Games com­pa­nies are locked in mor­tal com­bat for bil­lions of dol­lars with China as the main bat­tle zone, China Daily

China Daily (Hong Kong) - - BUSINESS -

Chi­nese video game com­pa­nies are play­ing for high stakes. As the global gam­ing mar­ket en­ters an in­creas­ingly mo­bile era, they are be­ing forced to adapt to an in­dus­try which is mov­ing to­ward freeto-play.

One of the lat­est sec­tor re­ports by Lon­don-based ven­ture cap­i­tal firm Atomico showed that China sur­passed the United States as the gam­ing cap­i­tal of the world by rev­enue last year, top­ping $101 bil­lion. Up to 38 per­cent of that rev­enue came from mo­bile gam­ing.

Com­pe­ti­tion is as fierce as it has ever been and while Chi­nese mo­bile game com­pa­nies fight to stay on top, for­eign ri­vals are try­ing to mus­cle in.

Still, one ques­tion is on ev­ery­one’s mind: How to make money on free-to-play games?

“The tran­si­tion to­ward the free-to-play mon­e­ti­za­tion model has been ab­so­lutely crit­i­cal,” said Tom Wehmeier, prin­ci­pal and head of re­search at Atomico and au­thor of its re­port.

Last year, gam­ing rev­enue in China reached $24.6 bil­lion, the high­est in the world.

It sur­passed the US by $500 mil­lion and Europe by $4.3 bil­lion, ac­cord­ing to Atomico’s re­port, Europe Meets China — How The Games In­dus­try Is Evolv­ing.

The coun­try’s sta­tus as a global games gi­ant is largely due to Ten­cent Hold­ings Ltd, the Shen­zhen-based cre­ator of WeChat and QQ .

The on­line group al­ready has a war chest of suc­cess­ful for­eign ti­tles such as Riot Games’ League of Leg­ends.

Do­mes­ti­cally, its mul­ti­player in­ter­net block­buster pro­duc­tion King of Glory, also known as Honor of Kings, is ex­pected to con­trib­ute more than 50 per­cent of Ten­cent’s mo­bile game rev­enue this year, ac­cord­ing to Bloomberg.

“One thing that is per­haps not un­der­stood out­side of China is just how much of a rich tra­di­tion there is in terms of the lo­cal Chi­nese game de­vel­oper com­mu­nity,” Wehmeier, of Atomico, said. “These guys pro­duce some of the best con­tent in the world.”

King of Glory, a free game with on­line pur­chases sim­i­lar to League of Leg­ends, grossed $435 mil­lion in April, with pro­jected an­nual rev­enue of $5 bil­lion, ac­cord­ing to Atomico’s re­port. The game is one of the high­est in down­loads and rev­enue on the Ap­ple iOS store, ac­cord­ing to App An­nie.

Smash hits, such as King of Glory, are the po­ten­tial re­wards for for­eign gam­ing com­pa­nies who “get it right” in China, ac­cord­ing to Wehmeier of Atomico.

“There is no rea­son why a for­eign game (com­pany), given the right part­ners … couldn’t go on to achieve that level of suc­cess,” Wehmeier said. “The risks are big but the risks can be mit­i­gated given the right ap­proach.”

Mo­bile gam­ing rev­enue is all about the small per­cent­age of the global au­di­ence pay­ing up to $1,000 per month. These are known as “Whales”, ac­cord­ing to Ey­lon Aviv, part­ner­ship man­ager for ironSource, an Is­raeli mo­bile app mon­e­ti­za­tion com­pany with of­fices in Bei­jing.

Less than 1 per­cent of mo­bile play­ers con­trib­ute Kin­gofGlory nearly half of the rev­enue made from all in-game pur­chases, ac­cord­ing to a study by Swrve, a mo­bile mar­ket­ing en­gage­ment plat­form.

In other words, game developers have to balance sat­is­fy­ing the small per­cent­age of high-pay­ing users, while mon­e­tiz­ing the ma­jor­ity who do not pay.

In Asia, where the per­cent- League­ofLe­gends age of pay­ing play­ers is lower than any­where else in the world, av­er­age in-app-spend­ing is $20 per month. That is dou­ble the global av­er­age, ac­cord­ing to a study by Is­raeli mo­bile app an­a­lyt­ics com­pany Apps­flyer.

