Tencent is eyeing short video ads to boost revenue amid gaming slowdown

Tencent runs the ubiquitous Chinese messaging app WeChat. The company has a short-form 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 in the emerging short-form video platform could become a “substantial”[ads1]; source of revenue in the future, even as other areas of its business – such as games – face pressure.

The focus on this advertising product from one of China’s biggest tech giants puts it in direct competition with the country’s two leading card video players: ByteDance’s Douyin, the Chinese cousin of TikTok, and Kuaishou.

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

Tencent operates China’s most popular messaging app called WeChat which has over one billion users. It is a short video platform built in WeChat. Users can browse through different videos. In July, Tencent began serving ads to users in its service called Video Accounts for the first time.

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

Video ads will eventually grow into a significant source of income for us over time.

Martin Lau

President, Tencent

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

“Video Accounts has become one of the most popular short video services in China with significant user engagement,” Martin Lau, president of Tencent, told analysts.

“Strategically, they allow us to expand our ad market share. As advertisers have already spent aggressively on several short-form video platforms, we should be able to capture more ad 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 quarterly ad revenue. He said video accounts will reach this goal more quickly given the “current traffic volume and already strong advertiser demand for short-form video ads.”

“Video ads will eventually grow into a significant source of revenue for us over time,” Lau said.

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

The Shenzhen-headquartered company hopes video ads can help grow the division in the coming quarters.

The competition is increasing

Tencent’s foray into short video is relatively new, and it now looks set to step up its challenge to TikTok’s Chinese version Douyin as well as Kuaishou.

The market potential can be large.

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

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

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

Companies like Alibaba have tried using live streaming and short-form video as a way to generate sales on their e-commerce platform. An influencer can advertise products via video and users can click on items in the video to buy.

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

Lau said Tencent needs to build awareness of its video product, and then onboard merchants and advertisers.

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

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