A visitor plays online game at an animation games exhibition in Guangzhou, capital of South China's Guangdong Province, in October 2018. Photo: IC

At the three-day Annual Electronic Entertainment Expo (E3), held in the Los Angeles Convention Center in California last week, Chinese gaming companies, including Tencent, Netease, and Perfect World, showcased their products and dominated the headlines with some new title releases that are designed to attract more international players. 

As their strategies in E3 reflected, expanding into the overseas market has been a trend for China's gaming industry in recent years. The trend came after the country's demographic dividends, based on its huge consumer market, reached  ceiling and regulators tightened approval on new game releases. 

China boasts the world's largest gaming market, both in terms of users and revenue. In contrast to a revenue slowdown at home, Chinese mobile games were downloaded 3.2 billion times abroad in 2018, up 39 percent year-on-year, according to a report issued by data firm App Annie. 

Chinese mobile game developers also grossed a revenue of $6.1 billion last year, up 49 percent year-on-year, the report said.

"China's traditional culture has so many good stories and intellectual resources which game developers can draw on to re-create and launch their games on the international market. Chinese developed games also opened a window for the outside to learn about Chinese culture and expand the country's soft power," Xiao Hong, CEO of the Perfect World, told the Global Times Tuesday.

Going overseas

In early June, Tencent rolled out plans to launch a mobile version of the shooter game Call of Duty in the US, Japan, Europe and Latin America and Southeast Asia, the Bloomberg reported. 

The move represents the gaming company's latest effort to make a foray into the overseas market as uncertainties in the domestic market rise amid a strict regulatory environment, analysts said. In the first quarter of 2019, Tencent's revenue from their mobile games business slid by 3 percent year-on-year to 21.2 billion yuan ($3.07 billion). This also recorded Tencent's slowest revenue growth since it was listed.

Chinese regulators have granted fewer licenses to new games over the past year as criticisms that games are addictive and too violent for young players mounted, industry insiders told the Global Times. In China, all game publishers must file an application for approval at the Publicity Department of the Communist Party of China (CPC) Central Committee, after which they are allowed to distribute new games. 

As a result, about 42 percent of Chinese gaming firms posted net profit slumps, with most of them attributing the trend to regulatory issues, the China Central Television reported. 

In April, the Chinese regulator ended a long hiatus, since March 2018, on new game releases and resumed the approval process. But the stricter standards for games approval - with higher requirements for ethnical and moral assessment to protect children - have drawn new concerns among some industry insiders. Some described the quota imposed on the number of new games to be approved this year, which dropped significantly compared with last year, as the "the sword of Damocles" hanging over their heads.

"There are at least 2,000 new games queuing for approval. I was also told that certain types of game genres, such as chess games and dressing-up games will be banned, which would further squeeze our room for survival," a manager of a small-sized Chinese gaming company, who only spoke on condition of anonymity, told the Global Times. 

The manager said he is pinning hope on income from the Southeast Asian markets to relieve the financial burdens they are facing due to the decline in the domestic market. 

The company launched a role-playing game in Thailand, Indonesia and Vietnam in December and has seen "a dramatic jump in local users."

"China's gaming industry mined gold from the country's large population over the last few decades. Now markets in large and small cities are thoroughly explored, and Chinese users cannot sustain the stunning growth momentum enjoyed in the past. Expanding market share abroad seems like the only option to maintain rapid revenue growth," Wen Shijun, principal researcher of the cultural and media industry in the Research and Development Center under Cinda Securities, told the Global Times. 

Across China, the sales income of China's gaming market stood at 214.44 billion yuan at the end of the financial year, up 5.3 percent year-on-year, slowing down from the 23-percent increase recorded in 2017, according to a report issued by Beijing-based research firm CNG and the Game Publishers Association Publications Committee (GPC) of China Audio-video and Digital Publishing Association. 

Fast-track growth 

With regard to Chinese games' advantages, Xiao said that "China is home to diversified and inclusive games products, which lays a solid foundation for exporting abroad." 

Industry insiders noted that through competing head-to-head with foreign rivals, Chinese game companies could "borrow" more techniques, such as game planning and game development in the later stage, to inject creativity in Chinese game models and extend games' lifecycles.

"Chinese game developers are good at creating games that are a market sensation, but in terms of game operations, foreign publishers outperformed them," the unnamed manager said. He also noted that many Chinese games developers craft a more reasonable charging mechanism and novel playing methods in overseas markets, which could "reversely feed" domestic markets. 

Chinese companies' overseas expansion is now on the fast track. So far, Perfect World has exported game products to more than 100 countries and several regions: America, Europe, and Asia and has set up more than 20 subsidiaries in the US, European countries, Japan and South Korea, Xiao said. 

Major game developer and publisher 37 Interactive Entertainment has also published games in Southeast Asia, Japan, South Korea, the US and European markets, with a monthly revenue exceeding 100 million yuan, Peng Mei, the overseas circulation director of 37, told the Global Times Tuesday.

Meanwhile, China's two largest gaming companies, Tencent and Netease, also saw a total income of $472 million from overseas markets last year, up by 505  percent from that of 2017, according to a report issued by information provider IHS. 

How to succeed?

However, it seems not every game released abroad could be a market hit, even for large game developers. Some of the reasons for this may be their lack of knowledge about local needs and distribution channels.

Tencent's blockbuster battle arena game on the domestic market titled Honor of Kings, or the international version known as Arena of Valor, has reportedly flopped in Europe and the North American markets partly due to ineffective marketing channels. 

In China, a propelling factor behind the game's success is the distribution channel that generates traffic, as Tencent manages one of the country's largest social network platforms Wechat.

Peng said that overseas expansion is not a "one-size-fits-all" strategy as "players have different preferences in different markets."  

For example, in developed countries like Japan which share cultural similarities with China, they prefer the animation genres such as Girls' Frontline and AZUF Lane, whereas in the US, players like simulation games (SLG) and Player VS Environment games which enable them to play games with their friends, Peng exemplified.

Peng noted that the next step for 37 will be to put its focus on exploring the US, Japan and South Korea, which have a high market potential, through launching localized game products and diversified marketing channels to achieve new growth points. 

The anonymous source categorized gaming markets as follows: Those in developed countries are "revenue-generating markets" where competition is fierce and players have higher requirements when it comes to game quality. "Such markets are a battleground for major game developers. Small-sized developers would barely survive."

Rising markets in Southeast Asia - with large populations and a greater awareness of Chinese culture, seem to appeal more to small-sized Chinese game developers. 

"Southeast Asian markets could be compared to China decades ago. The telecom network is primitive, cost of acquiring new players is very low, and room for future growth is unlimited," the manager noted. "Chinese game companies are there to help drive the whole industrial chain's growth."

But the key issue with overseas success remains localization, or how to present Chinese traditional culture in a way that also combines local cultural elements and resonates with international players' feelings, Xiao said. 

He noted that Perfect World hires locally so that local staff can make adjustments to game products based on local culture and players' interests. "In some Chinese styles games, we allow players to create characters that have Western looks and figures to increase players' interests."

Peng pointed out that currently, most China-developed games that are welcomed in US and European markets are set in the background of a Western magical world or the Middle Ages. 

"Chinese game publishers should explore new ways to make game genres surrounding Chinese traditional culture, such as the Three Kingdoms and Wuxia more acceptable in overseas markets," Peng noted, suggesting developers "dig out" a Chinese perspective that enlarges the influence of Chinese culture on a global stage.
Newspaper headline: Chinese games expand overseas