- 5,500 word report on the Chinese console market
- Sony has a successful first year but faces many challenges
- Console market still very niche, potential to grow is there
It’s been just over a year since the PlayStation 4 and PlayStation Vita officially launched in China. Sony held their own anniversary event to celebrate the occasion and so I’d like to go back over what has happened during year 1 for PlayStation and consoles in China so that people who do not know much about the situation there will be understand the various success, challenges and mistakes that Sony have had over the past year.
First, we need to understand the Chinese market as it is today. In 2015, China has a population of nearly 1.4 billion and in 2015 was crowned the largest games market in the world thanks to games software and services revenue of $21.7 billion. There are now more than 130 million PC gamers in China and a whopping 400 million mobile gamers in China. In fact the total number of mobile gamers in China is more than the population of the US.
Mobile gaming has become hugely popular in China thanks to the increase in affordable smartphones and continued investment in software and services from Chinese tech companies. Mobile has acted as a leapfrog technology for China as users in China are now Mobile first and use their mobile devices for pretty much everything where as most in the West may still use a PC for some things. Social networks like WeChat on Mobile allow users to buy goods, transfer money, pay utility bills and order taxi’s etc…, all within 1 application. It’s only now that companies in the West like Facebook are starting to do this.
With everyone in China using Mobile for everything, it makes total sense that most would also play games on their smartphones in China. Companies like Tencent and Netease have created new IP’s on mobile as well as bought over very popular PC games to mobile and provided a full game experience on smartphones. By taking advantage of popular game genres and themes as well as integrating full social experiences, companies like Tencent have been able to dominate the Mobile games market in China and in total the Chinese Mobile games market generated over $7.9 billion in 2015 (Including advertising).
Before Mobile it was PC that was the leader in China. In fact PC still is the leader when you look at revenue rather than number of gamers. Despite a lower amount of players, PC gamers in China play longer, spend more and are more committed to gaming. However the number of Mobile gamers continues to grow in China and they are becoming more core so it won’t be long till Mobile generates higher revenues. A number of years ago the Chinese gamer would have to visit an Internet Cafe in order to play online PC gamer as it would be likely that they would not have an Internet connected PC at home. There are still more than 100,000 Internet Cafes across China today and anyone can go and log on to a popular online game such as League of Legends, Dungeon Fighter Online or Cross Fire and play for as long as they want for just a small amount of money.
Online games have been hugely popular in China’s PC market, this mainly as Chinese gamers prefer social experiences but also because you couldn’t really save a single player game on an Internet Cafe PC without hard drives filling up very quickly. These days the Internet cafe market is dying a very very slow death with many Chinese now buying their own PC’s (Steam is gaining traction in China) or moving over to mobile as their primary gaming device as it becomes more convenient. Chinese PC games revenues in 2015 grew to around $12.8 billion with $9.5 billion coming from online client games and the rest coming from social/web games.
Mobile and PC are the two biggest gaming categories in China whilst console gaming accounts for less than 1% of all games revenue generated in the country during 2015. Only $21.6 million was generated by console software sales in 2015 (Yes, that does say million, not billion) which is laughably low when you think about it. It’s the complete opposite of countries like the US where Console game sales account for more than 1/3rd of all games software revenue. The reason for this huge leaning towards Mobile and PC vs Console in China is very simple. Consoles have been banned in China since 2000.
It was back in 2000 that the Chinese Government saw fit to ban consoles in China. The official reason given at the time was that Video Games had a negative effect on the Chinese population and could affect the mental and physical development of young children. Its odd then that Mobile Gaming or PC Gaming was never banned, but that’s China for you. It was only in 2014 that China looked into this console ban and agreed to a trial period where foreign consoles could be produced in the Shanghai Free Trade Zone and then distributed across China, subject to standard local inspections on multimedia goods. Microsoft was the first to announce that they would be launching a console in China (Xbox One) and Sony followed soon after with the PlayStation 4.
