Tencent turns to short video ads to boost revenue amid gaming crisis

Tencent runs the ubiquitous Chinese messaging app WeChat. The company offers a short video feature in the app and has started monetizing it through in-feed video ads. Tencent said such ads could become a “substantial” source of revenue in the future.

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Tencent said advertising on its nascent short-form video platform could become a “substantial” revenue stream in the future, even as other areas of its business, such as games, come under pressure.

The focus on this advertising product by one of China’s biggest tech giants puts it in direct competition with the country’s two main short-form video players: ByteDance’s Douyin, the Chinese cousin of TikTok as well as Kuaishou.

On Wednesday, Tencent reported its first-ever quarterly year-over-year revenue decline as its gaming business faced headwinds. Tighter tech regulations, the resurgence of Covid and the resulting economic weakness in China weighed on the entire business.

Tencent runs China’s most popular messaging app called WeChat, which has over 1 billion users. There is a short video platform built into WeChat. Users can scroll through different videos. In July, Tencent first began serving ads to users of what it calls video accounts.

The company announced that it will release more video ad inventory this month.

Video ads will eventually become a substantial revenue stream for us over time.

Martin Lau

President, Tencent

On Wednesday, Tencent spent much of the earnings call opening explaining the potential of video ads, highlighting just how big the revenue stream could be.

“Video accounts have become one of the most popular short-form video services in China with substantial user engagement,” Martin Lau, president of Tencent, told analysts.

“Strategically, they allow us to expand our advertising market share. As advertisers have already spent aggressively on several short video platforms, we should be able to capture more advertising budgets.”

Lau said it took five quarters for WeChat Moments, a social feature where users can post photos, videos and status updates, to reach 1 billion yuan ($147.42 million) in revenue. quarterly advertising revenue. He said video accounts would hit that target faster given “the current size of traffic and already strong advertiser demand for short-form video ads.”

“Video ads will eventually become a substantial revenue stream for us over time,” Lau said.

Tencent’s second-quarter online ad revenue fell 18% year-on-year to 18.6 billion Chinese yuan as macroeconomic issues in China led brands to cut budgets.

The Shenzhen-based company hopes video ads can help boost the division in coming quarters.

Competition is increasing

Tencent’s foray into short-form video is relatively new, and it’s now looking to take on the challenge of China’s version of TikTok Douyin as well as Kuaishou.

The market potential could be significant.

Short-form video revenue accounts for about 39% of China’s total digital ad revenue, according to data from QuestMobile. This is the largest ad revenue category ahead of categories such as social media and news.

Many Chinese tech giants have turned to short-form video and live streaming to unlock new revenue streams.

James Mitchell, Chief Strategy Officer of Tencent, said the revenue potential “per minute of time spent” on video accounts will be greater than Moments.

Companies like Alibaba have tried to use live streaming and short form video as a way to drive sales on its e-commerce platform. An influencer can advertise products through a video and users can click on items in the video to buy them.

When asked by an analyst if Tencent would go in this direction, Lau said livestreaming e-commerce was an “opportunity” but it would “take time”.

Lau said Tencent will need to publicize the video product and then onboard merchants and advertisers.

“We will try to do it step by step,” Lau said, referring to the development of video accounts.

Lance B. Holton