[This article was originally posted on my personal blog, where I'll be writing a lot more regularly in the future.]
I’ve just returned from an ever-bustling Shanghai, where my company has an office for its work on the Game Developers Conference China show, which is being held this November in the utterly cool-looking Sino-Soviet Friendship Center (pictured, left).
As we’ve been working on what we plan to do to expand our products in the market, one massive takeaway has been an ever-larger gulf in visibility and intelligence between the Western game market and the Chinese game biz.
When our team briefed me on the big online game launches for this year from market-leaders like Tencent, Shanda, NetEase, ChangYou and Giant, for example, I hadn’t even _heard_ of many of the titles in question. Duke Of Mount Deer? A Chinese Ghost Story Online? And these are games that may reach 1-2 million PCUs (simultaneous players) if extremely successful.
In fact, the market as a whole grew 26% in 2010 to about $5 billion, according to Chinese Ministry Of Culture research - and at super-high profit margins for the top companies, thanks to the low cost of digital distribution.
Having also spoken to a number of game industry insiders on the Chinese market when we visited Shanghai, here’s some received trends for 2011 that have made me understand the market a little better. (And yes, YMMV, please feel free to disagree or amplify in comments!):
- If you’re creating an online game in China - and let’s not forget, there’s basically zero market for non-microtransaction based games thanks to piracy - the best way to a ‘guaranteed’ hit is still to get picked up by a massive company like Tencent or Shanda.
- However, in those circumstances, a surprisingly high percentage of revenue (as much as 50-70% or even more!) often goes to the publisher (for client-based games) or the platform (for Facebook-like social game systems like RenRen.com or Kaixin), because the large Chinese public companies understand that they ‘own’ the eyeballs, and have already set a precedent for getting higher revenue share. Suddenly, Facebook Credits’ 30% seems relatively reasonable!
- Interestingly, even though you’re paying out a rather high percentage, in many cases, you still have to host your own servers for both online AND social network games, in _addition_ to letting the publisher/operator take a high percentage of revenue. (This may be different if you’re a foreign company and the operator translates the game in co-op with you, naturally.)
- There’s definitely a trend around the rise of successful smaller studios, especially those with browser-based multiplayer games that have microtransactions and can be promoted in alternative ways to big publisher contracts. For example, 7th Road’s Dan Dan Tang (semi-NSFW English language review) has been a big hit with its Worms-like gameplay.
- For the largest Chinese game companies, it appears that there’s a very long life for the top online games, way exceeding the 3 years that used to be the norm. In fact, NetEase’s Fantasy Westward Journey hit an all-time high of 2.6 million _simultaneous_ players in 2010, despite having launched all the way back in 2004.
- Nonetheless, there’s lots of competition for users, and many of the major games look the same. So differentiation is very difficult. Notably, I was told that only 6 new Chinese online game titles in 2010 (from a total of more than 200 major launches) have reached more than 100,000 simultaneous users - and most of those are not from the ‘big 5′ companies.
- As a result, bigger Chinese game publishers/distributors are starting to indicate that they will become more developer-friendly and give higher percentages of revenues to third-party games. In other words, they are recognizing the success that can sometimes come from independent or external firms with greater opportunities to break out, such as Dan Dan Tang’s creators.
- In terms of Western penetration, I think it’s fair to say that Korean titles are very popular in China, but other than World Of Warcraft (now with NetEase), no other microtransaction-based games from the U.S. or Europe have made a major impact. Tencent clearly believes that Riot’s League Of Legends has a big chance to succeed in China, hence buying the company at a valuation close to $500 million, but the proof will be in the pudding - it’s certainly the ‘most-likely’ in terms of gamer excitement.
- Ironically, there _are_ a couple of Western franchises - Plants Vs. Zombies and Angry Birds - that have been massive recent hits in China. But of course, they have made basically no money, since it’s all been on the back of massive iPhone game pirating. (It’s incredibly easy to get your iPhone jailbroken and either download or go to a local store to get free games in China.) PopCap’s solution is to try to monetize in other ways, including a RenRen.com social adaptation. And the rapid rise of Android in China may help with mobile game microtransaction growth. But it’s still rough.
Hopefully these insights have helped. But overall, the story of ‘you don’t know/understand enough about China’ is a bit of an over-repeated one. We’ll all learn more about the Chinese market if there’s more translated material in both directions, and that’s something Gamasutra is looking strongly into doing. (We have some good leads, but if you’re a China-based journalist with strong writing and translating skills, contact us.)
In the meantime, there are a couple of decent sources for Chinese game news in English that I’ve located. Specifically, the boutique research form Pacific Epoch, which once did a China column for Gamasutra, has good-quality basic news on the public-traded companies - although it lacks a working RSS feed.
In addition, Chinese game site 178.com has an English-specific site with a _lot_ of news on the Chinese game biz with decentish translations. Definitely worth checking out, although some of it - blog post and game announcement translations -is intriguing, some of it - specific game update info - is decidedly less so.
(Oh, and on a slightly different but related Asian game news note, the veteran Korean game business website ThisIsGame.com has an English-language website called TIG Global which has some good coverage of South Korea’s also intriguing game biz.)