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Tencent Targets Japan Anime, Manga to Jump-Start Global Growth

(Bloomberg) -- Tencent Holdings Ltd., spurned in years past by Japan’s guarded entertainment industry, is rekindling its courtship of the country’s fabled anime and manga houses.

The Chinese social media giant has in recent months scooped up slices of two prominent local studios, the brains behind smash hit Nier: Automata and Marvelous Inc. Those outlays are just the start of a spending spree designed to extend Tencent’s foothold in a key creative hub while imbibing Japan’s expertise in console game making and hit franchise creation, according to people familiar with its strategy. The Chinese firm is in negotiations with several other studios on potential investments, they said.

Tencent has long regarded Japanese entertainment exports as an area ripe for optimization, where better distribution and marketing strategies can generate vastly greater revenues. Having cut its teeth on multibillion-dollar acquisitions of the likes of Clash of Clans developer Supercell Oy and Fortnite creator Epic Games Inc., the Chinese publishing powerhouse has been repeatedly rebuffed when trying to take over developers and studios in Japan. Its new approach is to spend on becoming a favored partner instead, buying board seats and priority access to new content, said the people, who asked for anonymity because the plans are not public.

Tencent’s gaming division declined to comment.

Commonly abbreviated to ACG, Japan’s anime, comic book and gaming franchises are already popular in Tencent’s domestic market of China, the world’s biggest mobile gaming arena. They’ve fueled the rise of services like streaming platform Bilibili Inc. and provided the characters for many of the country’s favorite games. But Japanese creators, loath to cede control of their prized assets, have preferred ad hoc licensing deals, leading to bidding wars between publishers like Tencent and TikTok owner ByteDance Ltd., who each have competing Naruto games in China. ByteDance is preparing for a big push into gaming this year and NetEase Inc., the other big games publisher in China, has just announced it’s opening a game-development studio in Tokyo.

“Japanese ACGs are world class, while their Chinese counterparts are years behind. Even Tencent cannot cultivate sophisticated IP expertise internally fast enough,” said Tokyo-based games industry analyst Serkan Toto. “It’s all about quick international expansion, access to established ACG properties, and insight into creating top-notch IPs from scratch.”

Read more: Ninja Naruto Leads Tencent’s March into China’s $31 Billion Anime Market

Tencent’s vision is to help set up Marvel Universe-like multimedia franchises, with a focus on turning celebrated anime and manga comic book heroes and storylines into video games, squeezing the most out of each intellectual property. With its control of WeChat, China’s super-app and go-to messaging platform, the company has a significant advantage in cross-promoting its wares.

The Japanese creative scene is rich on potential targets, said Hideki Yasuda of Ace Research Institute. Popular IPs like Neon Genesis Evangelion and Doraemon are recognized in China, but haven’t yet translated into major gaming hits in that country. Games like LovePlus by Konami Holdings Corp., Disgaea by Nippon Ichi Software Inc. and Legend of Heroes by Nihon Falcom Corp. also hold growth potential if properly adapted and distributed in Tencent’s home market.

The Shenzhen-based company commands roughly half of China’s $33 billion mobile and PC gaming industry, data from research firm Niko Partners shows. That arena is increasingly dominated by titles built on already-familiar characters and lore, as 73 of the top 100 grossing mobile games last year were based on existing IP, according to Analysys.

Tencent approached Tokyo-based Marvelous -- seeking to tap its IP library, console development expertise and connections with other ACG creators -- in April, according to several people with direct knowledge of the matter. Marvelous is known for the Story of Seasons farming simulation and produces theater shows based on hit anime series like Prince of Tennis (which in itself was an adaptation of a successful manga series).

The 7 billion yen ($65 million) that Tencent is spending for a 20% stake grants it pole position for licensing Marvelous IP and makes the head of Tencent Japan an external director. Tencent wanted that board presence in order to have an insider’s view of the company’s product pipeline, the people said.

“Marvelous covers ACG through and through -- a great target for Tencent,” said Toto. And for Japanese ACG creators, “Tencent is a great, established name to be associated with.”

Fighting a tough battle against fiercely competitive domestic rivals, Tencent appears willing to spend extra to secure the rights to popular Japanese franchises, hoping to leverage them into multimedia juggernauts that lock Chinese consumers into its ecosystem and bolster its global ambitions.

Equally important for Tencent was Marvelous’ success in developing console games. The Chinese behemoth is virtually absent from that contest, which accounts for 30% of overall game industry revenue according to Newzoo data. With a new generation of consoles from Microsoft Corp. and Sony Corp. on the holiday-season horizon and a budding partnership with Nintendo Co. as the sole distributor of official Switch hardware and software in China, Tencent is evidently interested in having a larger presence on this front.

Tencent also made an investment in Bayonetta and Nier: Automata maker PlatinumGames Inc. earlier this year. In February, PlatinumGames co-founder and Chief Executive Officer Kenichi Sato assured fans that the so-called capital alliance with Tencent wouldn’t affect the company’s management, saying “They respect our autonomy as game creators.”

The studio, whose work has until now been published by larger partners like Nintendo and Square Enix Holdings Co., had been looking for help to grow and become its own publisher, whereas Tencent saw high potential for its creations in the Chinese and mobile markets. The deal was “a win-win situation,” Sato wrote.

​Read more: Tencent Game Sales Surge Most in Years in China’s Lockdown

“Japan and China have formed a symbiotic relationship for games in recent years with gaming companies from each country learning from each other to succeed in both markets,” said Niko Partners researcher Daniel Ahmad.

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