The promise and problem of Roblox's future in China

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In a much-anticipated move, California-based gaming company Roblox submitted to go public last week. One aspect that drives the future growth of the child and community-oriented gaming platform is the entry into China, which he explains in detail for the first time in his IPO prospectus.

Like all gambling companies entering China, Roblox must work with a local publishing and operating partner. And like Riot Games, Supercell, Epic Games, Activision Blizzard, Ubisoft, Nintendo and many more, Roblox chose Tencent, the world's top-selling game company, according to Newzoo.

The partnership, which began in 2019, revolves around a joint venture in which Roblox has a 51% controlling interest and a Tencent subsidiary called Songhua has a 49% stake. The prospectus states that Tencent currently intends to publish and operate a localized version of the Roblox platform (罗布 乐 思) that will allow users to create games and play games programmed by others.

User-generated content makes Roblox popular with young gamers in part, but that social aspect almost certainly makes getting started in China more difficult. It is well known that the Chinese government is exercising more control over what is posted on the internet, and recently its control over game content has increased. Industry veteran Wenfeng Yang even went so far as to speculate that user-generated content games "never find their way into China," citing Animal Crossing's example.

Roblox believes it is "uniquely positioned" to increase its market penetration in China, but its "performance will depend on Tencent's ability to overcome regulatory hurdles." It is unclear what steps Roblox will take to prevent user-generated content from running counter to Chinese authorities, whose appetites for what is legitimate can be volatile. Tencent itself was in the crosshairs of regulators for allegedly "addicting" and "harmful" game content. It also remains to be seen how Roblox ensures that the user experience is not compromised by the censorship system in place.

Roblox chose Tencent as its Chinese partner. / Picture: Roblox

At its most basic level, Roblox claims it works to keep users safe through measures that "Enforce real world laws ”, including Text filtering, content moderation, automated systems to identify behaviors that violate platform policies, and a review team. The company is optimistic about getting China's regulatory green light:

"While Tencent is still working to obtain the necessary regulatory license to publish and operate Luobulesi (Roblox's local name) in China, We believe in the regulatory requirements that are specific to China will be fulfilled. IIn the meantime Luobu is working to build a robust developer community in China. ”

The company is rightly optimistic. China is the world's largest game market and Tencent has a proven record of turning its social network users into gamers. Roblox's marketing focus on promoting “creativity” could also go well with Beijing's call to tech companies to “do good,” Tencent replied. Roblox's Chinese website suggests promoting part of its business as a learning and STEM tool, showing that it will work with local schools and educators.

Even so, in times of uncertain US-China relations, Tencent is the elephant in the room. The U.S. Foreign Investment Committee or CFIUS, chaired by the Treasury Department, inquired about data practices by Tencent-backed game studios in the U.S., including Epic and Riot, Bloomberg reported in September.

Roblox is no exception. The prospectus says that CFIUS "asked us about Tencent's involvement in us and participation in the China JV. She also warns that she “cannot predict how further investigation by the US Foreign Investment Committee will affect our relationship with Tencent or changes in China-US. The overall relationship may affect our ability to effectively support the China joint venture or the operations or success of the China joint venture. "

The other obstacle for all foreign companies entering China is local clones. Reworld, supported by well-known Chinese venture companies such as Northern Light Venture Capital and Joy Capital, is one of them. The game is blatant about its origins. In a Reddit post responding to allegations that it was "a rip off from Roblox," Reworld pays tribute to Roblox and admits that its product is "built on Roblox's shoulders" while claiming "it has no code." taken over by Roblox Studio ". ”

The Beijing-based startup behind Reworld has raised more than $ 50 million and around 100 developers have worked on Reworld's editing tool and 50 other operational employees, its co-founder said in an interview in June. By comparison, Roblox had 38 employees in China as of September, of whom 38 were in product and design functions. It is actively being discontinued in China.

Roblox cannot comment on the story as it is in the dormant period of its initial public offering.