The New Geometry of Gaming: Inside Tencent’s Strategic Pivot

The global video game industry is currently weathering a profound "hangover" following a decade-long obsession with the "games-as-a-service" (GaaS) model. While high-profile failures have led many Western publishers to reconsider their reliance on recurring revenue, the world’s largest gaming company, Tencent, remains committed to the live-service dream—albeit with a significantly more nuanced, selective approach.

Yong-yi Zhu, VP and head of operations, strategy, and compliance at Tencent Games, suggests that the company’s focus is no longer merely on volume, but on the pursuit of "evergreen" experiences that define a player’s lifestyle. In an exclusive, wide-ranging discussion, Zhu outlines how Tencent is navigating a landscape defined by studio independence, the rising influence of Chinese development, and the controversial integration of artificial intelligence.

The Evolution of the "Holy Grail"

For years, the industry consensus was that live-service titles—games that evolve through constant updates—were the ultimate goal for any major publisher. Sony, among others, famously pivoted toward this model, only to face significant market corrections. Conversely, firms like Capcom thrived by doubling down on high-quality, traditional premium titles.

"I think our holy grail is live service, right?" Zhu admits. "You look at Tencent’s DNA—Honor of Kings, League of Legends, Valorant. These are games that build upon themselves. They provide stability to the studio, they build communities, and they become a lifestyle."

However, Tencent’s strategy is not a monolithic march toward GaaS. The company is actively refining its portfolio, shifting away from aggressive expansion toward a model of "synergistic partnership." This has resulted in several high-profile studio exits, including Splash Damage, Bulkhead, The Chinese Room, and Secret Mode, all of which have moved toward independence or different ownership structures in the last year.

Chronology of a Restructuring

The past 12 months have marked a period of introspection for Tencent’s global games division. The company, which oversees roughly 20 studios across Europe, North America, and New Zealand—including Sumo Digital, Funcom, Fat Shark, and Grinding Gear Games—has been forced to reckon with the realities of the post-pandemic market.

• Late 2024: Funcom implements a wave of redundancies, closing The Outsiders (the studio behind Metal: Hellsinger) to focus resources on the live-service title Dune: Awakening.
• Early 2025: A series of divestments occur, with studios like The Chinese Room and Splash Damage breaking away from the Tencent ecosystem.
• Mid-2025: Tencent clarifies its stance on studio integration. Zhu acknowledges that "not everything is a slam dunk," citing cultural differences and market conditions as primary drivers for the recent separations.
• Late 2025/Present: The focus shifts toward "evergreen IP." Whether the title is a traditional single-player experience or a multiplayer live-service game, the metric for success is now long-term community engagement rather than short-term spikes in revenue.

Supporting Data and Portfolio Dynamics

The financial stakes of this strategy are immense. Tencent’s portfolio represents a massive cross-section of the industry, but as costs of development skyrocket, the company is becoming more selective about where it deploys its resources.

Critics, including Bulkhead CEO Joe Brammer, have previously suggested that Tencent’s interest was limited to projects exceeding £50 million in budget. Zhu pushes back against this narrative, arguing that scale is not the sole determinant of a project’s viability. "I don’t think there’s anything stopping us from making smaller games," Zhu says. "We look at studios like Larian and FromSoftware—our ‘north stars’—who have built up their audiences over time with purposeful, high-quality craft."

Tencent’s support model has transitioned from a hands-on, top-down approach to a "specialist-embedded" model. Instead of dictating creative vision, the company now dispatches technical experts from its global hubs to work alongside developers. During the development of Dune: Awakening, for instance, experts from across Europe and China were embedded within Funcom to solve technical bottlenecks. This "knowledge-transfer" approach allows the parent company to provide value without stifling the creative autonomy of the studio heads.

The Shifting Geography of Development

Perhaps the most significant development in the last year is the rise of Chinese studios on the global stage, catalyzed by the massive success of titles like Black Myth: Wukong. This shift has forced a reassessment of where high-end development should take place.

Zhu notes that the barrier between Chinese mobile expertise and Western console/PC production is dissolving. "Chinese developers now know what ‘good’ looks like for console and PC," he explains. "They are leveraging better tooling and a deeper understanding of high-end aesthetics to bridge the gap."

This geographic shift is further accelerated by the high costs of maintaining large teams in traditional tech hubs like California. "North America is a tougher place to be," Zhu admits, noting that unless a team has a long-standing, cohesive history, the cost-benefit analysis often favors regions with lower overhead. Support teams, in particular, are increasingly being shifted to regions where the cost of talent is more sustainable, marking a structural migration of headcount away from the West.

The AI Frontier: A Tool, Not a Replacement

Tencent is leaning heavily into AI, a stance that distinguishes it from many Western studios currently grappling with player backlash and ethical concerns. For Zhu, the resistance in the West is a temporary hurdle. "People shouldn’t be afraid of AI," he argues. "It’s like the internet; it’s coming."

Tencent’s implementation of AI is framed strictly as a productivity multiplier. The company is using AI for:

1. Iterative Concept Art: Rapid prototyping to help smaller teams achieve higher visual fidelity.
2. Pipeline Automation: Rigging, motion matching, and code review processes.
3. Production Management: Using AI-driven bots to manage Slack channels and track internal workflows.

Crucially, Tencent is addressing the "black box" nature of generative AI by keeping its data silos restricted. "We make sure that our data is confined to our studios," Zhu emphasizes. "We have agreements with tool providers to ensure that our IP isn’t being scraped or leaked into the broader ecosystem. We aren’t using the general web to train our models; we are using our own historical libraries."

Implications: The Long-Term Play

The implication of this shift is clear: Tencent is moving toward a more sustainable, if less expansive, model of ownership. By shedding studios that do not fit its long-term strategic goals and doubling down on AI-assisted development, the company aims to avoid the boom-and-bust cycles that have plagued its competitors.

The "holy grail" of live service remains, but the path to it has changed. It is no longer about forcing every title into a GaaS box; it is about identifying "evergreen" potential—titles that can foster a lasting relationship with the player, regardless of whether that game is a single-player journey or a decade-long online service.

As the industry enters 2026, Tencent’s strategy suggests a future where the distinction between "developer" and "technologist" continues to blur. The winners of the next decade will likely be those who can balance the human element of creative direction with the relentless efficiency of AI-enabled production, all while maintaining the agility to exit partnerships that no longer serve the bottom line.

For Tencent, the objective is straightforward: "The more people love your game, the more they’re going to play it." In a crowded market, that remains the only metric that truly matters.