Apple AAPL must again proceed with caution in China. The iPhone manufacturer wants a share of the revenue from games that are played on Tencent’s 700 All-in-one platform WeChat. For Apple CEO Tim Cook, this is a lucrative opportunity as mobile phone sales are declining. But if the US company applies too much pressure, it could jeopardise its hard-earned appeal in the world’s second-largest economy.

Tencent Chief Strategy Officer James Mitchell confirmed Thursday that the two companies are discussing revenue sharing on so-called mini-games, titles played directly on WeChat. Many titles can be played without users having to download them from an app store. These apps within an app have taken off for Tencent since their launch six years ago: More than half a billion WeChat users play mini-games at least once a month, the company announced at a developer conference in July, and advertising revenue from mini-games now accounts for 15 percent of WeChat’s total revenue.

The bigger profit for the duo could be in-app transactions or sales of digital goods and services acquired through mini-games. For regular apps, Apple would typically take a 30% cut. Mitchell confirmed that Tencent does not currently monetize its mini-games on Apple’s operating system through in-app transactions, but added that it would be in everyone’s interest if there was a way to do so “on terms that we believe are commercially viable and also fair.”

The stakes could be high. The recently released mobile game Dungeon & Fighter, for example, generated over $500 million in revenue in its first month as an app on Apple and Android platforms, according to market research firm Niko Partners. If a mini-game generated even half of that monthly revenue, a 30% commission would equate to nearly $1 billion in annual revenue.

For Apple, the additional revenue would be welcome. Sales in Greater China have fallen year-on-year for four consecutive quarters and the iPhone is losing market share to local competitors such as Huawei and Xiaomi. 1810Tencent would also benefit and could have tough negotiations, not least because the Cupertino giant is also under scrutiny in Europe and elsewhere for its app store practices. Apple is on a delicate non-virtual battlefield.

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CONTEXT NEWS

Chinese company Tencent announced on August 14 that it was in talks with Apple about sharing revenue from mini-games played on the all-in-one messaging app WeChat.

In a conference call with analysts following the release of the second-quarter results, James Mitchell, chief strategy officer of the Chinese group, said it would be in the interest of Tencent and Apple if there was a way to offer in-app transactions for mini-games, but “under terms that we believe are economically viable and also fair.”

Separately, Apple has asked Tencent and ByteDance to close loopholes that allow app developers to avoid Apple’s usual 30 percent commission on in-app transactions, Bloomberg reported on Aug. 2, citing people familiar with the matter.