24-12-2023, 04:09 PM
Most games are designed where the end state is about 10% of players spend, while 90% do not spend and are free to play players. These 10% are financing the entire game development and maintenance. If one recalls when young, there is a game called runescape. F2P has no adverts but with limited skills and access. P2P had membership and it was a flat fee. It was a model that served well but Jagex (the parent) did not earn much.
The P2P landscape then evolved with game developers having tiered P2P membership fees with the highest membership fee offering level boost and items which made game playing easier. Both Tencent and Blizzard went on this route. China finds this too cannabalising on the weakness of its populace. If china is capping on how much the 10% of spenders can spend on the game, it caps how much Tencent can earn from domestic games. The domestic games market contributes to 20% of Tencent revenue and is part of the VAS segment which is the highest gross profit margin segment in the Tencent Conglomerate. Tencent Music is part of the VAS segment and its GPM is below that of VAS, this suggests the gaming sector has a high GPM that is north of 60%
Investors should be aware of this observation and watch how Tencent's P&L will be impacted if the gaming regulation takes place
The P2P landscape then evolved with game developers having tiered P2P membership fees with the highest membership fee offering level boost and items which made game playing easier. Both Tencent and Blizzard went on this route. China finds this too cannabalising on the weakness of its populace. If china is capping on how much the 10% of spenders can spend on the game, it caps how much Tencent can earn from domestic games. The domestic games market contributes to 20% of Tencent revenue and is part of the VAS segment which is the highest gross profit margin segment in the Tencent Conglomerate. Tencent Music is part of the VAS segment and its GPM is below that of VAS, this suggests the gaming sector has a high GPM that is north of 60%
Investors should be aware of this observation and watch how Tencent's P&L will be impacted if the gaming regulation takes place