User backlash after Tencent’s Reddit interest

Chinese internet giant Tencent is reportedly leading the pack for Reddit’s Series D round, with the social media giant aiming to raise between $150 and $300 million, but not everyone is happy.

Reddit, a social media platform for news aggregation, web content rating and conspiracy theories, has been beating its chest to the press over the last couple of weeks to drum up interest for the funding round. According to Alexa website rankings, Reddit is the 17th most visited website worldwide, while it claims to have 330 million monthly active users, 138,000 active communities and 14 billion page views a month.

And it appears to have caught the attention of one of the worlds’ fastest growing internet businesses. According to TechCrunch, Reddit is hoping to raise between $150 and $300 million, which would value the platform between $2.7 billion and $3 billion. Details are thin for the moment, but what is worth remembering is the Tencent stake would be relatively minor.

That has not stopped criticism on the platform from users however. Many are linking the Chinese distaste for free speech with the demise of Reddit. Some are using the freedoms afforded by the Reddit platform to voice their concerns that Tencent might be able to block certain conversations and impose some levels of censorship. Reddit is currently blocked by the Great Firewall of China, though some fear with Tencent’s involvement the censorship could be extended elsewhere.

What is worth noting is Tencent is not acquiring the business but investing in it. Depending on the total amount pumped into Reddit, Tencent will certainly gain some influence from a strategic and development perspective, all investor do to a degree, but it will be very limited. Another factor to consider is that depending on the type of shares which Tencent acquires, it might not even be granted a seat on the Board of Directors.

That said, such is anti-China rhetoric around the world, this deal will catch the attention of politicians. There is perhaps little which can be done to prevent the investment, though the involvement of a Chinese business might bring greater scrutiny down on Reddit. While it has not be the centre of any scandals to date, it certainly does have the capability of influencing a wide, deep and highly engaged audience. The success of the business will partly rely on the management team’s ability to manage this new dynamic with politicians.

While Reddit is one of the most popular social media platforms on the internet, it is rarely considered in the same bracket as sites such as Facebook or Twitter. The number speak for themselves, though as the site does not look anywhere near as polished and as it does not feel as overtly commercial, it has snuck under the radar to escape the same scrutiny which is placed on the other platforms. We suspect this will change over the coming months however.

Recently the business has been going through somewhat of a refurbishment to take it into the big leagues. With a site redesign, the introduction of a native video player and the team has started to sell cost-per-click ads in addition to promoted posts, cost per impression and video adverts, it is starting to get the feel of a genuine internet business. This, alongside investment from a Chinese company, might bring it more to the attention of governments and regulators, many of whom are attempting to crack down on internet companies.

For Tencent, this is an investment which makes sense. Having created a monstrous business in China, primarily through the influence of WeChat and QQ, the team is looking to spread its wings in the international markets. There certainly has been some organic growth into the international space, though Tencent has certainly not been shy about investments and acquisitions.
Over the last few years Tencent has invested in several game developers including a minority stake in Robot Entertainment, videogame developer and publisher Glu Mobile paying $126 million and 84.3% of Finland-based developer Supercell for $8.6 billion. The firm also has holdings in Riot Games, Epic Games and Activision Blizzard. All of these titles have increased the presence of the firm in the international arena, as well as its influence in the data economy.

While expansion into the international arena is nothing new, attempting to muscle into the social media and news aggregation segment has got a few people anxious. Considering the Chinese approach to freedom of speech, Tencent’s involvement in Reddit has gotten a few users asking questions, while governments are bound to wade into the equation sooner rather than later.

Who’s got the stones to buy Netflix?

Apple, Disney, Microsoft or Apple; one of the biggest questions which has circled the technology industry over the last couple of years is who could possibly acquire Netflix?

The streaming giant, Wall Street’s darling, has almost constantly been talked up as an acquisition target. However, another year has passed and it’s another year where no-one managed to capture the content beast. You have to start to wonder whether it will ever happen, but here we’re going to have a look at who might be in the running.

