Chinese tech giant Tencent (OTC:TCEHY) owns stakes in two of the hottest video games in the world: Epic Games' Fortnite and PUBG Corporation's self-titled PlayerUnknown's Battlegrounds (PUBG). Fortnite was the third-most-popular PC game in the U.S. in April, according to Newzoo, with 24.2% of gamers playing the sandbox survival game. PUBG, which popularized the battle royale genre, ranked fourth with a 13.5% share.
However, PUBG, a subsidiary of South Korean publisher Bluehole, recently sued Epic Games in South Korea, alleging copyright infringement over Fortnite's new battle royale mode. PUBG was previously partnered with Epic Games, but PUBG started spotting similarities between Fortnite's battle royale mode and its own game last September.
PUBG's lawsuit highlights 11 similarities between the two games, including the user interface, health regeneration system, and maximum number of players per game. It's unclear how this legal battle will unfold, but it puts Tencent in an awkward position, as it wants both games to succeed.
What PUBG and Fortnite mean to Tencent
Tencent owns 5% of Bluehole, but reports in early May claimed that it was interested in doubling its stake. Tencent publishes two mobile versions of PUBG, while PUBG Corporation publishes the Windows PC version and Microsoft publishes the Xbox One version.
Although Tencent owns 40% of Epic Games, it doesn't directly publish Fortnite. Without hard sales figures, it's tough to say which game matters more to Tencent -- since it directly generates revenue from PUBG Mobile while taking a cut of Fortnite's sales.
Nonetheless, both games are still major pillars of growth for Tencent's gaming portfolio, which also includes esports favorite League of Legends, the mobile hit Honor of Kings (also known as Arena of Valor), and the kart racer QQ Speed Mobile. Tencent's PC game revenue stayed flat annually at 14.1 billion RMB ($2.19 billion) last quarter, but its mobile gaming revenue surged 68% to 21.7 billion RMB ($3.38 billion) -- easily offsetting the slower demand for its PC titles.
Can a mobile game developer win a copyright case?
Fortnite's battle royale mode -- in which players compete to be the last one standing -- might resemble PUBG, but plenty of mobile developers "borrow" features from other hit games. Candy Crush was inspired by Bejeweled, Temple Run spawned an endless list of so-called endless runners, and Tencent's QQ Speed Mobile clearly owes its existence to Nintendo's Mario Kart.
As a result, copyright cases against copycat games are generally tough to win, unless a developer proves that a company directly lifted assets -- like sound effects and graphics -- from the original game or used copyrighted characters like Mario. That's why we rarely see developers sue each other over similar games.
But PUBG doesn't plan to give up. It recently sued NetEase (NASDAQ:NTES) over its two new battle royale titles, Rules of Survival and Knives Out. NetEase isn't shy about promoting these games as PUBG clones -- the promotional art for Knives Out even features a man wearing the same battle helmet, white shirt, and tie as the man in PUBG's promos.
NetEase and Epic Games probably both think that PUBG can't "own" the battle royale genre that it arguably created. Even in the unlikely case that PUBG wins both lawsuits, NetEase and Epic could also probably circumvent the ruling by tweaking a few features.
What does this all mean for Tencent?
Tencent wants both PUBG and Fortnite to keep growing. This litigation between the two developers will likely drag on, but it probably won't impact either game's growth in users or revenue. Furthermore, investors should remember that the lawsuit only applies to Fortnite's battle royale mode, not its core game -- which remains hotter than PUBG in many markets.