HONG KONG – Tencent Holdings and Sea are signalling that the US$200 billion (S$270 billion) video gaming industry, which in 2022 endured one of its worst slumps on record, is in for an even rockier year.
Tencent co-founder and chairman Pony Ma attacked his staff in a town-hall meeting for lacking urgency in the face of an existential crisis. Days later, Sea founder Forrest Li warned of deeper economic challenges in 2023 before slashing bonuses and freezing salaries.
Mr Mas outburst, in particular, unnerved observers accustomed to his even-keeled handling of Asias biggest social media and gaming company.
Along with the Sea decision unveiled in a memo days before Christmas they point to another down year for a games industry struggling to leave behind the geopolitical and economic ructions of 2022.
The war in Ukraine, soaring inflation and resultant impact on consumer spending could usher in an even tougher 2023 environment, Mr Li warned in his memo.
Seas stock dropped more than 4 per cent on Thursday. Tencent fell as much as 2 per cent in Hong Kong on Friday, in line with the market.
You cant even survive as a business, yet youre chilling on the weekends, playing ball, Mr Ma told his all-staff audience in remarks delivered in person.
Tencent and Sea are responsible for reliable moneymakers such as Honor Of Kings and Garena Free Fire on mobile devices, but they have not escaped the sting of 2022s slowdown, with Sea shares down more than 70 per cent and Tencent hitting its first zero-growth quarter.
The industry is bracing itself for a tough year on all fronts. Console leader Sony cut its games outlook for this year by 12 per cent at its most recent earnings release, reducing forecasts for the second quarter in a row. Close rival Microsoft has also laid off workers from its Xbox division.
Players are cutting the number of titles they buy on the back of global macroeconomic conditions, Sony chief financial officer Hiroki Totoki said.
Singapore-based Sea has cut 7,000 jobs in 2022, or 10 per cent of its workforce, in a move to control costs. Mr Li assured his charges that Sea will be starting 2023 on a stable footing, and that most of the big changes it needed to make have already been made.
The impact of many headwinds hitting at once including Apples platform changes, the macro environment and the lingering impacts of Chinas gaming crackdown collectively pose continuing challenges to near-term growth and profitability for the gaming sector, said Mr Matthew Kanterman of Ball Metaverse Research Partners.
Many large public companies are realising that now is not the time for moonshot investments but for cost cuts and focus on only the most profitable titles.
Tencent, however, also has to deal with uncertainty in its home market, which is only now beginning to drop the Covid-19 curbs that have hampered the worlds No. 2 economy all year.
Tencents chairman was unsparing in his criticism of business units from gaming to social and cloud computing. He cautioned that some divisions might not survive much longer without righting their current trajectory.
Tencent has cut jobs by the thousands in 2022, streamlined unprofitable businesses and lowered investments, including in Sea.
It has been under prolonged pressure from the Chinese governments crackdown on Big Tech firms alongside restrictions to curb gaming addiction among young people.
Its domestic games revenue dropped 7 per cent for the September quarter, trailing a meagre 3 per cent growth at its international division.
The companys pipeline of new games was blocked for months by Chinas halt on granting licences for new titles, and it now has to make up for lost time by building up a stable of fresh franchises and content for mobile players.
During last weeks town-hall meeting, Mr Ma upbraided the gaming division for frittering away money to acquire users for hastily churned-out titles, rather than focusing on quality.
Guys, from now on, dont pitch me the story of buying user traffic, I dont believe it any more, Mr Ma said, according to attendees.
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