Sold its gaming business last year
Internal notice of organizational restructuring to restart gaming business after the U.S. House of Representatives passed the Tik Tok Ban Bill
Local reports have stated that China’s ByteDance, the parent company of TikTok, which is at risk of losing the U.S. market, is reviving the gaming business, previously sold to Tencent. It is a quick response to the weakening growth momentum, and there is also an analysis that ByteDance has contacted the Chinese government over the development of the gaming business.
According to Chinese local media Caixin Media, on the 15th, ByteDance internally announced on the 14th a restructuring of its gaming business division with new executives in charge, including the current HR executive.
Caixin Media reported that it obtained the relevant letter directly and confirmed it through an insider at ByteDance. According to this letter, ByteDance executives told employees, “The core of the gaming business in the next stage is to operate stably with patience,” and “Let’s continue to explore our mission and vision while adhering to the industry’s development regulations.”
Last November, ByteDance suddenly declared the termination and sale of all game-related businesses except for a few key technology projects. Then, earlier this year, ByteDance sold its game platform, “Zhaoxiguangnian,” which had been cultivated since 2019, to Tencent Games, a subsidiary of Tencent.
ByteDance is a Chinese company that has developed the world’s top-level AI recommendation algorithm. The founder, Zhang Yiming, is an engineering graduate, and most of the workforce is technical engineers. Starting with TouTiao, a news search platform like Google, it released Douyin (the Chinese version of TikTok) and TikTok in succession, swiftly dominating the short-form video market and becoming the world’s leading unicorn company.
The gaming sector has long been an aspiration of ByteDance. In early 2021, ByteDance engaged in a bidding war with Tencent, acquiring game development companies Moonton Technology and UI Interactive Entertainment for tens of billions of yuan (acquisition amount undisclosed). Concurrently, ByteDance gathered game development studios such as 101 and Oasis under Zhaoxiguangnian as subsidiaries.
Despite the large investment, the results fell short of expectations. In 2021, when it made a large-scale M&A, ByteDance’s annual sales amounted to 360 billion yuan (approximately $56.7 billion), but game publishing revenues failed to surpass 10 billion yuan (approximately $1.6 billion). Even after that, it was criticized for having weak self-developed content compared to industry giants Tencent and NetEase in the Chinese gaming market, marking the gaming venture as unsuccessful.
In the meantime, the Chinese gaming market has experienced setbacks due to government regulations. According to China’s Gamma Data, the actual sales of the Chinese gaming market in the first half of last year were 144.263 billion yuan (approximately $22.7 billion), a 2.4% decrease compared to the same period of the previous year. This was due to regulations to block the influx of teenagers into games, such as the introduction of age-based time restrictions. Nevertheless, the total number of game users increased by about 0.4%, but it was a drastic decrease considering the previous growth rate.
The National Press and Publication Administration (NPPA) announced the “Online Game Management Measures” (draft) at the end of last year, signaling stricter regulations. These measures strengthen regulations concerning minors and target the revenue model, which is fundamental to game companies. This is the background to ByteDance’s decision to sell its gaming business to Tencent.
However, the situation took an unexpected turn in the United States. On the morning of the 13th (evening of the 13th Beijing time), the U.S. House of Representatives passed a bill to ban TikTok with 352 votes to 65. For ByteDance, this means instantly losing one of its largest markets, with 170 million monthly active users. Caixin Media reported, “ByteDance appears to have identified the gaming sector as a potential avenue for strategic advancement amidst this unprecedented challenge.”
The growing domination of Chinese online platforms, particularly in the U.S., would have been uncomfortable to watch. Last March, the U.S. Department of Justice launched an investigation amid allegations of TikTok monitoring American journalists. Also, in May last year, a former ByteDance executive revealed that “TikTok is a propaganda tool of the Chinese government.” Although it was a guess anyone could make, it became a reason to increase the U.S.’s sense of crisis.
The regulatory measure by the U.S. on TikTok can’t help but be a big blow to ByteDance. Nevertheless, various interpretations have been made about the abrupt shift of a giant company in its direction in the gaming business. In China, an analysis emerged from various perspectives that ByteDance, known for its close ties with the Chinese government, has had some sort of discussion regarding the development of the gaming business. Co-founder Liang Rubo, CEO of ByteDance, said around the time of last year’s game business sale, “Energy and resources should be invested in more basic, more innovative, and more imaginative projects.”
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