Summary of Key Points
This article explores a fascinating new trend in the domestic gaming industry: game companies that used to make substantial profits from selling games are now refraining from investing their surplus funds in the gaming sector itself. Instead, they are collectively becoming major investors in hard-tech fields such as AI, semiconductors, and computing power. Since 2023, game companies listed on the Shanghai, Shenzhen, and Hong Kong stock markets have participated in over 60 industrial funds, with more than 60% of the investment going towards AI-related projects. These investments have generated billions in profits, allowing them to maintain their core gaming business while also taking advantage of the AI trend and establishing connections with local state-owned assets. It’s a highly profitable and low-risk strategy.
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Detailed Explanation
1. Game companies are now making huge profits from AI investments
Many might think that game companies are just jumping onto the AI bandwagon for the sake of the concept, but the returns on these investments are incredibly high:
- They typically act as limited partners (LPs), meaning they only provide the capital without interfering with the investment decisions, leaving the management to professional teams familiar with the AI industry.
- Nearly half of these funds are backed by local state-owned assets or government-guided funds, which reduces the risk of making wrong choices by following official industry priorities.
- The returns are substantial: For example, MiHoYo’s investment in the AI company MiniMax in 2021 resulted in a book profit of over HK$10 billion; 37 Interactive Entertainment’s investment in Zhipu AI generated a profit of 1.016 billion in the first half of the year, accounting for 45% of its total profits; and Century Huatong’s investment in the domestic GPU company Moore Threads led to a one-time profit of 640 million. These AI companies can be cashed out easily once they go public, whereas investing in games requires years of research and development, waiting for regulatory approvals, and dealing with player preferences.
- In contrast, the last round of investments by game companies in their own industry was largely a disappointment: in 2019, when game approvals were relaxed and the pandemic led to increased gaming activity, many companies invested heavily. For instance, Tencent invested in game teams every 7 days on average in the first half of 2021, ByteDance spent $4 billion on Moutong Technology, and Alibaba acquired Jianyue Technology, which later developed the game “Romance of the Three Kingdoms: Strategy Edition.” However, when the bubble burst, most of these investments turned into losses.
2. The previous round of investments in the gaming industry was a disappointment
Game companies didn’t initially plan to invest in AI; the previous experience was too frustrating:
- Many small teams failed to produce successful games, and the invested funds were lost. In 2020, when the gaming industry was booming, companies invested heavily, but most of these investments were wasted.
- This time, they are more selective, focusing on proven and market-tested teams or founders with a track record of success, such as the creators of “Honor of Kings” and “Onmyoji.”
- The money invested in AI generates faster returns. For example, the funds from these investments could be cashed out immediately upon the companies’ public offerings, whereas investing in games requires a long wait.
3. There’s no abandonment of the gaming business
There’s a misconception that game companies are abandoning their core business. Instead, they are becoming more strategic with their investments:
- They are still investing in the gaming industry but more wisely, targeting established and successful creators or teams.
- The funds are used for diversified investments, such as in AI, without sacrificing their main gaming operations.
- Game companies have plenty of cash and can afford to allocate a small portion to AI investments without affecting their core business.
4. These investments are not a threat to the gaming industry
The idea that game companies’ investment in AI indicates a decline in the industry is unfounded:
- Game companies are known for their strong financial positions, and they can afford to invest in other areas without compromising their gaming operations.
- These investments are seen as a way to diversify their assets and generate additional profits.
In summary, game companies are using their surplus funds to invest in AI, which is both a profitable strategy and a way to maintain their financial strength. These investments do not threaten the gaming industry itself; rather, they reflect the industry’s resilience and the companies’ desire to diversify their investments for better returns.