Netflix numbersWith subscriptions totalling more than 148 million, 2018 revenues exceeding $15.7 billion and operating income up to $1.6 billion, Netflix would certainly be a useful addition to any company. However, with market capitalisation now roughly $143 billion and debt which would make your eyes water, an acquisition would be a scary prospect for almost everyone.

First and foremost, let’s have a look at some of the players who might have been in the equation, but alas, no more.

Disney has been a rumoured acquirer for almost as long as Netflix existed. This is an incredibly successful company, but no-one is immune to the shift tides of the global economy and consumer behaviour. Getting in on the internet craze is something which should be considered critical to Disney, and Netflix would have given them a direct-to-consumer channel. However, there was always a feeling Disney would develop its own proposition organically and this turned out to be the case.

AT&T is another company which might have been in the fray, but its Time Warner acquisition satisfied the content needs of the business. All telcos are searching to get in on the content cash, developing converged offerings, and AT&T is a company which certainly has a big bank account. As mentioned above, the acquisition of Time Warner completes rules this business out.

There are of course others who might have been interested in acquiring the streaming giant, but for various reasons they would not be considered today. Either it would be way too expensive, wouldn’t fit into the company’s objectives or there is already a streaming service present. But now onto the interesting stuff, who could be in the running.

Microsoft logo

Microsoft

From doom to gloom, CEO Satya Nadella has certainly turned fortunes around at Microsoft. Only a few years ago, Microsoft was a shadow of its former self as the declining PC industry hit home hard. A disastrous venture into the world of smartphones was a slight detour but under the cloud-orientated leadership of Nadella, Microsoft is back as a lean, mean tech heavyweight.

Alongside the cloud computing business, Microsoft has also successfully lead the Xbox brand into the digital era. Not only is the platform increasingly evolving into an online gaming landscape, but it also lends itself well to sit alongside the Netflix business. If Microsoft wants to compete with Amazon across the entire digital ecosystem, both consumer and enterprise, it will need to expand the business into more consumer channels.

For Netflix, this might be an interesting tie up as well. Netflix is a business which operates through a single revenue stream at the moment, entertainment, and might be keen to look at new avenues. Gaming and eSports are two segments which align well with Netflix, opening up some interesting synergies with Microsoft’s consumer business.

“Microsoft is at a crossroads,” said independent telco, media and tech analyst Paolo Pescatore. “Its rivals have made big moves in video and it needs to follow suit. The acquisition addresses this and complements its efforts with Xbox. The move also strengthens its growing aspirations in the cloud with Azure, firmly positioning itself against Amazon with AWS and Prime video.”

However, while this is a company which could potentially afford to buy Netflix, you have to wonder whether it actually will. The Netflix culture does not necessarily align with Microsoft, and while diversification into new channels is always attractive, it might be considered too much of a distraction from the cloud computing mission. Nadella has already stated he is targeting the edge computing and AI segments, and considering the bounties on offer there, why bother entertaining an expensive distraction.

Apple Store on 5th Avenue, New York City

Apple

Apple is another company which has billions floating in free cash and assets which could be used to leverage any transaction. It is also a company which has struggled to make any effective mark on the content world, excluding iTunes success. With Netflix, Apple could purchase a very successful brand, broadening the horizons of the business.

The last couple of months have shown Apple is not immune to the dampened smartphone trends. Sales are not roaring the same way they were during yesteryear, perhaps because there has been so little innovation in the segment for years. The last genuine disruption for devices probably came from Apple a decade ago when it ditched the keyboard. Arguably everything else has just been incremental change, while prices are sky-rocketing; the consumer feels abused.

To compensate for the slowdown, CEO Tim Cook has been talking up the software and services business unit. While this has been successful, it seems not enough for investors. Netflix would offer a perfect opportunity for Apple to diversify and tap into the recurring revenues pot which everyone wants to grab.

However, Netflix is a service for anyone and everyone. Apple has traditionally tied services into Apple devices. At CES, we saw the firm expand into openness with new partnerships, but this might be a step too far. Another condemning argument is Apple generally likes to build business organically, or at least acquire to bolster existing products. This would stomp all over this concept.