Basically this trial was an experiment to see how it would work with games consoles being sold in China and to see what regulations would need to be changed. An official statement at the time said that this was part of China’s exploration of “reform and opening”. There had been a number of other economic reforms taking place at the time and this was one of them. In July 2015, a few months after the PS4 launch, the government issued a statement saying the trial was a success and that it was now over and it is officially ok for console makers to manufacturer and sell their goods anywhere in China. However, the regulations aren’t as simple as they are in the US for example. The Chinese government is still very strict about what Sony can and can’t do in China and so there are still a lot of restrictions and challenges that Sony face in the country.
Sony officially announced that PlayStation would be coming to China at the Sony Expo on October 24th 2014. It was Andrew House who took to the stage and confirmed that China, along with the US and Japan was now part of the three biggest markets for Sony Group and that they were now preparing to bring both the PlayStation 4 and PlayStation Vita to China in 2015. A further press conference on December 11th 2014 confirmed that the PlayStation 4 would launch in China for 2,899 RMB ($450) and the PlayStation Vita would be available at 1,299 RMB ($200). Sony said they would launch the systems in partnership with Shanghai Oriental Pearl (Distributor in China) and that they had over 70 third party developers willing to bring games and services to PlayStation in China.
Sony also announced that they had partnered with Snail Digital to bring ‘King of Wushu’ (F2P MOBA) exclusively to PlayStation 4 and they also announced that Final Fantasy X HD was in development by Square Enix for PlayStation 4 and would also come to China. These announcements proved that Sony were 100% serious about cracking China and not just launching the console with no support. Sony launched the PlayStation 4 and PlayStation Vita on the 20th of March 2015. A good number of people queued up at the Sony store in downtown Shanghai to purchase the consoles and games.
What challenges did Sony face?
Costs- The PlayStation 4 launched in China at $450 which was more expensive than the Western launch of $399. Microsoft launched their Xbox One even higher at $570 with the Kinect bundled in. The average Chinese gamer does not have $450 to drop on a gaming machine, in fact the average monthly wage in China currently stands at $750 a month which shows that the PlayStation 4 isn’t exactly something that everyone can afford in China. However there is still a large number of people in China with disposable income.
The chart above outlines how this works. It also shows that there is a fairly large audience that actually could be able to afford a PS4 but that relies on this audience being interested in games. Gamers in China these days aren’t used to paying upfront for hardware, or even software. Mobile phones come on contract and mobile games are free to play, PC games are also free to play and can be played at an Internet cafe. The PlayStation 4 goes entirely against what Chinese gamers are used to and requires you to pay upfront for both the hardware and software, it’s not exactly cheap either at $450 for the console and $40 each for a complete game. In some cases it can even be cheaper to build a gaming PC at home in China with most PC games F2P or very cheap on Steam. There are now nearly 10 million gamers using Steam in China.
Another issues that comes under cost is that most core console gamers in China may have already chosen to import a console or will choose to import a console as it is cheaper than the official Chinese version. During the console ban there was a small number of gamers that imported around 2 million consoles per year (at peak) and as the PlayStation 4 came out a year and half after the Western launch then it only makes sense that some may have already imported. This means that those that were willing to pay for a console in China already have one and so Sony needs to sell in to a new gaming audience in China for the launch to have been worth it.
Censorship- The Chinese Government still upholds traditional censorship laws and apply this to console sales in the country as well, what this means is that the government has to approve everything Sony and Microsoft do before they are allowed to do it. In this case it means that all game releases have to go through the Government first, if the game is too violent, has adult content or goes against Chinese cultural values then it will not be allowed to go on sale. Games like GTA 5 are outright banned whilst other games like Halo MCC have had to censor parts of the game or remove blood splatter just to get the game to pass the censor. All games content needs to be submitted to the culture department for approval and whilst the official procedure is supposed to take 20 days, it can take much longer in some cases. Here is content that is not allowed to be sold in China-
- Gambling-related content or game features
- Anything that violates China’s constitution
- Anything that threatens China’s national unity, sovereignty, or territorial integrity.
