Roblox, the gaming company headquartered in California, recently submitted its application to become a publicly traded company. A key factor expected to contribute to the growth of this gaming platform, which centers on children and community interaction, is its planned expansion into China – a strategy detailed for the first time within its initial public offering documents.

As with all gaming businesses seeking to operate within China, Roblox is required to collaborate with a local partner for publishing and operational support. Following the lead of companies like Riot Games, Supercell, Epic Games, Activision Blizzard, Ubisoft, and Nintendo, Roblox has selected Tencent, recognized by Newzoo as the world’s leading gaming company in terms of revenue.

This partnership, established in 2019, is structured as a joint venture where Roblox maintains a controlling interest of 51%, while a Tencent subsidiary known as Songhua holds the remaining 49%. The prospectus indicates that Tencent plans to publish and manage a version of the Roblox Platform specifically tailored for the Chinese market (罗布乐思). Globally, the platform enables users to both develop and experience games created by other players.

The popularity of Roblox among younger players is significantly driven by content created by its user base; however, this characteristic may present challenges to its entry into China. It is generally acknowledged that the Chinese government is increasing its regulation of online content, with a particular focus on gaming. Wenfeng Yang, a seasoned industry professional, even suggested that games featuring user-generated content may “never gain access” to the Chinese market, referencing the situation with Animal Crossing as an example.

Roblox expresses confidence in its potential for growth within China, but acknowledges that its success “will rely on” Tencent’s ability to navigate the country’s regulatory processes. The specific steps Roblox will take to ensure its user-generated content complies with Chinese regulations, which can change unexpectedly, remain uncertain. Tencent has previously faced scrutiny from regulators regarding gaming content deemed “addictive” or “harmful.” Furthermore, it is yet to be determined how Roblox will maintain its user experience while implementing any necessary censorship measures.

Roblox states that it prioritizes user protection by implementing various safeguards intended “to uphold applicable real-world legislation,” such as content filtering, moderation practices, automated detection of policy violations, and a dedicated review team. The company conveyed in its documentation a positive outlook regarding potential approval from Chinese regulators:

“Although Tencent is currently in the process of securing the necessary regulatory authorization to launch and manage Luobulesi [Roblox’s designated name in China], we anticipate fulfilling the specific regulatory demands of China. Currently, Luobu is concentrating on building a strong network of developers within China.”

The company’s confidence appears justified. Tencent possesses a demonstrated ability to transition its social media users into gaming enthusiasts and to successfully publish games developed internationally. Roblox’s promotional emphasis on fostering “creativity” may align favorably with Beijing’s directive for technology firms to contribute positively to society, a request to which Tencent has responded. The Chinese version of Roblox’s website indicates that the company is presenting a portion of its operations as an educational and STEM resource, and it is actively pursuing partnerships with local educational institutions and teachers.

Daniel Ahmad, a games industry analyst with Niko Partners, explained to TechCrunch, “Roblox targets a younger demographic, and the vast majority of its content is unlikely to present problems for China.” He added, “However, we do foresee potential challenges stemming from its user-generated content capabilities, which could be exploited in ways that Chinese authorities might find objectionable.”

A more streamlined entry into China may be possible. Yang, the U.S. general manager for the China-based game developer Yoozoo, suggested to TechCrunch that “Roblox China could initially focus on inviting Chinese developers to contribute content for the worldwide market, rather than immediately launching the full platform in China under stringent regulations.”

Generally, it is becoming more challenging for international games to gain access to the Chinese market. In 2019, 185 foreign games received approval for release within the country, but to date this year, only 56 foreign games have been authorized, as Ahmad pointed out.

Geopolitics

Tencent’s role is a significant consideration, particularly given the current state of U.S.-China relations. According to a Bloomberg report from September, the Committee on Foreign Investment in the U.S. (CFIUS), led by the Treasury Department, was investigating the data handling procedures of gaming companies operating in the U.S. that have Tencent backing, such as Epic and Riot.

Roblox is also subject to scrutiny. The company’s prospectus reveals that CFIUS has “requested information from us regarding Tencent’s investment in our company and its participation in our Chinese joint venture.” It also acknowledges that it “cannot foresee the impact of any additional investigation by CFIUS concerning our ties with Tencent, or broader shifts in U.S.-China relations, on our capacity to effectively maintain the China joint venture or on the joint venture’s performance and overall success.”

A further challenge for all international companies seeking to enter the substantial Chinese gaming market is the emergence of local imitations. Reworld, supported by leading Chinese investment companies including Northern Light Venture Capital and Joy Capital, is an example of this. The game openly acknowledges its inspiration. In a Reddit response to claims that it is “a copy of Roblox,” Reworld recognizes Roblox’s influence and states its product is “developed with inspiration from Roblox,” while asserting “no code was taken from Roblox Studio.”

The startup based in Beijing that developed Reworld has secured over $50 million in funding and employs approximately 100 developers focused on Reworld’s editing tools, along with 50 staff members in other operational roles, as stated by a co-founder in a June interview. By comparison, Roblox had a team of 38 employees in China as of September, all of whom were dedicated to product and engineering. The company is currently expanding its workforce within China.

Due to being in the initial public offering quiet period, Roblox is unable to provide commentary on this matter.

Expert insights were included on November 23, 2020.