Tencent and Sea's Payment Suspension Indicate Growing Gaming Industry Troubles

Tencent and Sea Ltd. are both signaling that the $200 billion gaming industry is in for an even rockier year. This comes after the industry endured one of its worst slumps on record in 2022.

Tencent co-founder Pony Ma attacked his staff in a town-hall meeting for lacking urgency in the face of an existential crisis. Days later, Sea founder Forrest Li warned of deeper economic challenges in 2023 before slashing bonuses and freezing salaries.

Ma's outburst came as a surprise to observers who are used to seeing him as calm and collected. Along with the decision to pull out of the Sea, which was announced in a memo days before Christmas, this points to a difficult year ahead for the games industry. Li warned in his memo that 2023 could be even tougher, due to the war in Ukraine, inflation, and the resulting impact on consumer spending.

Sea's stock dropped more than 4% on Thursday, while Tencent fell as much as 2% in Hong Kong on Friday.

"You can't even survive as a business, yet you're chilling on the weekends, playing ball," Ma told his all-staff audience in remarks delivered in person. He continued, "You need to work harder if you want to succeed."

Tencent billionaire Ma Huateng has gone on a tirade, as cracks appear in his empire. Ma, who is worth an estimated $50 billion, is the founder and CEO of Tencent, China's largest internet company.

In a recent interview, Ma lashed out at critics who say that Tencent is a monopoly. "Tencent is not a monopoly," Ma said. "We are a company that provides services to users. We are not a government."

Ma's outburst comes as Tencent faces increasing scrutiny from regulators. The company is under investigation by the antitrust regulator in China, and its stock has fallen by 20% since January.

Tencent billionaire Ma Huateng has gone on a tirade, as cracks appear in his empire. Ma, who is worth an estimated $50 billion, is the founder and CEO of Tencent, China's largest internet company.In a recent interview, Ma lashed out at critics who say that Tencent is a monopoly. "Tencent is not a monopoly," Ma said. "We are a company that provides services to users. We are not a government."

Ma's outburst comes as Tencent faces increasing scrutiny from regulators. The company is under investigation by the antitrust regulator in China, and its stock has fallen by 20% since January.

Tencent is not the only company facing antitrust scrutiny in China. Alibaba, another Chinese internet giant, is also under investigation.

After a pay freeze and bonus cuts, it looks like 2023 is going to be a tough year for Sea Divers. These changes suggest that the company is facing some financial difficulties and is looking to cut costs. This could mean fewer dive trips and less money for the company to invest in new equipment and training.

Tencent has announced that it will distribute its $20 billion stake in Meituan as a dividend. This move will allow Tencent's shareholders to directly benefit from the company's investment in Meituan.

The video game industry is preparing for a difficult year. The leading console company, Sony Group Corp., has lowered its game sales forecast for the year by 12%. This is the second consecutive quarter that Sony has reduced its forecast. Microsoft Corp., Sony's main competitor, has also laid off workers from its Xbox division.

"Players are cutting back on the number of titles they purchase due to global macroeconomic conditions," Sony Chief Financial Officer Hiroki Totoki said.

Sea, a Singapore-based company, has cut 7,000 jobs this year, or 10% of its workforce. CEO Li assured employees that the company "will be starting 2023 on a stable footing" and that most of the big changes it needed to make have already been made.

Many factors are negatively impacting the gaming sector, including platform changes from companies like Apple, unfavorable macroeconomic conditions, and the ongoing fallout from China's crackdown on gaming. According to Matthew Kanterman of Ball Metaverse Research Partners, this is leading many large gaming companies to focus on cost-cutting and only investing in the most profitable titles, rather than taking risks on new projects.

Tencent must also contend with uncertainty in its home market, as it is only now beginning to lift the Covid restrictions that have impeded the world's second largest economy throughout the year.

The chairman of the Shenzhen-based firm was unsparing in his criticism of business units from gaming to social and cloud computing. He cautioned that some divisions might not survive much longer without righting their current trajectory. Tencent has cut jobs by the thousands this year, streamlined unprofitable businesses and lowered investments including in Sea.

The company has been under pressure from the Chinese government's crackdown on big tech firms and restrictions on gaming addiction among young people. Its domestic games revenue dropped 7% for the September quarter, while its international division only grew by 3%.

The company's pipeline of new games was blocked for months by China's halt on granting licenses for new titles. This has caused the company to fall behind and they now have to make up for lost time by building up a stable of fresh franchises and content for mobile players. During last week's town hall meeting, Ma upbraided the gaming division for frittering away money to acquire users for hastily churned-out titles, rather than focusing on quality.

"I don't believe in buying user traffic anymore," Ma said, according to attendees.