informa
9 min read
News

The China Angle: The Impact Of China Gaming Companies

In his latest 'China Angle' column written for Gamasutra, Beijing developer Frank Yu looks at how China is handling online game development -- and how it could impact the segment worldwide.
[In his latest 'China Angle' column written for Gamasutra, Beijing developer Frank Yu looks at how China is handling online game development -- and how it could impact the segment worldwide.] Trying to describe the Chinese online game industry and its potential impact on the global gaming industry can be difficult to convey for those without some context of the Chinese internet and its relationship with policies set forth by the government. One of the best ways is to retell the clan invasion part of the MechWarrior story from the FASA gaming universe. For those born after 1985 or who missed the various MechWarrior games for other reasons, the MechWarrior universe tells of these renegade clans that left the corrupt and feuding Inner Sphere worlds to create a new utopia in the isolated and outer rings of inhabited space. They developed advanced technology, eugenics breeding and improved tactics from those of the Inner Sphere worlds where technology and tactics have stagnated for centuries. After some years fighting among themselves, the clans decided to attack the Inner Sphere and return to capture more worlds for colonization. With their advanced new machines and their more aggressive tactics, they swept over the first few planets, unmatched in their military prowess, as did the Mongolians in the ancient world. They were stopped from invading further only by a combined effort of the feuding Inner Sphere houses to put down their differences and fight as a unified entity with their inferior but more numerous technologies. Eventually, the clans became another faction in the Inner Sphere and continued fighting against each other again. As with the British music invasion, the entry of Japanese automobiles to the US, and Apple's impact on the music industry, Chinese game companies will be a disruptive force to be reckoned with in the future. Let’s explore the hostile landscape from which Chinese online games emerged. High Piracy The Asian game industry outside of Japan has always been plagued with a high proportion of software piracy for traditional boxed and retail video games. Piracy stifles local development as well as discourages foreign companies from setting up distribution and development in these emerging markets. Local consumers have a tendency to disregard the validity of non-tangible and digital properties. Low Disposable Income In developing countries, many consumers find it difficult as well as unwise to spend money on digital entertainment options while saving up for physical assets like homes, cars and physical goods. The high cost of console and PC games relative to income level discourages consumers from making game purchases. Even the cost of PCs leads to the use of internet cafes and mobile devices as gaming venues. Ban on Consoles The Chinese government has a current ban on game consoles, as Korea once did, leading to the PC becoming the country's primary gaming device. Popular games in China tend to rely on keyboard and mouse rather than joysticks or other dedicated game controllers. Cutthroat Local Market The Chinese game industry remains a competitive one with established players like Netease, Shanda, Perfect World, and Giant dominating. Foreign companies coming to compete in the local market face government regulations, intense predatory behavior and a closed and difficult distribution situation. As the saying goes, only the strong (and the ruthless) survive. Many observers describe the Chinese game industry as a shark tank. So what factors have let it acquire this reputation? Free-To-Play And Virtual Items Although the Chinese game companies did not originate the free to play model, they have taken it to a scale and efficiency to make it a potential $11 billion industry in 2012. When the Chinese companies switched from subscriber to free-to-play and virtual items model, they created an industry that allowed for low barriers of entry for new and casual players. Their expertise in developing seasonal and gifting virtual items alongside deep knowledge of their target users make them as analytic driven as an web commerce company in the US. Online/Offline events and marketing Starting with Giant’s push in China to bring offline marketing and events to online gaming, all the Chinese game companies have expanded their local and offline partnerships in second- and third-tier cities. For massive online games, understanding and serving the individual regional local preferences allow companies to reach and penetrate ever more remote corners of China. This aggressive, fast-moving approach to serving users moves the games industry to closer to a consumer consumption model than an entertainment model. This perspective of games as consumables means that product development and marketing of games will approach that of other consumer goods for reaching a more mainstream audience. Scale And Dynamic Distribution China has a massive population of online users. Running servers and operations in China requires the ability to juggle the resource and bandwidth of peak concurrent users that would dwarf and scuttle game servers in the West. The ability to manage these back end problems has become a specialty that many Chinese game companies have had to manage and deal with in the past. In terms of handling these massive game events, China has developed a solid core of professionals able to dynamically manage and keep servers standing in the midst of peak loads. Agile and iterative Chinese companies by their nature are fast companies that iterate very quickly. Although not based on Agile development per se, by brute force of the workers and constant updates