Alibaba Logo

Alibaba

A Chinese company which has been tearing up trees in the domestic market but struggled to impose itself on the international space, Alibaba has been hoping to replicate the Huawei playbook to dominate the world, but no-where near as successfully.

Perhaps an internationally renowned business is exactly what Alibaba needs to establish itself on the international space. But what is worth noting is this relationship could head the other direction as well; Netflix wouldn’t mind capitalising on the Chinese market.

As with any international business a local business partner is needed to trade in China. Alibaba, with its broad reach across the vast country, could prove to be a very interesting playmate. With Netflix’s Eastern ambitions and Alibaba’s Western dreams, there certainly is dovetail potential.

However, it is very difficult to believe the current US political administration would entertain this idea. Aside from aggression and antagonistic actions, the White House has form in blocking acquisitions which would benefit China, see Broadcom’s attempted acquisition of Qualcomm. This is a completely different argument and segment but considering the escalating trade war between the US and China, it is hard to see any tie up between these two internet giants.

Google Logo

Google

If you’re going to talk about a monstrous acquisition in Silicon Valley, it’s difficult not to mention Google. This is one of the most influential and successful businesses on the planet with cash to burn. And there might just be interest in acquiring Netflix.

Time and time again, Google has shown it is not scared of spending money, a prime example of this is the acquisition of YouTube for $1.65 billion. This might seem like pocket change today, but back in 2006 this was big cash. It seemed like a ridiculous bet for years, but who is laughing now?

The issue with YouTube is the business model. Its advertiser led, open to all and recently there have been some PR blunders with the advert/content alignment. Some content companies have actively avoided the platform, while attempts to create a subscription business have been unsuccessful. This is where Netflix could fit in.

“Google has made numerous failed attempts to crack the paid online video landscape,” said Pescatore. “Content and media owners no longer want to devalue their prized assets by giving it away on YouTube. Acquiring Netflix gives Google a sizeable subscriber base and greater credibility with content and media owners.”

Where there is an opportunity to make money, Google is not scared about big cash outlays. Yes, Netflix is a massive purchase, and there is a lot of debt to consider, but Google is an adventurous and bold enough company to make this work.

However, you have to question whether the US competition authorities would allow two of the largest content platforms to be owned by the same company. There might not necessarily be any direct overlap, but this is a lot of influence to have in one place. Authorities don’t generally like this idea.

Verizon Logo

Verizon

Could Verizon borrow a page from the AT&T playbook and go big on a content acquisition? Perhaps it will struggle to justify the expense to investors, but this one might make sense.

Verizon has been attempting to force its way into the diversification game and so far, it has been a disaster. While AT&T bought Game of Thrones, Verizon went after Yahoo to challenge the likes of Google and Facebook for advertising dollars. A couple of data breaches later, the content and media vision looks like a shambles. Hindsight is always 20/20 but this was a terrible decision.

However, with a 5G rollout to consider, fixed broadband ambitions and burnt fingers from the last content acquisition, you have to wonder whether the team has the stomach to take on such a massive task. Verizon as a business is nothing like Netflix and despite the attractive recurring revenues and value-add opportunities, the integration would be a nightmare. The headache might not be worth the reward.

You also have to wonder whether the telco would be scared off by some of the bold decisions made from a content perspective. Telcos on the whole are quite risk-adverse organizations, something which Netflix certainly isn’t. How many people would have taken a risk and funded content like Stranger Things? And with the release of Bandersnatch, Netflix is entering the new domain of interactive content. You have to be brave and accept considerable risk to make such bets work; we can’t see Verizon adopting this mentality.

Softbank Logo

Softbank Vision Fund

Another with telco heritage, but this is a completely different story.

A couple of years back, Softbank CEO Masayoshi Son had a ridiculous idea which was mocked by many. The creation of a $100 billion investment fund which he would manage seemed unimaginable, but he found the backers, made it profitable and then started up a second-one.

