The partnership between Nintendo and Chinese giant Tencent, announced in April, is off to a slow start. The idea is that partnering with Nintendo will help Tencent get into the console business.
While the Switch has been a fantastic seller for Nintendo, holding its place as the top-selling console in the U.S. for the last ten months, some have wondered why Tencent didn’t tap a more consistent player like Sony. Nintendo’s more traditional consoles like GameCube and Wii U weren’t commercial successes, but for Tencent, a company historically focused on mobile games, the Switch is an easier jump for their engineers to develop since it’s similar to mobile, which they already excel in.
“The Switch is built on mobile architecture,” Randy Nelson, an analyst with Sensor Tower, tells Fortune. “At the end of the day, the Switch is an extremely well put together but elaborate cell phone, basically. I think that really has to play some role in Tencent’s focus on Nintendo and focus on the Switch.”
The overarching goals of the partnership were to bring Nintendo’s flagship Switch console to China and help Tencent break into the U.S. market. But, both endeavors have stalled. The effort to expand the Switch to China was thwarted by the country’s regulations, and Tencent’s Switch release, Arena of Valor, a massive hit in China, flopped with the American audience.
Despite the disappointing start, it’s far too early to write off the Tencent-Nintendo partnership. Tencent still has a lot it can learn from Nintendo, a Japanese company that’s already emerged as a dominant player in the Western gaming industry. While Tencent has already waded into the U.S. market, investing in American game companies including Riot, Ubisoft, and Activision-Blizzard, it needs to find success with its own intellectual properties in order to be a big player.
“I think they realize that going alone, investing $100 million in a triple-A console game or IP that they won’t own outside China isn’t the best way to go,” says Daniel Ahmad, an analyst with Niko Partners.
A Tencent official told The Wall Street Journal that it’s looking to the expertise of Nintendo engineers to build consoles of their own. The Chinese conglomerate will also get a second chance to release its own game, this time possibly with Nintendo characters. It could be a feature that gets early buy-in from Nintendo’s U.S. fans–something that their first game Arena of Valor didn’t have—but it also needs to be a game worth playing.
“Consumer expectations, especially around these beloved Nintendo properties and other really well-known properties, are set so high now that it really needs to knock it out of the park,” Nelson says. “There’s this added weight resting on Tencent in this situation. If it goes forward and enters the Western games console market in a big way with titles that are using top-tier Nintendo IP, and it fumbles somehow and doesn’t deliver, the downside is going to be even more severe.”
