Why Did This Chinese Tech Behemoth Just Spend $8.6 Billion Buying A Video Game?

REUTERS/Tyrone Siu

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Ted Goodman Contributor
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Chinese internet company Tencent Holdings, Ltd and its partners will pay $8.6 billion to buy an 84.3% stake in Finnish game developer Supercell Oy, the maker of the popular mobile game, Clash of Clans. Tencent and its partners will purchase the stake from Softbank Group, the Japanese telecommunications giant, who is looking to divest assets in order to reduce its debt.

Clash of Clans is the most popular mobile game worldwide grossing $1.35 billion in 2015. According to Venture Beat, Supercell  made a profit of $964 million on revenues of $2.326 billion. With the acquisition of Supercell, Tencent will have 13 percent of the global $99 billion game business in 2016, according to market researcher Newzoo.

Tencent’s purchase of Supercell solidifies its place as a global leader in both PC gaming and mobile gaming. In 2011, Tencent bought a controlling stake in American-based Riot Games Inc., maker of the world’s highest grossing PC game, “League of Legends.” Tencent paid around $230 million for the stake, and in 2015 “League of Legends” made about $1.63 billion gross revenue, according to SuperData Research.

Following the news of the purchase, Martin Lau, president of Tencent, said; ” We are excited that Supercell is joining our global network of game partners, and will preserve their independence and enhance their advantages, thus bringing even more exciting gaming experiences to players around the world.”

The CEO of Supercell, Ilkka Paananen said in a statement, “We want Supercell to be the world’s best place for creative people to create games,” and “this new partnership offers us exciting growth opportunities in China, where we will be able to reach hundreds of millions of new gamers via Tencent’s channels.”

While Clash of Clans is by far their most popular game, Supercell recently announced that they have 100 million active players every day across all four of their games which includes Boom Beach, Clash Royale and Hay Day. The deal is expected to be complete by the end of the third quarter, and is subject to regulatory approval.

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Ted Goodman