Son is a man to knows how to make money and has the right connections to raise funds for future wonderful ideas. Buying Netflix might sound like an absurd idea, but this is one place we could really see it working.

However, the issue here is the business itself. While Son might be interested in digital ventures which are capable of making profits, the aim of the funds have mainly been directed towards artificial intelligence. Even if Son and his team have bought into other business segments, they are more enterprise orientated. There are smaller bets which have been directed towards the consumer market, but would require an investment on another level.

Tencent Logo

Tencent

Another Chinese company which has big ambitions on the global stage.

This is a business which has been incredibly successful in the Chinese market and used assets effectively in the international markets as well. The purchase of both Epic Games and Supercell have spread the influence of the business further across the world and numerous quarterly results have shown just how strong Tencent’s credentials are in the digital economy.

Tencent would most likely be able to raise the funds to purchase the monster Netflix, while the gaming and entertainment portfolio would work well alongside the streaming brand. Cross selling would be an option, as would embedding more varied content on different platforms. It could be a match made in heaven.

However, you have to bear in mind this is a Chinese company and the political climate is not necessarily in the frame to consider such as transaction. Like Alibaba, Tencent might be viewed as too close to the Chinese government.

No-one

This is an option which is looking increasingly likely. Not only will the business cost a huge amount of money, perhaps a 30-40% premium on market capitalisation, the acquirer will also have to swallow all the debt built-up over the years. There will also have to be enough cash to fuel the content ambitions of Netflix, it reportedly spend $7.5 billion on content last year.

Finally, the acquirer would also have to convince Netflix CEO Reed Hastings, as well as the shareholders, that selling up is the best option.

“If I was a shareholder or Reed Hastings, I’d be wondering whether it is better to be owned by someone else or just carry on what we’re doing now,” said Ed Barton, Practise Lead at Ovum.

“These guys are going down in business school history for what they have done with Netflix already, do they need to sell out to someone else?”

Netflix is growing very quickly and now bringing in some notable profits. The most interesting thing about this business is the potential as well. The US market might be highly saturated, but the international potential is massive. Many countries around the world, most notably in Asia, are just beginning to experience the Netflix euphoria meaning the growth ceiling is still years away.

What this international potential offers Netflix is time, time to explore new opportunities, convergence and diversification. Any business with a single revenue stream, Netflix is solely reliant on subscriptions, sits in a precarious position, but with international growth filling the coffers the team have time to organically create new business streams.

Ultimately, Hastings and his management team have to ask themselves a simple question; is it better to control our own fate or answer to someone else for a bumper payday? We suspect Hastings’ bank account is already bursting and this is a man who is driven by ambition, the need to be the biggest and best, breaking boundaries and creating the unthinkable.

Most of these suitors will probably be thinking they should have acquired Netflix years ago, when the price was a bit more palatable, but would they have been able to drive the same success as Hastings has done flying solo? We suspect not.

Twitch is blocked by China’s Great Firewall

The Amazon-owned game streaming platform Twitch confirmed on Friday that it became inaccessible from China, the latest of a string of popular services banned from the world’s largest internet market.

That China has banned another internet site can hardly hit the headlines nowadays. On the contrary, often it is the clandestine or not so clandestine efforts from those blocked to re-enter China that are making the news. As a matter of fact, among the top 10 most visited websites based on the traffic data from the analytics company Alexa Internet (not the personal assistant from Amazon, but an Amazon subsidiary nonetheless), four are entirely blocked (Google, YouTube, Facebook, Twitter), one is partially blocked (Wikipedia), one is accessible (Yahoo), the rest are China-based.

The reason that the twist on Twitch has caught media attention is that it has suddenly gained popularity in the last month, not the least because e-sports were included in the recent Asian Games in Jakarta, a regional multi-sport event with the number of competing athletes next only to the Olympics. Following the Games, Twitch’s iOS app climbed to the 3rd position in Apple’s App Store in China, before it was quietly taken down, presumably another measure to comply with local regulations.

