ByteDance, the tech company behind TikTok (Douyin in China), has confirmed a major restructuring of its gaming business that is set to involve the cancellation of in development projects, a divestment from its gaming segment, and the layoff of around one thousand employees according to media reports.

“We regularly review our businesses and make adjustments to centre on long-term strategic growth areas. Following a recent review, we’ve made the difficult decision to restructure our gaming business,” said a ByteDance spokesperson.

ByteDance’s entry into video games (2015-2017)

ByteDance’s journey in gaming began in 2015, before TikTok had even launched outside China, with the company evaluating an entry into the fast-growing sector which is worth nearly $200 billion globally today. The company set up its first video games subsidiary in 2017 with the aim of diversifying revenue beyond its core business, becoming a global games publisher, and leveraging its existing platform strengths in a similar way that Tencent did.

The company formed distinct gaming brands: Nuverse for core games, Ohayoo for casual games, and Pixmain for indie game publishing. Although we should note that not all of these brands were announced in 2017 and it wasn’t until 2019 that Nuverse’s brand was announced globally. ByteDance took a holistic approach to its games business which involved obtaining publishing licenses for third party games, opening its own game development studios, and acquiring existing developers.

Expanding into the video games industry (2019-2021)

ByteDance aggressively expanded into the video games industry after 2019, with more than $5 billion spent on acquisitions and investments alone. The company acquired and invested in more than 15 video game related companies including Moonton (valued at $4 billion) and C4 Games in 2021. It also acquired the publishing rights for more than a dozen core video games with the aim to distribute them in China and overseas. One other notable acquisition was that of VR hardware manufacturer Pico in August 2021.

ByteDance also opened numerous studios in Beijing (Oasis Studio), Hangzhou (Jiangnan Studio), Shenzhen (Gravity Studio) and Shanghai (101 Studio), Guangzhou (InGames), among others. At the end of 2021, ByteDance had upgraded its gaming business to be one of its six core businesses and by 2022 its gaming business had over 3,000 employees across all of its subsidiaries. It’s worth noting that the company had also built a separate TikTok / Douyin games business which focused on mini games, marketing and user acquisition via its short video platforms.

Domestic performance

While the company witnessed some initial success in China via casual games published by Ohayoo, it wasn’t until Nuverse published One Piece: The Voyage in 2021 that the company had its first major hit. The game, based on the One Piece manga written and illustrated by Eiichiro Oda, was co-developed by CMGE and operated by ByteDance’s 101 Studio in Shanghai. It was the first time ByteDance had been able to generate high downloads and revenue from a core game it had published, primarily through marketing and UA initiatives on Douyin.

However, many of its other titles failed to live up to expectations and were shut down prior to this year. Its self-developed titles have only recently started to emerge given the long development cycles for games, alongside some titles being delayed or cancelled. Crystal of Atlan, an ACGN themed MMO, was a self-developed title launched in July 2023 and it quickly became one of the top new mobile games in China by revenue. Nuverse also launched its self-developed title Earth Revival on November 16, with promising metrics so far. While these titles are doing well and will continue to operate, they’re yet to match the performance of top titles from Tencent, NetEase or MiHoYo.

Overseas performance

ByteDance’s overseas gaming business performed moderately well, starting in 2021 after it signed a publishing agreement with South Korean firm Gravity to publish Ragnarok X: The Next Generation in Southeast Asia. The game has generated around half a billion dollars in revenue over its lifetime, but we note this was split between Gravity (IP owner), Fuchun Technology (Developer) and ByteDance (Publisher). Marvel Snap, released in October 2022, is another ByteDance published game that performed well. The collectable card trading game has generated over $200 million in player spending to date but faces the same issue as Ragnarok X where Marvel (IP owner) and Second Dinner (Developer) are taking notable cuts.

Moonton was a solid buy for ByteDance given its track record with Mobile Legends: Bang Bang which is extremely popular in Southeast Asia and other developing markets. The company continued to operate autonomously but there was some synergy with the TikTok business in the form of marketing, user acquisition, live streaming and esports. However, Mobile Legends hasn’t seen significant revenue growth since the acquisition and its other newly launched titles haven’t been able to replicate the success of its MOBA game. Mobile Legends has yet to launch in China either, although it does have a license and is undergoing testing.

Strategic restructuring and challenges (2022-2023)

ByteDance started to re-evaluate its gaming business after five years opting to make strategic adjustments amid lower than expected returns. Ohayoo was the first department to be hit at the end of 2021 with over 100 employees laid off after some of its casual games underperformed. Its Guangzhou studio saw layoffs in May 2022 and its Shanghai studio (101 Games) was disbanded in June 2022 and merged into its Wushuang Studio, also in Shanghai. However, its Wushuang Studio and Jiangnan Studio (Hangzhou) saw layoffs in September 2022. While not directly part of Nuverse, its Pico VR subsidiary saw mass layoffs and restructuring last month amid weak YoY performance.

At the end of the day, ByteDance’s return on investment wasn’t there and its gaming revenue was marginal compared to overall earnings. The company generated revenue of $54 billion in H1 2023 while its games are only set to generate $1 billion in player spending this year, a good chunk of which will be shared with external developers and IP holders. This also pales in comparison to the likes of Tencent, who generate nearly $30 billion from games each year, and even NetEase who are trending towards $10 billion from games. ByteDance is very much focusing on its TikTok and Douyin business with cuts across its education and work tools segment over the past year as well.

Strategic Retreat: Decisive Factors

Niko Partners believes the decision to exit from gaming was influenced by the high entry costs associated with building a global gaming business, the weak performance of most of its titles, and its ability to truly compete with the larger game publishers. Simply put, the company looked at the targets it had set for itself in 2017 and decided that the payoff was taking longer than expected. This is a story as old as time for large tech companies that entered the gaming business, as evidenced by Google’s discontinuation of Stadia, Meta’s lack of success with VR and the metaverse, and Amazon taking more than a decade to find success within its games publishing business.

Other decisive factors include:

  • China’s video game market declined in 2022, and while the market is set to grow in 2023 and there is a more positive outlook, the growth opportunities are not as large as they once were.
  • TikTok and Douyin will continue to generate revenue from gaming through the distribution of mini games and via its game publishing plan for video game companies that allows them to utilize the platform as a marketing and UA channel.
  • It’s worth noting that Zhang Yiming, the founder of ByteDance, was never into video games himself and didn’t view the endeavor as fruitful initially. He stepped down in 2021, but this prevailing attitude at the top of the company may have played a role.
  • ByteDance is also looking to go public according to media reports. Its gaming business is still viewed as a loss leader internally, which may have been one of the reasons behind the decision to cut Nuverse.

 

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