Tencent Ties Up With Activision 腾讯牵手动视暴雪

By newsdoug on July 4, 2012

Tencent ties up with Acitivision Tencent ties up with Activision Leading Internet firm Tencent (HKEx: 700) is solidifying its place as China’s top online game company, following the announcement that it has entered into a long-term strategic alliance with US-based Activision Blizzard (Nasdaq: ATVI), a leading global game developer. (company announcement) This new tie-up is interesting for a number of reasons, marking not only the latest in a recent string of strategic moves for Tencent but also for its implications for Activision’s hugely popular World of Warcraft game, which it currently licenses to rival online game operator NetEase (Nasdaq: NTES).

Let’s take a quick look at the actual news in this latest announcement, which is seeing Tencent kick off its new partnership by licensing Activision’s “Call of Duty Online” game for the China market. Investors clearly liked the announcement, bidding up Activision’s shares by 4.3 percent in Tuesday trading on hopes that this alliance will bring more of the company’s games to China over Tencent’s popular platform.

The announcement also comes just days after Tencent announced a similar alliance from its e-commerce division that will see it sell books online through an exclusive agreement with leading online book seller Dangdang (NYSE: DANG). (previous post) These new tie-ups come as Tencent itself undergoes a major restructuring in its efforts rationalize a company that has become quite large and diverse after originally rising to prominence on its popular QQ instant messaging service.

From my perspective, this new tie-up looks like a smart alliance that should help Tencent solidify its place as China’s online game market, to the detriment of its many rivals. One of the biggest potential losers is NetEase, which last year renewed its licensing agreement for World of Warcraft, one of its most popular games.

Long-time industry followers will recall that another operator, The9 (Nasdaq: NCTY), originally operated World of Warcraft in China, and saw its shares and business drop sharply after it lost the franchise to NetEase several years ago. This new agreement hints that NetEase could also lose the franchise when its current licensing agreement expires, potentially dealing a big blow to its online game business. NetEase investors seemed to sense that possibility, bidding down the company’s stock by 0.6 percent in Tuesday trade despite a broader market rally.

But moving back to Tencent, I have to say that I like this newly emerging strategy of the company tying up with longer-term strategic partners that can offer valuable expertise rather than trying to develop every new business area on its own. Look for more such alliances in the months ahead as a newly reorganized Tencent moves to build up each of its new business units, potentially for eventual IPOs as they learn to function as independent, profitable companies.

Bottom line: Tencent’s alliance with Activision marks the latest effort to build up its various units after a recent reorganization, with more such tie-ups to come.

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