China's Tencent Deal With Epic Games Could Help Expansion Overseas

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China's Tencent said on Tuesday it would acquire a minority stake in Epic Games, a U.S. developer of PC, console and mobile games, in a deal that could eventually help the Chinese company realize its ambitions to expand overseas.

Tencent is best known as the company behind China's largest instant messenger client QQ. But the Internet giant is also China's largest online game provider by revenue, with a 33.7 percent market share, according to Analysys International, a research firm in Beijing.

While Tencent's core user base is located in China, the company has ambitions to eventually expand its services abroad, said Mark Natkin, managing director of Beijing-based Marbridge Consulting. In the U.S., Tencent has its own gaming studio, located in Boston, which is working on its first unnamed title.

"The end game for Tencent is to push its products overseas," Natkin said. "By making an acquisition with a well regarded leading North American game developer, it is only improving its hand to achieve that particular ambition."

Last year, Tencent acquired a majority stake in Riot Games, the U.S. developer of the multiplayer strategy game League of Legends. The game is now hosted for Chinese users through Tencent's services, with League of Legends helping to boost the company's gaming revenues, according to Analysys.

Epic Games, which also develops game engine technology, has published hit titles including the Microsoft Xbox 360 franchise Gears of War, as well as the top-selling Infinity Blade series for Apple's iOS.

Tencent said in a statement the investment would be completed within a month. Following the acquisition, Epic Games in Cary, North Carolina, will continue to operate independently.

Both companies said in a statement they expect to learn from each other through the new investment, and Epic Games will continue to develop new titles for different platforms.

Tencent did not disclose the terms of the investment. But Natkin said Tencent could decide to take a higher stake in Epic Games if the two companies cooperate well together. "Then you might expect Tencent to move forward and increase the size of the stake, possibly taking a majority stake in the company," he added.

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