Lego Joings Forces With China's Tencent to Develop Online Games -- Update

Lego Group is teaming up with one of China's biggest tech firms to develop online games for children, as it and the rest of the toy industry try to navigate technology shifts that are changing how children play.

Lego said it would jointly develop Lego-branded games with Tencent Holdings Ltd., the Chinese tech giant that runs one of the country's most popular social networks. The tie-up is geared at making games for Chinese children, Lego said Monday.

Tencent is the country's biggest purveyor of videogames, as well as the owner of WeChat -- at its core a messaging app, though it is also used by about a billion people to pay bills, book movie tickets, play games and more. Tencent also has online gaming tentacles that extend far beyond the country's borders. It has big strategic investments in global gaming firms like Finland's Supercell, the maker of mobile hit Clash of Clans, and smaller U.S. online gaming pioneer Epic Games.

Lego has hit sales headwinds for its plastic brick sets in its more established markets, and is pushing aggressively into Asia to help make up for some of that sluggishness. In September, the company reported its first global sales drop in 13 years and said it would lay off about 8% of its staff. In August, the privately held Danish company named a new chief executive to help turn things around.

Amid an industrywide slowdown, Lego and competitors like Mattel Inc. and Hasbro Inc. have acknowledged rising competition from growing digital options for children -- including mobile games, online video and children-targeted social media.

Lego has long experimented with digital options on its own. In its latest solo effort, rolled out in December, Lego released an augmented-reality app that allows children to play with virtual Lego sets on smartphones and other devices. But its digital efforts have so far yielded mixed results. Euromonitor analyst Matthew Hudak, in a recent research note, wrote Lego's mobile-gaming business hasn't yet translated into a major hit for the brand.

Lego said the collaboration with Tencent will include new Lego branded and licensed games, as well as videos for children that will be distributed on Tencent platforms. The two also plan to roll out Lego Boost, an online platform that allows children to combine computer coding with physical brick construction. The line is already available in other markets like the U.S. and Europe. Lego said the two would also explore developing a social network for children in China.

Lego views China as a promising new market for its real bricks, too. In the U.S., even as Legos remain popular, the company has struggled to spur enough repeat purchases to maintain its supercharged growth rate there. On the other hand, its market share in China is still tiny, providing more opportunity for growth.

Lego sales in China have so far been mainly restricted to major cities like Beijing and Shanghai, but the company is increasingly focused on rolling out further afield to smaller cities. Lego has long cultivated an image of combining learning with play. That could also resonate with Chinese parents, who place a strong emphasis on education.

While privately held Lego doesn't break out sales for individual countries, the company has recorded double-digit sales growth in China for a number of years, according to a spokesman. He said Lego grew between 30% and 35% in China in 2016, the latest full-year results available.

That year, Lego opened its first Asian factory, in China. The plant, just south of Shanghai in Jiaxing, employs more than 1,200 people and is expected to make between 70% and 80% of all Lego products sold in Asia.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

(END) Dow Jones Newswires

January 15, 2018 08:51 ET (13:51 GMT)