Why TikTok retreated from the games industry?

TikTok’s parent company, ByteDance, has shut down Nuverse Games and laid off hundreds of employees. This move was circulated as TikTok’s retrieval from the games industry. Now that the dust has settled let’s look back at what happened and try to understand the situation more deeply.

On Nov 27, 2023, the news of TikTok’s retrieval from the games industry was circulating all over the media, from finance platforms to gaming and games industry news channels. According to the news, TikTok’s parent company, ByteDance, was to shut down one of its gaming arms, Nuverse and lay off hundreds of employees. The number of employees that were facing unemployment was estimated to be more than a thousand.

A person digging into the matter will notice that the development is covered with a bit of mystery. All sources attribute the information to “inside sources” that wanted to remain anonymous or “a person familiar with the matter.” Although we have waited for more details to become clear to start working on this piece, no more information has surfaced. The only information that comes close to being official is this: 

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

A generic explanation that different sources like Reuters, CNBC, and more claim that they received from a spokesperson from ByteDance, which adds to its anonymity. The details we know are that ByteDance decided to shut down Nuverse, told the employees to immedaitely stop working on the development of all the games that hadn’t been released, and started looking for buyers for existing ones. 

Nuverse’s journey and successful games

Nuverse is the publisher of Marvel Snap, a digital collectible card game available on Android, iOS, macOS, and Windows. As far as the game industry and the gamers know, everything was going well for the title. It was a hit when it came out, received well by the gaming community, and has garnered a considerable audience since then. It wasn’t the company’s first successful game either. One Piece: The Voyage, based on the One Piece manga by Eiichiro Oda, was the company’s first major hit back in 2021

Nuverse has never been a quiet attempt by ByteDance to enter the video game industry. It was meant to be a grandiose entry. At some point, it was a massive company with around 3000 employees and its subsidiaries like Moonton and C4Connect. According to Nico Partners, ByteDance has aggressively pushed to expand into it.

After 2019, ByteDance dedicated over $5 billion to acquisitions and investments. The company’s expansive portfolio included acquiring and investing in more than 15 video game-related companies, such as Moonton (valued at $4 billion) and C4 Games in 2021. Additionally, ByteDance secured publishing rights for over a dozen core video games, strategically aiming to distribute them in China and overseas. Notable among its acquisitions was the VR hardware manufacturer Pico, which was added to its portfolio in August 2021.

ByteDance’s commitment extended to the establishment of numerous studios in critical locations, including Beijing (Oasis Studio), Hangzhou (Jiangnan Studio), Shenzhen (Gravity Studio), Shanghai (101 Studio), and Guangzhou (InGames), among others. By the end of 2021, ByteDance elevated its gaming business to one of its six core segments. The company also developed a distinct TikTok/Douyin games business, focusing on mini-games, marketing, and user acquisition through its short video platforms.

ByteDance’s challenges and compromises in the games industry

Nuverse’s subsidiaries have some successful games, too; for instance, Mobile Legends: Bang Bang, developed by Moonton, was quite popular in Southeast Asia and other developing markets. Although shutting down Nuverse is the most significant compromise, this is not the first time that ByteDance has given the signals that its video game business is not running as smoothly as it looked

Due to the underperformance of some casual games, over 100 employees from Ohayoo were laid off in 2021. More layoffs followed this in its Guangzhou studio in May 2022, while the Shanghai studio (101 Games) faced dissolution in June 2022, merging into its Wushuang Studio in Shanghai. However, both Wushuang Studio and Jiangnan Studio (Hangzhou) experienced layoffs in September 2022. After five years, ByteDance began reassessing its gaming business because of the low return on investment.

ByteDance’s position in the video game market

By attempting to enter the video game business at this scale, ByteDance also made itself a rival to the likes of NetEase and Tencent. World giants who already had a foothold in the industry, earned a hefty share of their profits from it, and were far more motivated to keep it that way. On the other hand, the video game industry is not ByteDance’s leading source of income. In the first half of 2023, the company compiled a revenue of $54 billion, whereas its games are projected to yield only $1 billion in player spending for the year. A substantial portion of this sum will be distributed among external developers and intellectual property holders.

Besides, China’s video game market faced a decline in 2022. Although there’s a forecasted growth in 2023, the larger share from this growth is more likely to be acquired by more motivated and experienced companies. Add all this to the fact that China’s government keeps an iron grip on the local video game market with tight regulations and issues a handful of release licenses annually.

Nico Partners also makes an excellent analysis and summary of the reasons behind ByteDance’s retrieval from the video games industry: 

“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.”

Analysis of ByteDance’s exit from the games industry

Simply put, ByteDance aggressively pushed and made considerable investments to gain a foothold in the games industry. But what they got in return didn’t meet their expectations. The income generated from the games compared to the company’s revenue was negligible, so they decided to quit instead of pouring even more money to solidify their position in the industry.

Apparently, ByteDance was mesmerized by the video game industry’s size, expected recovery, and growth, but it bit off more than it could chew. Although it has multiple successful games, ByteDance’s retrieval from the industry once again shows that experience, perseverance, and motivation are needed to survive in it.

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