Internal secrets of the Chinese game industry
China’s online gaming has grown by leaps and bounds over the past decade. According to one report, published on Tech In Asia, China’s online game operators made RMB 82.1billion ($13.5 billion) in 2013. However, the market is dominated by a couple of giant game companies. A survey by the China-based Analysys International reveals that three companies, Tencent, Netease and Shanda, occupy 65 percent of the total market share.
The online game market in China presents a number of challenges for international companies eager to move into the market. The defining characteristics of the online game industry in China are its distinctive game genres, an imbalance in gender among gamers and the rapid update of Internet technology. Moreover, the industry structure is embedded in a complex ecology, one that incorporates government authorities, local game companies and transnational game companies. In short, there are substantial cultural, political and economic differences between the game market in China and Western Countries.
While console games are more popular in the most western markets, online games dominate in China. Action role-playing games, first-person action games and shooting games occupy nearly 60 percent of the whole market. 3D graphics are the most popular, taking 60 percent of market share, followed by 2.5D graphics and 2D graphics, at 23 percent and 17 percent respectively.
Online games are more likely to draw young people in. People born after the 1980s, and particularly in the 1990s, are ‘digital natives’. Much of their lives are spent on the Internet and consequently they have more opportunities to access online games. According to the Tech In Asia report, 65 percent of game players are under 25 years old. However, the report also notes that 73 percent of game players are male whereas in the US the gender ratio is more balanced. The imbalanced sex rate has a large impact on the game market as male and female players have different preferences in terms of game genre, task setting and graphic styles.
The growth of online games is contingent on Internet technology to a large degree. As broadband penetration has increased this has led to a spike in the number of Internet users. In 2000 there were just 23 million users. According to the Chinese Internet Network Information Center (CNNIC), the number had climbed to 457 million by the end of the decade. Moreover, considering the relatively low Internet penetration rate (34 percent of the population), the Chinese game market has a high margin for growth.
One of the technologies to directly influence the online game industry is the smart phone. An iResearch report reveals that the market share of mobile games in China reached 14.1 percent in 2012, only 2 percent less than that of web-games. The low technical threshold of mobile games provides a great chance for start-ups. In Chengdu, a city in south-west China with a large cluster of software and new media companies, hundreds of micro software companies are attempting to enter the online game industry by developing mobile games.
Government authorities play a critical role in any kind of media and cultural industry in China, including the online game industry. Some of the measures and policies put in place by government regulators have ‘guided’ the distinctiveness of the Chinese online game industry. Through its macro-management of the industry the Chinese Communist Party and the government encourage game companies to produce historical themes and traditional culture. The leadership hopes that online gaming, as a part of the cultural and creative industries, can become a platform to present Chinese history and culture.
As a result of this guidance from above some of the most popular themes for online games come from classical literature. Celebrated kungfu novels have been adapted for online games. Netease, one of the three gaming giants, has produced a series of online games based on popular historical story ‘The Journey to the West’. Many such games earn high revenue in the domestic market. In 2011, six of the top ten popular online games had Chinese historical themes as the back stories.
Political culture is also heavily infused in online games. In 2005 the China Communist Youth League (CCYL) observed that the Chinese online game market lacked games that reflected a revolutionary spirit and aroused young players’ patriotism. Consequently, various patriotism-oriented games, mostly related to revolutionary war themes, emerged on the game market. These online games can facilitate the expression of patriotic longings during times of international tension such as the ongoing disputes with Japan.
Local game companies are the most dynamic force in the Chinese game market. With the rapid rise of some top-tier game companies, some local games have extended their impact to the global market. League of Legend, developed by Tencent, a fast growing internet service portal, earned $624 million revenue in 2013, ranking the second in free-to-play online game market worldwide.
However, the development of domestic online games is still strongly influenced by foreign games, especially those from South Korea and the United States. Chinese University of Hong Kong researchers Chung and Fung point out that ‘Chinese online game companies adopted an imitation strategy that has become a standard practice of game development in China and which largely defines the market.’
Once an epic foreign game is imported to the domestic market and receives high recognition, it quickly impacts on the market. Many local companies, including top-tier ones, will imitate the game to create ‘new versions’. In an effort to make the foreign games amenable to local players, game companies integrate Chinese classical literature into the back-stories. More oriental visual elements will also be involved in the game to satisfy gamers’ aesthetic demands. This strategy helps Chinese game companies build a competitive advantage over foreign games in the local market.
Local game companies also receive benefits from transnational companies. Professionals in foreign game companies are often the primary target for local game companies. As discussed in a previous post in Asian Creative Transformations, local companies provide higher salaries and roles for highly skilled workers than foreign companies. There is a skill transfer along with human capital. As a result talented Chinese trained by foreign game companies are making a greater contribution to quality improvement in local online games.
Compared with the rapid expansion of local game companies, transnational companies encounter many obstacles. Games produced by international companies rarely compare with local games in terms of revenue and players. The main reasons for lack of success are market differences and government interference. The console game, which is the main output of foreign game companies, was banned from 2000 to 2014 over concerns about the harmful effects of violent games on youth. This restriction has decreased the entry of foreign games.
When transnational companies plan to release online games in the Chinese market, they must meet regulatory requirements while anticipating cultural barriers. Although all online games need to obtain government approval before release, domestically produced games face a less complicated road to market than games produced outside China. As I mentioned earlier the cultural barrier is inevitable and impacts on transnational game companies. Most Chinese gamers are not familiar with western culture. Aesthetic preference is an issue that limits the popularity of foreign games.
However, it is worth noting that game companies from South Korea have performed very well in the Chinese online game market. ‘Lineage’, an online game developed by NC Soft has run for 15 years and still has a competitive edge among the MMORPG games. South Korean games’ popularity can be attributed to their cultural similarity with China. Gamers in both countries have similar aesthetic tastes.
While the Chinese online game industry has grown rapidly it is evident that the market is dominated by a few large domestic companies, a convenient arrangement that helps to keep foreign companies at bay. Learning advanced concepts and technology from foreign companies, these top-tier Chinese game companies have acquired the capability to develop high-quality online games. The question that those local champions now face is how to build up an enviable reputation for their games in the global market.