Tencent, Huawei and Apple's test in China

Hi there, this is Zheping in Hong Kong. A private tug-of-war between China's most powerful internet firms and smartphone makers has escalate [View in browser]( [Bloomberg]( Hi there, this is Zheping in Hong Kong. A private tug-of-war between China's most powerful internet firms and smartphone makers has escalated to levels never seen before. But first... Three things you need to know today: • Top record labels are [suing AI startups for IP infringement]( • China’s big three telcos are [under US investigation]( • Nvidia’s investor relations chief is leaving to [become CFO of a startup]( The gravity of Tencent Tencent Holdings Ltd. this month yanked Dungeon & Fighter Mobile — its hottest new blockbuster — from Android app stores in China. The company had had enough of the fees those stores charge for hosting its games — higher than even Apple Inc.'s typical 30% — and decided to go it alone. That's because the title churned out [$270 million in sales]( over its first month on iOS alone, blowing away expectations and allowing Tencent to be more assertive. It was a long-overdue power move from the world’s biggest games publisher. In China, unlike anywhere else in the world, the default sales split on games revenue is 50% each, with one half going to the games developer and publisher and another going to the app store operator, which is the company making the phone. Tencent’s now encouraging Android users to download the game from its own distribution platform, skipping the middlemen. The thinking inside the Shenzhen-based firm is that DnF Mobile presents the right moment to take a stand against the old business model. At a time that Apple — and Google, with its Play Store for Android outside of China — is getting rebuked by governments and sued by consumers over its 30% fees, Chinese phone makers getting 50% is seen as absurd. Tencent, which declined to comment on its rationale for withdrawing DnF Mobile from those app stores, is big and influential enough to make the change. But its move, exceptional as it was, is part of a broader conflict that’s coming to the surface. Huawei Technologies Co. is also making moves to assert itself over the mobile ecosystem (again). Last week, my colleague Li Pei reported that Huawei is [in discussions]( with developers over a 20% commission for game sales, lower than both Android device makers’ big cut and Apple’s usual platform tax. That’s the compromise Huawei’s willing to make to get more creators aboard its new Harmony OS, which will soon lose its compatibility with Android apps and have to rely on tailormade software. That’ll have ripple effects. We also reported that Huawei intends to [exempt Tencent’s WeChat]( from any revenue sharing, to ensure that the super-app continues to be supported on Huawei devices. In other words, WeChat gets to live rent-free on Huawei phones, because a phone without it in China is not much more than a slim camera. The impact of all this might not be immediately noticeable to consumers in China. Game publishers won’t suddenly drop their prices if they have to pay a smaller platform tax to the likes of Oppo, Vivo or Xiaomi Corp. But over the longer run, making game creation a less economically precarious undertaking is likely to yield better games. After all, the reason we ended up in this situation is because of a quantity-over-quality approach. A [Caixin Global report]( from 2021 sets out the history of how we got to such stratospheric fees, and there’s blame to go in all directions. About a decade ago, game makers were chasing popularity by any means necessary and weren’t concerned about profit margins. That’s when Huawei, Oppo, Vivo and others seized the opportunity and created something called the Mobile Hardcore Alliance. The idea was to band together to create and preserve a model that would ensure they earn higher commissions from developers like Tencent. Tencent and Huawei are now pursuing new paths that will test the mettle of the remaining Hardcore Alliance members. Will they insist on 50% of a a shrinking pie? Or might they carve out an exception for Tencent and its games, as a concession to keep the big dog happy while squeezing the rest? I’ll be watching this situation closely, as it’s shaping up to be one of the biggest stories in China’s consumer tech this year, not least because it’ll affect the iPhone and might incite a reaction from Apple as well.[—Zheping Huang](mailto:zhuang245@bloomberg.net) The big story Uber began locking out its NYC drivers mid-shift to limit their pay when rider demand is low. Lyft says it will begin doing the same. Under a six-year-old city wage rule, the two ride-hailing companies are required to pay drivers for the idle time they rack up between rides. But the lockouts get them out of it, [and they’ve reduced drivers’ wages as much as 50%.]( One to watch Nvidia shares fell 6.7% on Monday with the stock extending losses for a third consecutive session, wiping out more than $400 billion in value and pushing its market capitalization below $3 trillion. Wealth Enhancement Group Portfolio Manager Ayako Yoshioka joins Ed Ludlow to discuss on Bloomberg Technology. Get fully charged Oracle warns that a [TikTok ban would hurt its profits.]( Apple and Meta are not discussing an AI partnership, after [the iPhone maker declined overtures.]( Target is partnering with Shopify to [expand merchandise selection.]( The ransomware-as-a-service BlackSuit hacking group has been blamed for [the ongoing US car dealer outage.]( More from Bloomberg Get Bloomberg Tech weeklies in your inbox: - [Cyber Bulletin]( for coverage of the shadow world of hackers and cyber-espionage - [Game On]( for reporting on the video game business - [Power On]( for Apple scoops, consumer tech news and more - [Screentime]( for a front-row seat to the collision of Hollywood and Silicon Valley - [Soundbite]( for reporting on podcasting, the music industry and audio trends - [Q&AI]( for answers to all your questions about AI Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. 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