NTDOY Nintendo Co Ltd (PK)

By Takashi Mochizuki in Tokyo and Shan Li in Beijing 

China's Tencent Holdings Ltd., the world's largest videogame company by revenue, is looking to make more console games for U.S. consumers by leveraging its partnership with Japan's Nintendo Co., Tencent officials said.

Tencent, which dominates its home market with smartphone and personal-computer games, has acquired stakes in prominent U.S. game makers including Epic Games, creator of the hit "Fortnite," and Activision Blizzard Inc., publisher of the shoot-'em-up game "Call of Duty." But the Chinese company doesn't yet have a significant direct presence in U.S. console games.

The U.S. videogame market is a prime target for growth, especially because China has begun putting limits on games, including a curfew for players under 18, blocking them from playing late at night.

"What we want is to expand from China, and one target is console game players in the U.S. and Europe," said a Tencent official, who asked not to be identified. "We hope to create console games with Nintendo characters, and learn the essence of making console games from Nintendo engineers."

The Tencent-Nintendo partnership led Nintendo shares to rise 14% when it was announced in April because investors thought it would give Nintendo greater access to China's huge game-playing population. Tencent said it would help Nintendo sell its Switch consoles in China. Analysts say the partnership could also allow Tencent to distribute smartphone games using Nintendo characters in China.

The partnership is off to a slow start, though, because of delays among regulators in China, who must clear both game consoles and software.

Both companies are cautious about Nintendo business in China. Tencent officials said they didn't believe the Switch would sell in China as well as it has in the U.S. and Japan, because Chinese customers are more accustomed to playing games on smartphones and PCs.

As a part of its deal with Nintendo, Tencent promised the Kyoto-based company it could sell at least a few million units of the console in China throughout the machine's lifecycle, Tencent officials said. That is a modest goal: The Switch sold more than a million units in the U.S. during the July-September quarter alone.

On the software side, analysts said Chinese smartphone users might jump at the chance to play games with Nintendo characters such as Mario the plumber, if Nintendo and Tencent can work out terms for a distribution deal. Tencent officials, however, said that wasn't their focus because Tencent already dominates the Chinese market with its own games. "Nintendo games are not constructed to make people pay a lot of money," another Tencent official said.

Nintendo Chief Executive Shuntaro Furukawa has adopted the same view as Tencent, telling analysts that they shouldn't expect a lot from the Switch in China.

Nonetheless, Nintendo sees some potential to expand its audience. Outside developers said they were asked by Nintendo to make games for young women, such as romance games, a genre with passionate fans including in China.

"Women are becoming a driving force behind the growth of the gaming market," said Daniel Ahmad, an analyst at Niko Partners, an Asia-focused games analytics company. "Chinese developers are not only shifting to create games aimed at female players, they are also tailoring existing games to better appeal to them."

Lisa Cosmas Hanson, managing partner at Niko Partners, said while she didn't see console game development for the U.S. as a priority for Tencent, she thought the move could give it an observation post on the tastes of U.S. gamers.

"Tencent is skillfully pursuing silent global domination, via expansion primarily in the form of major and minor investments in [videogame] industry companies around the world without rebranding them as Tencent," Ms. Hanson said.

For Tencent, the greater, though intangible, advantage of the Nintendo tie-up may be the ability to learn from the Japanese company, which has a knack for winning over U.S. game players. Tencent tried the U.S. market two years ago with a smartphone game called "Honor of Kings" that has drawn tens of millions of Chinese players; rebranded "Arena of Valor" for Americans, it barely made a dent.

Tencent officials say the learning will take time and that they sometimes have trouble trying to decode messages from the Kyoto company. Nintendo declined to comment.

Write to Takashi Mochizuki at takashi.mochizuki@wsj.com and Shan Li at shan.li@wsj.com

(END) Dow Jones Newswires

November 10, 2019 08:14 ET (13:14 GMT)

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