and tweaks, Chinese games develop, adapt, and re-ship very quickly. Version 1.0 may be crap, but version 2.0 will bandage those problems. By version 3.0 one sees iterative and solid improvements. The feedback and fix loop of Chinese development relies on close observation of players by development teams releasing and updating in a very rapid cycle. Game Design For Monetization As a business, the game design in Chinese companies becomes secondary to the monetization of the user base. Although the development of good games remains a goal, the primary focus aims to develop games that drive revenue from the user and to formulate a game design that best makes this possible. A successful game is not one with a great narrative, a fun experience, or a sense of artistic merit, but one that reaches and exceeds a revenue target and commercial popularity. Unlike in the West, where the drive to create a well-crafted game remains primary with the belief that revenues will follow, Chinese games are designed for maximizing revenue even if gameplay becomes secondary. This tenacious drive for revenue comes about from a hyper competitive market that weeds out the weak quickly. Social, Web and Mobile Entertainment Due to the high technical bar for console development and the lack of a local market, Chinese companies have been expanding into web, mobile, and social gaming where the technological and capital requirements for development remain relatively low. Since these fields also represent the high growth areas for reaching mainstream and social gamers, they provide a way for Chinese companies to go global and maintain parity with foreign companies in technology and costs. Chinese game content and virtual item microtransactions have been leveraging social game dynamics for a longer period than in the West, since these were the financial life preservers of the early online game industry. Expertise in these fields would serve as the spearhead to reaching the more mature and developed markets of the west. Cash Cows From Domestic Operations The dominance and scale of operations in China for the large game companies mean that they can fund global expansion with a massive war chest of capital in the immediate future. Using this cash they can buy their way into the US gaming industry by acquiring US developers or incubating their own from the remnants of consolidating US companies. Much like in China, where they used their scale and networks to dominate their channels, the transition of digital distribution in the US affords a potential opportunity for creating a beachhead. As traditional retailers like GameStop and Wal-Mart feel the bite of online distribution, US companies that dominated retail shelf space in the past like Electronic Arts will find themselves as equals in the online digital marketplace with new and Asia based companies. Relatively Low Cost Base The argument still holds true that developing in China remains more cost effective in the US for certain game productions. Console development in China remains problematic because getting skilled developers and artists for that level of precision and collaboration continues to be challenging, but developing web, mobile, social and MMORPGs in China remains viable where production teams can develop expertise and agility in those fields. Although the bottleneck still remains for experienced producers, creative leads, and senior developers in China, the situation has still not reached the high cost (or high productivity) structure of the US. The arrival of Chinese companies to the US is already underway, not just in the game industry but also in technology, manufacturing and financial institutions. Like other waves coming from abroad to US shores, the initial success of foreign companies will be buffered eventually by US companies adapting to the new dynamics of the industry. US companies may be slower and more complacent, but they also have great processes and management structures that allow them to adapt, counter and accept new models and game concept. Chinese companies may at first be successful but the inherent flaws in their management and decision structure will hobble them to further global growth. The infighting and politics within a Chinese company remain a deep weakness for continued growth and expansion outside of China. Although the tight hierarchical structure of Asian companies may help it to grow and succeed in their home markets, the top down hierarchy of Chinese companies will be their undoing as they attempt to diversify and create global products. Chinese companies may be great revenue machines, but they are not necessarily well run companies from an organizational standpoint. We may see a future game landscape in the US where Chinese companies will just be another player once equilibrium, in the Inner Sphere returns and absorbs the invaders into the system. When Chinese products and culture becomes embedded within the US consumer landscape, the Chinese online game companies may make an impact yet and change the game for a little while.

Latest Jobs

Treyarch

Playa Vista, California
6.20.22
Audio Engineer

Digital Extremes

London, Ontario, Canada
6.20.22
Communications Director

High Moon Studios

Carlsbad, California
6.20.22
Senior Producer

Build a Rocket Boy Games

Edinburgh, Scotland
6.20.22
Lead UI Programmer
More Jobs   

CONNECT WITH US

Register for a
Subscribe to
Follow us

Game Developer Account

Game Developer Newsletter

@gamedevdotcom

Register for a

Game Developer Account

Gain full access to resources (events, white paper, webinars, reports, etc)
Single sign-on to all Informa products

Register
Subscribe to

Game Developer Newsletter

Get daily Game Developer top stories every morning straight into your inbox

Subscribe
Follow us

@gamedevdotcom

Follow us @gamedevdotcom to stay up-to-date with the latest news & insider information about events & more