E-sports have been attracting stronger following in recent years, and special events have taken place in different parts of the world, where spectators would travel to follow the stars they have followed on platforms like Twitch. However the Asian Games was the first time e-sports were sharing the stage with other “real” sports.

China’s attitude towards e-sports, and the games industry in general is mixed. It is the world’s largest video game market, host to the world’s largest publisher (Tencent), and has a total number of video game players larger than the total population of the United States. But it also banned game consoles sales for a number of years, and its official media has also repeatedly underscored the “harm” video games can do to young people’s mental development. Despite the extensive coverage of the Asian Games, where China dominated the medal table, the state-owned China Central Television (innocuously abbreviated as “CCTV”) did not cover the e-sports section at all, leading to the sports channel’s chief producer alluding to this gap in his latest column (in Chinese).

“I can’t say I am surprised by the crack down on Twitch,” said Nitesh Patel, director of Wireless Media Strategies of the research firm Strategy Analytics. Live video streaming, including game steaming, has taken China by storm in recent years. Large amounts of money and time have been spent on following streaming stars. “The authorities are concerned about gaming addiction and, as a consequence, players like Tencent have implemented features to limit the time children spend playing addictive titles like Honor of Kings. The recent reported spike in use in Twitch may have caused some concern among authorities and they have moved to pull the plug before momentum continued,” added Patel.

Likely to benefit from the ban will be local game streaming platforms, for instance Douyu, Huya, Panda TV, similar to WeChat benefiting from the ban on WhatsApp, Badu on the ban of Google in the past.

Fortnite’s Google Play bypass could be free money for Tencent

Epic Games has taken the somewhat unusual move of distributing the mobile-version of its popular Fortnite title through its own website, potentially saving up to $50 million according to app economy analyst firm State Tower.

Few developers will have the option to bypass the powerful Google Play distribution network, though such is the popularity of Fortnite, Epic Games could make some serious savings by avoiding the platform fees. Fortnite Battle Royale is currently in beta mode on Android, beginning with selected Samsung Galaxy devices, though it has grossed more than $180 million having launched on iOS in March 15. With Android eclipsing the iOS user base by some distance, there is some serious cash to be made.

“We expect that once Fortnite rolls out to the full complement of supported Android devices, its launch revenue on the platform will closely resemble the first several months of App Store player spending,” said Randy Nelson, Head of Mobile Insights at State Tower.

“There is a chance that it will even surpass what we’ve witnessed thus far, based on factors such as the game’s increasing popularity, the growing impact of each new season’s Battle Pass on revenue (these release every 10 weeks), and the potential for players in countries where both Google Play and the iOS version are not available to directly download the APK and spend in the game.”

Such is the influence and power of Google Play, few companies would even consider distributing app’s through their own channel. Due to sheer volume and variety of downloadable games on mobile platforms, cutting through the noise is almost impossible. That said, Fortnite is one of the titles in the small percentage who are broadly memorable and recognisable, alongside the likes of Angry Birds or Pokémon Go. With Google collecting between 15-30% of app and in-app purchase revenues, there is certainly a business case for owning the distribution channels, even if it is risky.

Google and Apple will want to maintain control of this global (aside from China where other app stores rule the roost) duopoly, though if Epic Games could prove there are other options it could effectively be free money for those will a loyal-enough fans, or creative-enough marketers. For Tencent, owner of Epic Games, this will certainly be an interesting exercise.

The online games business unit of Tencent is a minor, but notable one. Mobile gaming was a small percentage of the overall $11.6 billion revenues generated in the first quarter, but global trends indicate there is room for growth. Fortnite is one of the larger titles in Tencent’s broader stable, though Honour of Kings is currently the highest grossing smart phone game in China’s iOS Top Grossing Chart and QQ Speed is another hugely popular game. Should Epic Games be able to prove it can reach customers, and at least maintain revenues/profitability, through its own channels, Tencent could start saving a couple of hundred million a year.

