In the aftermath of China’s clampdown on gaming, Tencent is ready to fight for better revenue split

In China, app stores traditionally take 50% from game developers, worse than the global standard.

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Digital games stores in the Chinese market typically work with a 50/50 revenue split model. They take half of the revenue from the games they offer on their platforms, the rest goes to the game developers. It’s a significantly worse deal for game developers compared to the 70/30 revenue split standard set by the stores operated by Apple, Google and Steam.

In reality, Chinese game developers get even less than that 50% share because of additional payment fees deducted by the stores. This leaves little room for game studios to run profitable businesses.

In China, the app and game store landscape is much more diverse than in countries where Google and  Apple are by far the most dominant players.

China’s stores are starting to feel the heat as major players of the Chinese gaming market, led by Tencent, are going about brokering better deals for themselves.

The catalyst was China’s clampdown on the entire domestic gaming industry last year. The country’s State Administration of Press and Publications—a new game regulator formed in March 2018—vowed to tighten up restrictions for the approval of new games. This was due to concerns about increasing game addiction, violence, and myopia among minors. As a result, all video games, including the ones available for free download, are now required to obtain a license in order to be published

Since December last year, only around 1,000 games have been approved for release according to Business Insider. China’s leading game media, Game Look, argues that the number is as low as 260 games according to its own data. Either way, the number of games approved in 2018 represent a significant decrease from the 9,800 new games that gained a license in 2017.

This had an immediate impact on the giants, such as Tencent and NetEase, as well as smaller studios.

According to the data by the Game Publishers Association Publications Committee, also known as the GPC, China’s mobile game market was  worth RMB 133.96 billion (USD 19.46 billion) in 2018. Tencent had seen gaming revenue decline that year, but still owned more than 50% of the domestic market, reaching up to RMB 77.8 billion (USD 11.3 billion).

Irked by the slow approval process for new games Tencent was prompted to flex its muscle as the sill-dominant player in the market. It finally confronted Chinese platform owners to demand 70% of the revenue for some of its games, according to Game Look.

The products on the negotiating table include recently released Jianjian Jianghu, and Tencent plans to add more games to the list.

But it’s not the first time that online game argue over revenue split with app stores in China. Tencent’s biggest rival, NetEase (which accounts for 14.8% of revenue from the country’s mobile games market) made history with the release of Fantasy Westward Journey many years ago.  Its 70/30 requirement was accepted by every app store.

Tencent hasn’t had the same success yet. The app stores of Oppo, Vivo, and Jiuyou do not offer Tencent’s new game since its release on June 12. Huawei, Xiaomi, 360, Duoku, and Tencent’s own app platform are providing it for download.

Outside of China, the gaming community is also on the barricades to challenge the global revenue split “status quo” enforced by major stores.

The developer of the super successful game Fortnite, Epic Games, launched its own online store in December last year, where it offers a generous 88/12 split. Its efforts to provide a more developer-friendly alternative was supported by Paradox Interactive’s Fredrik Wester at Gamelab 2019, who called the split offered by most platform holders, such as Valve’s Steam, as “outrageous”, arguing that they are “taking too much money.”