Ac­cord­ing to a video pro­duced by Vox news, en­ti­tled How Free Games Are De­signed To Make Money, spend­ing ti­tles use ex­change rates that will con­fuse any av­er­age player.

“You’re spend­ing money that doesn’t seem real and it only takes a sec­ond be­cause the app store al­ready has your credit card,” Joss Fong, se­nior ed­i­to­rial pro­ducer at Vox, com­men­tates in the video.

“The whole pay­ment process is de­signed to be pain­less,” she adds. “Other parts of the game, how­ever, are de­signed to be painful.”

But there are other ways for mo­bile game com­pa­nies to make money. IronSource helps ad­ver­tis­ers and game firms profit from play­ers who sim­ply do not make in-app pur­chases by run­ning pop-up ad­ver­tise­ments with in-game prizes.

Ad­ver­tis­ers, for ex­am­ple Airbnb, can in­crease traf­fic to their sites, while gamers re­ceive re­wards by watch­ing a 15 to 30 sec­ond video, ac­cord­ing to Aviv of ironSource. These ads may also al­low users to play the first level of a game, such as Candy Crush Saga, get­ting them in­ter­ested in the ti­tle be­fore sup­ply­ing a link to down­load it.

“Peo­ple are com­ing back to the game be­cause they’re able to progress more,” Aviv said. “They don’t feel like, ‘If I don’t pay, I can’t play this game’.”

As a re­sult of China’s grow­ing sta­tus in the mo­bile gam­ing in­dus­try, for­eign com­pa­nies are keen to crack it, even though it is the most dif­fi­cult mar­ket to en­ter, ac­cord­ing to Wehmeier of Atomico.

“Com­pa­nies that ul­ti­mately go on to have suc­cess … what they have un­der­stood is that while con­tent is crit­i­cal, dis­tri­bu­tion is king,” Wehmeier said.

Game de­vel­oper and Far­mville cre­ator Zynga showed that, with­out a lo­cal part­ner, for­eign com­pa­nies strug­gle to com­pete in China. With its US op­er­a­tions also hit­ting fi­nan­cial lows, Zynga de­cided to close its Bei­jing of­fice in 2015, cut­ting 71 jobs.

But the Cal­i­for­nia-based firm could be on track for a turn­around as it part­ners with Ten­cent’s ri­val, NetEase Inc, to bring the mo­bile strat­egy game Dawn of Ti­tans to China later this year.

Zynga de­clined to com­ment on its mo­ti­va­tion to in­tro­duce the game to an over­seas mar­ket.

But it stated in May that the com­pany is “ex­cited to see how lo­cal ac­tion strat­egy fans make it ( Dawn of Ti­tans) their own”.

There is a strong ap­petite for in­ter­na­tional con­tent, ac­cord­ing to Wehmeier of Atomico.

In 2015, Ten­cent bought Sil­i­con Val­ley-based gam­ing com­pany Riot Games, pro­duc­ers of League of Leg­ends, which had 100 mil­lion monthly play­ers last year, ac­cord­ing to a Forbes re­port.

Riot Games, now a branch of Ten­cent, de­clined to com­ment on the game’s suc­cess in China.

Bliz­zard En­ter­tain­ment’s bat­tle cards game Hearth­stone, which orig­i­nated in Cal­i­for­nia, has also gripped Chi­nese play­ers, with its com­pet­i­tive championship hav­ing just wrapped up in Shang­hai.

“It’s pos­si­ble to­day to build game com­pa­nies worth tens of bil­lions, if not a hun­dred bil­lion (dol­lars),” Wehmeier said. “If you have the am­bi­tion to get to that scale, if you truly want to be­come a global gi­ant that’s on par with some of these Chi­nese play­ers, you sim­ply can’t af­ford to ig­nore the Chi­nese mar­ket.”

Mark Marino con­trib­uted to this story.

If you have the am­bi­tion to get to that scale, if you truly want to be­come a global gi­ant that’s on par with some of these Chi­nese play­ers, you sim­ply can’t af­ford to ig­nore the Chi­nese mar­ket.” Tom Wehmeier, prin­ci­pal and head of re­search at Atomico


Top gam­ing play­ers from dif­fer­ent cities gath­ered in Wuhan, cap­i­tal of Hubei prov­ince, to play in a com­pe­ti­tion in Septem­ber 2016.


Four women cos­play the char­ac­ters in the pop­u­lar game in Ji­nan, Shan­dong prov­ince.

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