ByteDance in Talks with Tencent to Sell its Gaming Unit Amid Profit Struggles

ByteDance, the company behind TikTok, is in talks with Tencent to sell its gaming unit, Nuverse, after struggling to generate returns from video game investments. The move follows layoffs and the decision to shut down unreleased game projects. ByteDance spent over $14 million developing titles but faces challenges in the gaming market.

ByteDance in Talks with Tencent for Video Game Operations Sale

ByteDance in Talks with Tencent for Video Game Operations Sale

Beijing, China – ByteDance, the parent company of the popular short video app TikTok, has officially confirmed ongoing discussions with various potential buyers for its video game operations. Among the potential buyers is Tencent Holdings, the world’s leading gaming company in terms of revenue.

Confirmation Amidst Lowered Valuation Reports

A ByteDance representative acknowledged these talks on Tuesday following reports from local media outlet LatePost. The report suggested that ByteDance’s gaming unit, Nuverse, was in negotiations with Tencent regarding the potential sale of its operations. Notably, ByteDance has been reported to reduce the valuation of its video gaming studios to facilitate a deal, having invested over 100 million yuan (US$14 million) in developing various gaming titles.

The representative clarified that no agreement has been reached with Tencent at this point in time.

Restructuring and Layoffs

In November, the South China Morning Post revealed that ByteDance informed its employees about the impending shutdown of most unreleased game projects. Additionally, ByteDance expressed its intent to sell rights to at least two of its titles, namely the anime-style role-playing game Crystal of Atlan and the sci-fi survival game Earth: Revival.

As part of the restructuring, ByteDance initiated layoffs within its games unit, which employs nearly 2,000 individuals. Although the exact number of affected employees remains unclear, reports suggest that some workers interested in remaining with ByteDance may have the option to transfer to other teams.

A ByteDance representative stated that the decision to restructure the gaming business and make adjustments aims to focus on long-term strategic growth areas.

Struggles in the Gaming Industry

Despite achieving immense success with TikTok and its Chinese version Douyin, ByteDance has faced challenges in obtaining returns from its video gaming investments. The company’s significant spending, approximately 30 billion yuan, on video game acquisitions and investments involving more than 20 studios between 2019 and 2022 has not translated into substantial revenue.

According to Lisa Hanson, the CEO of gaming industry consultancy Niko Partners, “While the company made US$54 billion in the first half of 2023, less than 1% of that came from their video games business.”

Founder’s Transition and Impatience

ByteDance founder Zhang Yiming, who stepped down as chairman and CEO in 2021, was not originally a video gaming enthusiast. However, the company ventured into the gaming market under his leadership.

Yan Shou, head of ByteDance’s video gaming unit, has a background in strategic investments. He hired individuals with consulting and strategy backgrounds to assist in running the gaming unit, according to reports.

Zhang Yiming reportedly grew impatient with the slow development of ByteDance’s gaming division. In 2022, during a video call with executives, he expressed dissatisfaction with the lack of progress, particularly highlighting Moonton studio’s stagnation despite doubling its headcount. Reuters had previously reported that ByteDance was in talks to sell Moonton.

Tencent in the Crosshairs: A Logical Buyer, Uncertain Future

While negotiations with Tencent remain unconfirmed, it appears natural for ByteDance to consider the gaming heavyweight as a potential buyer. Tencent boasts expansive experience and immense resources within the industry, owning popular titles like “League of Legends” and “Fortnite.” Moreover, Tencent has expressed interest in acquiring gaming assets, with recent ventures including the purchase of “Sunborn Network” and investments in studios like “Ubisoft.”

However, the future of ByteDance’s remaining gaming assets, including the successful Moonton studio (rumored to be sold separately as stater above), remains unclear. Whether Tencent or another buyer acquires, significant integration challenges can be expected, potentially impacting studio culture and game development pipelines.

Future Prospects and Industry Insights

The ongoing talks with Tencent indicate ByteDance’s commitment to finding a strategic solution for its video gaming operations. As the company focuses on long-term growth areas, the outcome of these discussions will likely shape ByteDance’s future trajectory in the gaming industry.

The challenges faced by ByteDance in the gaming sector underscore the complexities and uncertainties within this dynamic industry. The discrepancy between substantial investments and limited returns serves as a cautionary tale for companies seeking success in diverse sectors. As ByteDance navigates the negotiations with Tencent, industry observers await further developments that could potentially reshape the landscape of the gaming market.

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Source(s): SCMP

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