As reported by Blake Hester at Rolling Stone:
Nintendo recently announced a partnership with the Chinese company Tencent to publish one of its games on the Nintendo Switch, the Wall Street Journal reports. This news leads some to believe Nintendo – which has had trouble finding similar success in China as it has in other parts of the globe – may soon have a bigger footprint in the country, largely dominated by Tencent.
Thanks to the new partnership, Nintendo will be bringing one China's most popular games, Honor of Kings, to the Switch as Arena of Battle. The mobile MOBA Honor of Kings is, as Bloomberg reports, Tencent's most profitable game, making up for more than 50 percent of the company's smartphone revenue and bringing in more than 3 billion yuan ($400 million USD) this April. Current reports put the game's player count at 200 million.
There's a caveat to all this news: the Nintendo Switch isn't sold in China. This partnership will, yes, bring the game to the console, but only in other countries. However, if successful, Wall Street Journal adds, citing people familiar with the partnership, this could lead to the Switch hitting Chinese markets, as well as Nintendo's mobile games making an appearance there.
Tencent are huge in the Chinese gaming industry, mostly specializing in mobile and online multiplayer games, but they've been making moves recently to expand beyond the borders of China, and beyond the smartphone. That's why they recently bought majority stakes in RIOT Games (makers of League of Legends), Rovio (makers of Angry Birds), Supercell (Clash of Clans). They're actually the largest gaming company on Earth, and almost completely anonymous outside of China, something that Tencent are working hard to change.
So, if you're Tencent, with a huge library of successful Chinese mobile games that you can localize for other markets, what's the best strategic move you can make? It's not heading to the iOS App Store, or the Android Marketplace, both of which are already supersaturated with games; getting your games noticed in those markets is well-nigh impossible, and making money from your titles is even harder. Steam has similar discoverability problems, with hundreds of games launching every month, and thousands every year. PS4 and XBox/Windows 10 are options, but PS4 is already full of good games, XBox is struggling with low market share, and the Windows Store is a wasteland where nobody buys games.
That leaves the Nintendo Switch, a hybrid home & mobile gaming platform; the mobile part is already playing to Tencent's strengths. The Switch only has a few games, and not many good ones, so Tencent's newly localized mobile game ports can really stand out from the pack. And audiences outside of China know basically nothing about Tencent's library of mobile games; sure, they'll be ports, but they'll also be new to the markets where they'll roll out on the Switch, which is almost as good as a new game for those audiences.
Nintendo, of course, potentially get a flood of new games, backed by a company that is simultaneously the largest game company on the planet, and totally unknown, which is almost as good as indie cred. It's win-win, and a very smart move for both companies, bolstering Nintendo's Switch while launching a bunch of Tencent's games on the global stage.
It does not, however, guarantee that Nintendo will be able to move into the Chinese market in any big way. For one thing, the Chinese government will have something to say about that; while Beijing loves for foreign investors to help them build Chinese businesses, they've mostly blocked foreign companies from simply setting up ship in China. When Blizzard Entertainment wanted to launch Diablo III in China, they had to get Tencent to handle the Chinese business for them, including running the servers and collecting the lion's share of the revenue, and Nintendo are unlikely to have any better luck.
(This isn't just a video game industry thing, BTW. Basically every big Western firm has been trying to find a way to extract wealth from China, only to be stymied by Chinese rules which are mostly geared to keeping most of that wealth inside their own borders, helping to grow their own corporations into global competitors.)
And then there's Nintendo's supply problem, the factor which is really limiting the Switch's growth right now. Sure, being able to sell Switches to China would be a huge deal, if Nintendo could make enough Switches to satisfy Chinese market demand, but right now, they can't even make enough Switches to satisfy the market demand for them outside of China.
So, yes, today's deal with Tencent is a big deal for both companies; but it's unlikely to lead directly to Nintendo opening up the wholly-owned Chinese subsidiary that's eluded not only them, but everybody else, too.
Of course, you wouldn't know that from looking at Nintendo's share price:
Thanks to the partnership, Nintendo's shares shot up over seven-percent to a nine year high last Tuesday.
Don't let this fool you; stock markets and stock prices have been mostly divorced from reality for a long time, now.