All businesses under Tencent’s content unit achieved profitability at the end of 2022, according to a report by local media outlet LatePost. The platform and content group (PCG) unit includes Tencent Video, which turned profitable for the first time according to the report, and Tencent News, which saw a turnaround in the October-December period after a difficult first three quarters.
Why it matters: The division’s profits are largely thanks to Tencent’s ongoing and widespread cost-cutting measures and provide a key insight into how the tech giant intends to weather the macroeconomic slowdown. The several billion in profit from the unit is likely to provide a bright spot in the tech giant’s 2022 annual financial report. However, it does not mean PCG employees can rest easy, with continued profitability remaining far from certain and Tencent CEO Pony Ma previously warning he would cut any part of the business that was unable to sustain itself.
Details: LatePost reported that reaching profitability across the PCG will enable Tencent to “increase its annual profit to several billion yuan” for 2022. Established in 2018, the platform and content division integrates Tencent’s online video business unit (including long-form video platform Tencent Video, short-video app Tencent Weishi, Tencent app store Yingyongbao, and Tencent Comics), Tencent News, instant messaging app QQ, QQ Browser, Sogou search engine, and Sogou Pinyin Input.
- In 2022, Tencent conducted at least three large-scale layoffs, with the PCG, which has the largest workforce, being the hardest hit. LatePost’s report said employee numbers were down from over 20,000 to less than 10,000 in the division.
- At the same time, the PCG has significantly tightened its requirements for the setting up of new projects. New initiatives, such as an original video project, must now be able to prove they can make five times their cost in revenue to be approved; previously, this requirement was set at twice the cost, a PCG employee told LatePost.
- Brands’ reduced advertising budgets amid a broader economic slowdown are hurting Tencent’s media ad revenue, with LatePost citing a source as saying that variety shows produced by Tencent Video, which rely heavily on such advertising, are essentially now losing money. The long-form video platform is trying to save money on buying original show concepts by shifting to a payment model based on an initial fee followed by performance-related incentives to copyright holders and developers.
- Tencent News, one of the tech giant’s best-known units, has seen a major turnaround after losing money for most of 2022. The unit reportedly returned to profitability in October after it adjusted to focus on high-quality content and algorithm recommendations following Jonathan He’s arrival to head up the team in May.
- The report says that QQ Browser, another unit within the PCG, finally turned profitable after it reduced promotional costs by over RMB 2 billion. The browser holds a small market share of just 4.87% in China, compared to Chrome’s 41.65%, according to traffic analysis website Statcounter.
- “PCG has made a solid step forward in its survival,” Tencent COO Ren Yuxin reportedly told an internal year-end conference, adding that this didn’t mean the unit could slacken off.
Context: Tencent recorded year-on-year declines in both its domestic gaming revenue and advertising revenue in the first three quarters of 2022, after Chinese regulators tightened time limits on young gamers and effectively froze the issuing of new game licenses.
- There are signs for optimism however, as the government focuses more on the economy after the loosening of Covid control policies, and regulators granted more gaming licenses at the end of 2022.
- In a year-end speech to staff on Dec. 15, Tencent CEO Pony Ma reportedly lambasted areas of the business he deemed to be underperforming, saying “there would not be much time left for them.”
- The tech giant undertook multiple job cuts earlier last year, with Tencent’s earnings showing that it had 108,836 employees by the end of September, 6.3% lower than in the first quarter of this year.