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Why did Tencent invest a further $90 million into Pocket Gems?

Tracking the impact of Tencent's millions on Episode and War Dragons
Why did Tencent invest a further $90 million into Pocket Gems?

On May 11th, Chinese games giant Tencent invested $90 million in War Dragons and Episode developer Pocket Gems.

But this hefty cash injection wasn't the first, coming almost two years to the day after Tencent's original $60 million investment in the San Francisco outfit on May 14th 2015.

Tencent was flexing its considerable financial muscle in 2015, showing its intent in Western markets with key investments in Hammer & Chisel (now Discord), Miniclip and Glu Mobile - the latter deal worth $126 million and 15% of the company.

And of course, this spending spree culminated in the most high-profile of all, the acquisition of Supercell in June 2016. 

In the context of this, Tencent's original investment in Pocket Gems wasn't the biggest surprise in the world.

Spotting a gem

It came when the studio was transitioning from its early, rather typical F2P titles to a modern mobile studio, enjoying moderate early success with interactive narrative title Episode and having just launched its first midcore strategy effort in War Dragons.

These are now the two games around which the revamped Pocket Gems is built - the only games to appear under the 'Current Releases' section on its website - and both are strong performers.

First off, War Dragons - which launched only a month before Tencent's initial investment - has maintained an impressively consistent top-grossing performance.

Data from App Annie
Data from App Annie

In fact, War Dragons' US iPhone grossing position has actually made a steady improvement as the game has matured. It's not been outside the top 300 for more than two years, more often than not featuring in the top 100.

“The impact of Tencent's original $60 million investment is best highlighted by Episode.”

It's yet to enter the top 10, but it's featured many times in the top 50 - sitting at 35th as of May 22nd 2017.

That shows remarkable staying power, particularly in light of the fact that midcore was uncharted territory for Pocket Gems when War Dragons launched.

Before and after

But the impact of Tencent's original $60 million investment in Pocket Gems is best highlighted by the performance of Episode, which was first launched in February 2014.

This means that the game was on the market for more than a year prior to Tencent's investment. The below graph shows its US iPhone grossing performance, before and after Tencent's cash injection.

Data from App Annie
Data from App Annie

Evidently, the game began to gross dramatically better after the investment.

Episode's performance in 2014 and early 2015 was solid but unspectacular, and it seemed to be on a downward spiral until June 2015.

The decline was arrested in June, and in July Episode took further strides, beginning the month 372nd on the US iPhone top grossing charts and ending it in 147th. It's been above this ever since, and has been in the top 50 for all but one day since November 8th 2015.

“It would be reductive to suggest that Episode's rise is solely on the power of Tencent's investment.”

It's a dramatic turnaround, but it would be reductive to suggest that this is solely based on the power of Tencent's investment.

Joint effort

Pocket Gems has also actively updated the game in this period, and the rise also loosely corresponds to the introduction of Demi Lovato to the game in August 2015.

There have been other TV and Hollywood partnerships along the way that will have helped, but these alone cannot account for the sheer longevity Episode has enjoyed.

However, one area where Tencent's millions will have inevitably helped the cause is user acquisition, and there is a visible uptick in downloads following it.

Data from App Annie
Data from App Annie

Of course, the aforementioned partnerships with major names from other media is part and parcel of this, but all the UA money in the world can't buy you revenues like Pocket Gems is evidently generating from Episode and War Dragons.

“Tencent wants to give Pocket Gems the best chance of making it three hits on the spin.”

That requires engaging games and a best-in-class live ops team.

So why is Tencent investing in Pocket Gems again? Ultimately, because it's seen that this is a studio that can use it to sustain profitable, engaging free-to-play hits over a long period of time.

This $90 million backing from Tencent is designed to provide a similar boost to Pocket Gems' upcoming 3D synchronous multiplayer title as the original funding did for War Dragons.

The San Francisco outift is branching out again into new territory, and Tencent wants to give it the best chance of making it three profitable, sustainable titles on the spin.