Google will of course do everything in its power to ensure this is an isolated case. The last thing it needs is major titles deserting its app market, though with Fortnite there might be little it can do. Lawyers might be called, strategies might be devised, though we suspect a US company trying to put the legal hammer down on a Chinese company in today’s climate of Trump-inspired tension will be somewhat of a struggle.

Should Epic Games prove there is life without Google, the ripples in the app economy might start turning into waves before; everyone likes saving cash.

Which country will take the leadership position in the 5G world?

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LoRa bags Tencent as backer

Chinese internet giant Tencent is the latest company to join the LoRa Alliance, adding credibility to the technology which has perhaps been viewed as substandard to NB-IoT.

Tencent said in a statement it has been investing in LoRaWAN, most notably in building a LoRaWAN network in Shenzhen with local partners, but also in providing  device-edge-cloud LoRaWAN solutions on its network for a wide variety of IoT application and end users, such as government public services.

“It is clear that LPWANs are essential for the IoT technology and applications, and the market is quickly growing in China, especially in areas like government public services, industry manufacturing,

personal IoT devices, etc,” said Hongtao Bie, Vice President of Tencent Technologies.

“LoRaWAN has seen rapid growth, and we feel it is highly complementary to NB-IoT in the LPWAN market. Joining the LoRa Alliance will allow us to influence LoRaWAN development, advance IoT adoption, and strengthen our cloud business by building close partnerships with other LoRaWAN vendors around the world.”

The pros and cons of LoRa in comparison to Sigfox and NB-IoT have been much debated over the last few years, though it does seem NB-IoT is winning out. With the majority of telcos throwing weight behind NB-IoT, the influence of non-cellular technologies is starting to be diluted. There will of course be benefits with technologies such as LoRa, campus connectivity for unlicensed spectrum is one, but as data usage ramps up you can see why the telcos are nervous.

The danger lies with mission critical. LoRa might have a cost advantage, but without the licensed spectrum option, the telcos are justifiably tentative considering the potential damage to already battered spreadsheets. There are of course examples of telcos marrying the two technologies, Orange is producing some interesting initiatives in this area, though LoRa is not necessarily making the impact it had in mind. Maybe it is because it is a proprietary technology?

There will of course be use cases for the technology, and being able to throw around the Tencent logo as a supporter will also help.

Is mobile payment going too far when cash has become unacceptable?

When mobile payment with smartphones has become the means of choice at retail outlets, the central bank of China needed to remind businesses they should not reject cash payment.

Once upon a time, people said “cash is king”. Not anymore.

In most retail outlets in China, mobile payment with smartphone apps WeChat Pay (of Tencent) and Alipay (of Alibaba) has become the de facto option. Customers with credit or debit cards only, including the cards on UnionPay (China’s clearing platform), are sometimes in bad luck. It turns out even cash payment may not go all the way, which prompted the central bank, People’s Bank of China, to issue a warning notice to the retailers that rejecting cash is against the law.

This fast and massive move towards mobile apps based payment dwarves the slow uptake of NFC based contactless payment championed by the technology companies. This is despite the tech heavy weights Apple and Google having been supporting NFC payment since 2014. The enthusiasm in which consumers and businesses embrace it, even with the clout of Apple and Google thrown behind it, has been underwhelming.

According to the research firm Berg Insight, the total number of NFC enabled POS terminals grew by almost 100% in 2017 to reach 54.5 million, most actively in North America and Western Europe. Only about 30 million of the terminals have been activated.

Apple has refused to disclose user numbers or transaction values related to Apple Pay, although different research has put the number of users who could pay with Apple Pay and who actually did it at about 3%. The uptake of Android Pay is no better. The comparable adoption rate is estimated at about 1%.

It is safe to say Apple CEO Tim Cook’s ambition to replace wallets with Apple Pay has not gone too smoothly. Mr. Cook himself was reported to have been rejected to pay for his coffee with Apple Pay by a barista, reported The Information.

