significant market shares in China’s mobile market, that their app stores have become mainstream distribution channels in the world’s largest gaming market. 

Due to their stranglehold on the mobile games market in China, these phone makers installed a 50-50 revenue sharing model, much to the dismay of publishers.

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Rise of third-party distributors

The existence of prominent publishers like Tencent, NetEase, and Lillith Games, has liberated these studios to consider other distributional channels, while small and medium-sized publishers still need to go through app stores like Huawei to access the expansive user bases of the smartphone companies.

In 2019, Hong Kong-based gaming company Xindong, the operator of third-party game sharing platform TapTap, completed an initial public offering (IPO) in its home city. The company’s game portfolio includes 35 online games and 11 paid games, while Xindong has been developing a neutral game sharing and review platform TapTap, which takes no revenue from publishers but relies on income from advertising.   

The model has enabled TapTap to gain traction. In the first half of 2020, the average monthly active users of the TapTap mobile app was 24.8 million, marking a 51.9% year-on-year (YoY) growth; the number of game downloads on TapTap was 219.9 million, up 26.4% YoY.

In the first six months of 2020, a wide array of games were published exclusively on TapTap. Lilith Games’ Rise of Kingdoms and Mihoyo’s Genshin Impact, in September, eventually chose to release their games via TapTap, instead of traditional channels like Huawei’s app store, despite the former’s user base totaling only 25 million compared to Huawei’s 700 million.   

Since its IPO in Hong Kong, the company’s share price has more than quadrupled, pricing at HKD 51.35 on January 8, surging since the dispute between Huawei and Tencent.

Mihoyo’s Genshin Impact generated USD 250 million in revenue in its first month, outpacing Tencent hits Honor of Kings and PUBG Mobile. Source: Genshin Impact website

Market analysts expect TapTap’s traffic growth to accelerate into 2021, as more publishers look to leverage the platform as a workaround to traditional app store operators. Chinese gaming industry by research firm Analysys explained that vertical game distribution channels like TapTap are growing faster than smartphone makers’ app stores in a report.

“Vertical channels have gradually transformed from tools into interactive communities, providing users with services like game ratings, discussion forums, and game testing, so that users stay longer,” reads the report.

As it stands, the 50-50 revenue sharing model enjoyed by smartphone makers like Huawei, Xiaomi, and Oppo may not last, under pressure from newer channels and less market leverage. At the same time, Chinese regulators on the lookout for antitrust violations may soon clamp down on the conveniently agreed-upon revenue sharing model maintained by three of China’s fiercest smartphone competitors.

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