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China’s games industry

David Cullinane 23 November 2018

The growth in video games over the last 2 decades has been nothing short of phenomenal. It has grown from a small cottage industry into one that is expected to be worth $137.9bn by the end of 2018. During this time, The industry has had to overcome incredible challenges – not only in keeping pace with (and driving) fast-moving technologies, but also the many socio-political challenges that have presented themselves as the world wrestles with this relatively new upstart on the media landscape. Its reach and influence are as impactful in the 21st Century as radio, television or newspapers were in the 20th.

Nowhere is this more apparent right now than in the People’s Republic of China, where two-thirds of those online engage in active gaming. There, games are not only enjoyed but are highly influential amongst the key 18-30 demographic. In recognising this, the PRC’s ruling party have stepped in to ensure that all content adheres to its strict policies of censorship. But are these draconian actions a shot in the foot for the Chinese games industry or a shot in the arm for the global games industry overall?

Taking action

During its continued growth around the world, the games industry has been subject to intense scrutiny and debate. Whether it be violence, gambling, age restriction, or dubious content, the narrative usually ends with ‘video games’ unnecessarily being cast as the boogeyman.

Not so in China where the government is not as open to discussion or dialogue when it comes to maintaining absolute autonomy over online content. Anyone who has visited China recently will have seen how closely intertwined games and mobile apps are in the fabric of day-to-day life. So, it should not come as a complete surprise for their government to take an active stance in ensuring that this content also abides by their strict policies of censorship.

Where things differ from other territories though is that there has certainly been less ‘debate’ and more ‘action’, with the ruling party taking arguably quite draconian steps to ensure that everyone conforms. The end result is a drastic clamp down in the number of games released in the territory thanks to the government freezing the approval of games licenses – something every game must have before it launches.

This new policy follows a re-shuffle within the government which has seen a consolidation of film, news, and publishing regulations under the powerful Communist Party publicity department. As they do with all forms of media, they have the power to ensure that all games content abides by their socialist values.

Stiff competition

The official line is that the government wants to curb ‘myopia’ in young players, with concerns about long-term health effects on particularly young players, with Goliath game ‘Honor of Kings’ singled out for particular criticism. In China alone, nearly 8,000 new games are introduced to the market each year. It’s a lottery as to whether each title is a success or not. With only a handful of these able to succeed, the publisher cuts its losses on the majority of titles, turning its focus and attention towards only the best performing.

The competition to succeed in China is fierce – twenty titles alone were responsible for generating 56% of gross revenue in 2017. In the absence of being able to provide a continuous new pipeline of product, it’s not surprising that the biggest publishers are being more cautious about the quality of games in development and ensuring continued performance of the most successful ones. Tencent, who is particularly exposed to the new rules, has seen $271bn wiped from its stock value since January 2018. Even in the face of such adversity, it has taken huge steps to protect its golden goose ‘Honor of Kings’ by introducing an age check system that verifies minors against a government database, also ensuring players don’t compete for excessive amounts of time.

Caught in the CrossFire

Few can argue that taking such measures can only be a good thing from a moral standpoint. However, it does obviously limit the amount of revenue that such lucrative games can generate. With no new licenses having been announced since March 28th, and fears continuing that none will be released for many more months to come, the biggest publishers will need to look further afield than the Chinese market to satisfy their shareholders.

However, anyone having visited ChinaJoy this year will have noticed that such games might not necessarily translate so easily to a western audience. Indeed, some of the highest grossing games there are titles that we in the west would not be that familiar with. Take for instance ‘CrossFire’ – a game that routinely shows up as being in the top ten highest grossing games in the world despite now being ten years old.

Yet, its popularity continues in Asian territories, as demonstrated by the new trailer that RealtimeUK recently produced to help celebrate its anniversary. Both the game and the trailer are a good indicator of the subtle cultural differences that exist between east and west, with the trailer having been tailor-made for a very specific Eastern audience.

Standing out

Regardless, in an age of limited new releases, publishers have to ensure that their existing titles continue to maintain maximum exposure to their key demographic audience. Tencent is fast realising that the key to this is ensuring that their games feature prominently on streaming video content sites. One particular company that is helping Tencent with this right now is Bili Bili – a platform that blurs the lines between gaming, anime and social media.

Despite Bili Bili itself also having succumbed to the Chinese government’s crackdown (the app was withdrawn by the government for several weeks earlier this year), it is clear that this strategy is helping them to continue to perform in a time of heightened restriction – as evidenced by Tencent’s own $316m investment in the company just two months ago.

Shot in the foot or shot in the arm?

At a time of incredible growth for the Chinese games industry – one that has seen it become the biggest in the world – it might appear that its government might have shot itself in the foot. However, it could be argued that the quality of its games and services can only continue to rise in the long term.

With fewer games being released, all efforts in China will need to be focused on ensuring that upcoming games will be of high enough quality and adequately resourced in terms of marketing collateral to stand the most likely chance to succeed – both at home and abroad.

Those with the biggest global IPs, that are able to overcome the subtle cultural differences between east and west, and are of high quality will stand to reap the rewards of success – especially if they are able to engage with their audience through online streaming video content. Whether east or west, YouTube or Bili Bili, those with the most successful marketing assets are likely to be the global dominating winners of the future.

RealtimeUK enjoys a fantastic reputation with our Chinese clients as displayed in our recent work with CrossFire. We understand the nuances of the market and how to aid growth in the west. Get in touch with me at [email protected] to discuss your latest project.