In contrast, WeChat Pay and Alipay did not only handle over 90% of China’s $16 trillion mobile payment transactions in 2017, they are also actively expanding overseas. An agreement was signed last week with the Kenya based Equity Bank to bring the services to eastern Africa including Uganda, Tanzania, Democratic Republic of the Congo, South Sudan, and Rwanda, in addition to Kenya. With a smartphone penetration level much lower than in China, we do not believe retailers in Africa will rush to refuse cash payment though.

Tencent is aiming to do a Spotify with its entertainment and music business

The China based internet company Tencent, listed on the HKSE, is planning to spin off its music and entertainment subsidiary and list it separately on an exchange in the US.

The chairman of Tencent, Ma Huateng, also known as Pony Ma, made the announcement on Sunday 8 July, one day before Xiaomi’s trading started on the HKSE. Despite the initial price was set at the bottom end of the estimated range, Xiaomi’s share price still closed the day 1.2 percent lower than its opening price, having recovered from a heavy loss of close to 6 percent earlier in the day.

In an interesting twist, Xiaomi’s CEO Lei Jun felt the share price was depressed by the on-going trade disputes between the US and China, when he spoke to the CNN. Meanwhile, the company’s President and Co-Founder Lin Bin told CNBC that the trade war is not a major concern “as Xiaomi had not done much business in the U.S.”

Although Xiaomi is a profitable business, its thin margin (capped at 5 percent by its owner on its hardware business, which accounted for roughly 90 percent of the whole business) made investors deem the price too high.

In comparison, the global leader in streaming music, Spotify, launched its IPO in April this year on NYSE. The price rose by 13 percent on its opening day, rising to $149.01 from the initial offering of $132, despite Spotify being a loss-making company. It was traded at $175.70 when the market closed on Friday 6 July.

We can only wait for Tencent to disclose the profit and loss of its Music and Entertainment group in the run-up to the IPO, but the group, which gets all its business from China, has reported healthy growths. Its paid subscriptions, mainly for video and music, grew by 24 percent to 147 million during the first quarter of 2018, and its total video revenues grew by 85 percent year on year.

The limited appetite on the Hong Kong market, especially when the channel to China-based investors, the instrument called CDR, is hard to come by, in contrast to the enthusiasm to invest in the future on the US market, may have helped tilt the decision by the Tencent board to go for the US stock market.

Nokia ties the knot with Tencent for 5G R&D

Nokia has entered into a partnership with China’s internet giant Tencent to undertake 5G related R&D for webscale companies.

An MOU was signed in MWC Asia in Shanghai between the two companies to set up a full-fledged 5G lab in Shenzhen, China, where Tencent’s headquarters are. WeChat, the crown jewel of Tencent’s plethora of apps and services, is more a platform at the centre of an ecosystem than a standalone app. It has more than 1 billion monthly active users who make payments, hail car rides, order takeaway foods, among other things, as well as messaging, sharing pictures and videos, and networking that WeChat started out to do.

As Tencent further diversifies itself to other industries, including its recent entry into connected cars and autonomous driving, 5G’s promised capabilities, in particular edge-computing to vast reduce latency will be critical. By entering into a partnership with Nokia, which is strong in R&D, Tencent has a chance to influence how the 5G technologies can be applied to certain use cases. No wonder then the focus of the lab will be on selected verticals that Tencent has special interest in, with transportation, energy, entertainment, etc. being highlighted.

It is also a smart move by Nokia, who desperately needs to find new growth opportunities than selling more network gears to telecom operators, in particular when operators in Europe, Nokia’s traditional markets, are more cautious in rushing into 5G than their counterparts in North America and Asia.

As Nokia told Telecoms.com’s Jamie Davies, interest in 5G in Asia is more on the ways to scalability. This is an ideal case to test scalability. While it is an internet giant in every sense, Tencent is highly concentrated in China. For Nokia this would be a controlled experiment and would be valuable when it knocks on the doors of other local heavyweights like Alibaba, as well the truly global webscale companies like Google and Facebook.

