Tencent looks to short video ads to boost revenue amid gaming slump

Tencent looks to short video ads to boost revenue amid gaming slump
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Tencent runs the ubiquitous Chinese messaging app WeChat. The company has a short-form video feature on 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 it said advertising on its nascent short-video platform could become a “substantial” source of revenue in the future, even as other areas of its business, such as gaming, face pressure.

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

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

Tencent runs China’s most popular messaging app called WeChat It has more than a billion users. There is a short video platform built into WeChat. Users can scroll through different videos. In July, Tencent for the first time began showing ads to users on the service it calls video accounts.

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

Video ads will eventually become a substantial source of income for us over time.

Martin Lau

President, Tencent

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

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

“Strategically, they allow us to expand our share of the ad market. As advertisers have already been spending aggressively across multiple short-form video platforms, we should be able to capture more ad budgets.”

Lau said it took WeChat Moments, a social feature where users can post images, videos and status updates, five quarters to reach 1 billion yuan ($147.42 million) in quarterly ad revenue. She said video accounts will reach that goal more quickly given the “current size of traffic and the already strong demand from advertisers for short-form video ads.”

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

Tencent’s online advertising revenue in the second quarter fell 18% year-on-year to 18.6 billion Chinese yuan as macroeconomic problems in China prompted brands to cut budgets.

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

competition increases

Tencent’s foray into short videos is relatively new and it now seeks to step up the challenge to the Chinese version of TikTok Douyin, as well as Kuaishou.

The market potential could be great.

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

Many of China’s tech giants have turned to short videos and live streaming to unlock new revenue streams.

James Mitchell, chief strategy officer at Tencent, said the revenue potential “per minute of time spent” on video accounts will be higher than Moments.

Companies like alibaba They have tried to use live streaming and short-form video as a way to drive sales on their e-commerce platform. An influencer can advertise products through a video, and users can click on items in the video to purchase.

Asked by an analyst if Tencent will move in this direction, Lau said e-commerce live streaming is an “opportunity” but “it will take some time.”

Lau said Tencent will need to build awareness of the video product and then bring in marketers and advertisers.

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

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