The following Korean companies have one thing in common: Netmarble Games, South Korea’s largest game developer; Kakao, which operates the nation’s most popular messaging app Kakao Talk; Bluehole, the parent firm of PUBG Corp. which developed Battlegrounds, the most played battle royale game in Asia; and Kakao Bank, the nation’s leading internet-only bank. China’s largest platform-based service provider, Tencent Holdings holds a major share in these companies. The Chinese firm is already powerful enough to influence the South Korean information and communications technology market.
According to information technology (IT) and investment banking (IB) industry sources on August 28, Tencent holds approximately 3.6 trillion won (US$3.25 billion) worth of shares in South Korean companies – two listed and five unlisted ones. The company invested 72 billion won (US$64.95 million) in Kakao in 2012, pushing into the nation’s IT industry for the first time. Since then, it invested a whopping 533 billion won (US$480.83 million) in Netmarble in 2014, emerging as a “big player” in the market, and bought a 10 percent stake in Bluehole for 570 billion won (US$514.21 million). The total amount of principal officially invested in domestic IT firms by Tencent in the past six years is estimated at 1.35 trillion won (US$1.21 billion). Tencent’s appraisal profit was 2.5 times its investment. In fact, Tencent released its annual report in 2017, saying, “Other earnings increased as invested companies, like Netmarble, have been listed on the stock market.”
Tencent has been directly participating in management of the companies where it holds a stake and hitting the jackpot by introducing and benchmarking their good services and contents in its platform. In particular, there is a rumor that Tencent launched its mobile messaging app WeChat in January 2011 and made an investment in Kakao, which was then a mere startup, to bring advanced functions of Kakao Talk, which was released a year earlier.
Investment by Tencent also had a positive impact on the domestic IT companies in every facet of business. Kakao launched “Kakao Pay” by benchmarking Tencent’s simple payment service “WeChat Pay.” Moreover, Kakao Page, a content subsidiary of Kakao, uploaded its intellectual property rights for webtoons on Tencent’s platform, becoming a hit in China. Bluehole and Netmarble are planning to launch their bestselling game products in the Chinese market, counting on Tencent’s market power. Korean game developer 4:33 Creative Lab has already put more than two products on the Chinese market through Tencent. Lee Jin-soo, CEO of Kakao Page, previous Podotree, which received 14 billion won (US$12.63 million) of investment from Tencent in 2013, said, “The partnership with Tencent was a great help to grow business in China.”
In addition, Tencent has already become China’s largest IT firm based on up to 1 billion of monthly active user (MAU) accounts of its PC-based communication means QQ, mobile messaging app WeChat, portal website QQ.com and game platform Tencent Games. The company has various PC and mobile games and has succeeded in video streaming services, showing a great potential as a total platform service provider.
Given the circumstances, South Korean IT firms, which are seeking to grow, have no choice but to collaborate with Tencent. The problem is that Tencent is gaining more and more control in the domestic market, though it is getting more and more difficult to enter the Chinese market through Tencent. A case in point is the gaming industry. As Chinese regulators banned the release of not only South Korean but also all foreign games, Tecent had to halt the sales of “Monster Hunter: World” in just six days after the launch. Monster Hunter: World, which was developed by Japanese game maker “Capcom,” already received marketing approval from the Chinese government but it failed to get around the regulations.
More worryingly, Tencent is not so much interested in South Korean games as it used to be. An official from the gaming industry said, “Tencent is the king of the market which has huge internal market, capital and development power and all. The company is shifting its business strategy to develop similar games itself rather than circulating South Korean games which have difficulties in getting marketing approval and involve royalty payments.”
Wi Jong-hyun, the head of the Korea Game Society, said, “Small and mid-size game developers, which find it difficult to seek for investors in South Korea, have no choice but to accept all terms of Tencent to attract investment. In this case, their intangible assets, such as game development know-how and source code, flow into China, giving it more control over the industry.”