Tencent, the Chinese gaming juggernaut, encountered a setback when it reportedly halted the development of a highly anticipated mobile game based on Square Enix's "Nier" franchise in December. Reuters reported the decision, citing sources familiar with the matter, attributing the cancellation to Tencent's struggle in formulating a viable monetization model for the project, which had been in development for nearly two years. The costs associated with development and acquiring franchise rights were deemed prohibitively high.

Headquartered in Shenzhen, Tencent faced difficulties leading to the project's abandonment, with both Tencent and Square Enix declining to provide official comments. Square Enix, renowned for successes like "Nier: Automata," disclosed last year that the latest game in the "Nier" franchise had sold over 7.5 million copies since its 2017 release for computers and consoles. The cancellation of the mobile game underscores potential challenges in Tencent's longstanding strategy of adapting successful console and PC games into mobile versions.

As the world's largest gaming company, Tencent had pursued an aggressive approach, securing licensing deals with popular franchises and outbidding rivals like NetEase in some cases. However, Tencent's Chairman Pony Ma acknowledged on Monday that the gaming business, which contributes over 30% to the company's revenue, faced threats due to the underperformance of recent games.

Despite significant progress in developing the "Nier" mobile game, including a playable internal demo showcasing robust story and combat designs, Tencent opted for cancellation. Fortunately, no job losses were reported, as affected employees were allowed to transfer to other Tencent units.

The financial complexities of mobile games adapted from famous computer and console games, known as intellectual property (IP) games, influenced Tencent's decision. High royalty fees, ranging from 15% to 20% of sales, coupled with additional costs like the App Store's 30% cut and marketing expenses, resulted in slim profit margins.

Tencent's struggle to find a new global hit from an IP game since 2020 places the company under increasing pressure. Competitors like miHoYo and NetEase have achieved significant success with hits based on their own IP games, such as "Genshin Impact" and "Eggy Party."

In a bid to revive its fortunes, Tencent aims to launch several IP games for smartphones in the coming years, including titles like "Delta Force," "Need for Speed," and "Assassin's Creed." The success of these ventures will likely play a crucial role in determining Tencent's standing in the fiercely competitive game industry.

Source: adapted from an article by Baytan Uğur Yem, Author for Mobidictum.