Tencent goes big with 56% revenue growth

Total revenue up 56% and a 61% year-on-year increase in operating profit, but share price down 2% across the day. Some people are just never happy.

While the short-term disappointment of the market might be a bit of a dampener for the Tencent management team, it certainly does have a lot to be happy about. Aside from some notable increases in total revenues and operating profit, the annual financial report also demonstrated a 74% year-on-year increase in profit attributable to shareholders. The last three months has also seen a 14.7% increase in share price, a number which increases to 106% over the last twelve months. There certainly is some good work going on here.

“During 2017 and continuing in 2018, Tencent made important strategic moves that reinforced our leadership,” said Ma Huateng, CEO of Tencent.

“Our streaming video service became the China market leader with the most mobile daily active users and monthly subscriptions. Our Weixin Mini Program platform rapidly expanded its developer base and user adoption. Our QQ Speed Mobile racing game and PUBG: Exciting Battleground shooter game achieved absolute leadership in, and grew the audiences of, their respective genres.

“Looking forward, we are substantially increasing our investment in areas including video, payment, cloud, AI technologies and smart retail, which will impact our near term earnings but which we believe can generate long term value and growth opportunities.”

Looking at the individual business units for the final quarter of the year, Value Added Services (VAS) business increased by 37%, online games revenues increased by 32%, revenues from online advertising business increased by 49%, while other businesses increased revenues by 121%. The other businesses section mainly compromises of payment related and cloud services.

In terms of social media, perhaps the area Tencent is most well-known for, the combined Weixin and WeChat user numbers exceeded 1 billion accounts. Although the vast majority of this user base will be from its domestic Chinese market, Tencent must be keeping a wary eye on the international space wondering whether there is an opportunity to grow.

With Facebook being hit by privacy scandals and Twitter being accused of harbouring terrorists, the grip on the digital world might be loosening slightly. As public opinion towards the social media giants is turning sour and suspicious, there could be room for a new and refreshing brand to capture the hearts of the online-hungry.

While the future prospects of Tencent does look positive, shareholders were perhaps put off by the promise of lower profitability in the future. Tencent has promised to continue investing heavily in areas such as artificial intelligence to remain relevant in the world of tomorrow, but this might be the reason for the 2% decline in share price.

Spotify looks east with Tencent umbilicus

Music streaming service Spotify has made a clear statement of geographical intent by entering into an equity swap with Chinese internet giant Tencent.

Specifically Spotify is doing business with Tencent Music Entertainment and in its announcement it referred to the two companies as ‘the two most popular music streaming platforms in the world.’ TME runs QQMusic and KuGou, which apparently have a combined monthly user base of 450 million users. The last time Spotify revealed its user numbers they stood at 140 million, with 60 million subscribers, but it has global reach.

The companies have announced they will acquire shares in each other but the only details offered is that they will amount to minority stakes. So somewhere between 0.000000000001% and 49.9999999999999%. Tencent is also going to buy another tranche of Spotify shares just because it can.

“Spotify and Tencent Music Entertainment see significant opportunities in the global music streaming market for all our users, artists, music and business partners,” said Daniel Ek, CEO and Founder of Spotify. “This transaction will allow both companies to benefit from the global growth of music streaming.”

“We are excited to embark on this partnership with the largest music streaming platform in the world,” said Cussion Pang, CEO of TME. “TME and Spotify will work together to explore collaboration opportunities, with a common objective to foster a vibrant music ecosystem that benefits users, artists and content owners.”

“We are delighted to facilitate this strategic collaboration between the two largest digital music platforms in the world,” said Martin Lau, Tencent President. “Both of us share the same commitment to bringing music and superior entertainment experiences to music lovers, and to expanding the global digital music market for artists and content partners.”

Spotify is expected to have its IPO next year and being so intimately joined to such a big, cash rich company will probably reassure prospective investors about its long-term future. Furthermore, since that future will chiefly involve direct competition with US tech giants such as Apple and Google, this marks an intriguing moment in the balance of economic power between east and west.