- Anything that harms the nation’s reputation, security, or interests.
- Anything that instigates racial/ethnic hatred, or harms ethnic traditions and cultures.
- Anything that violates China’s policy on religion by promoting cults or superstitions.
- Anything that promotes or incites obscenity, drug use, violence, or gambling.
- Anything that harms public ethics or China’s culture and traditions.
- Anything that insults, slanders, or violates the rights of others.
- Other content that violates the law
It’s an exhaustive list and one that is very much open to interpretation. Ubisoft were all ready to launch Assassin’s Creed Chronicles: China in the country and even started promoting the game, however the culture department came back to them at the last minute and banned the game from being sold. This censorship policy affects Sony a lot as it means that games like God of War 3 Remastered and Bloodborne will be unable to go on sale in China at all. Even Microsoft have suffered with none of their big 2015 exclusives having launched officially in the country. In total only around 50 games have officially launched on both PlayStation 4 and PlayStation Vita which is a far cry from the more than 1,000 games that have launched on these systems worldwide.
Games- Another issue Sony face is that games content can be hard to bring to China. There is almost a Chicken and Egg problem when it comes to console games. Publishers want to see evidence that their games will sell well in China before they part with the cash for a high quality localisation, but at the same time if there are fewer titles localised at the moment then it means that there is a lower supply of games to entice gamers to buy a PlayStation 4. It’s not cheap to bring over games to the Chinese Mainland as it requires the game to be fully localised into Simplified Chinese. This is different to Traditional Chinese which is used in localisations for Asia so more resources need to be used in order for a company to launch their game in China.
Games also have the issue of censorship as well. A localisation could be fully complete but if it’s not approved by the Government then it could mean that the publisher will either need to abandon their plans to launch in China or change the game in such a way that it now complies with the law. It’s also hard to know if these games will appeal to a Chinese audience. Console games are usually available on PC and those that are not are usually quite unknown to the Chinese market. A game like Little Big Planet 3 is huge in the West but in China the game is relatively unknown. It means that a lot of console publishers have to be smart about the games they bring over. They need to appeal to Chinese gamers or have some sort of hook that gamers will be drawn to. It’s the reason why games like Dynasty Warriors & Transformers have performed so well on PS4 in China. The Three Kingdoms period is hugely popular in China and Transformers was recently one of the top grossing movies in the country.
In total, only 6 games were available for the PlayStation 4 at launch and only a few new games launched each month. This was primarily because it was foreign publishers bringing games into China so it required localisation and approval first. This brings me on to my next point.
Chinese Games- Most console games are unknown to Chinese gamers, they prefer to play F2P games such as Fantasy Westward Journey or League of Legends which are only available on either Mobile or PC. The most popular Chinese games are nowhere to be seen on Console and so many gamers will not be interested or drawn to the PlayStation 4 without any sort of familiarity. In fact we’re starting to see a new trend emerge where Chinese tech companies are starting to enter the TV games market in China in an attempt to take over the living room.
Companies like Huawei, Tencent and others are releasing their own Android mini consoles onto the market that you can hook up to your TV to watch TV shows, Movies and play games. It’s basically an Apple TV or Fire TV for those in the West but there is a bigger emphasis on the gaming features with Tencent’s MiniStation console allowing you to control the games with your smartphone as well as promising PC and Mobile games playable on your TV with exclusive content. Tencent even plan for their future MiniStation variants to support VR. Ultimately this is a way to bring your Mobile into the Living room and play Mobile and PC games from your favourite publishers on the big screen. It doesn’t help that these Android consoles are targeted at families and come in considerably cheaper than what a PS4 or XB1 costs with some as low as $50. A number of big Mobile companies continue to invest in the ‘TV Gaming’ market and whilst it is technically bigger than the console market in China it hasn’t exactly taken off just yet or generated a huge return.
It is clear that Sony has competition from Chinese games companies, not only on Mobile and PC, but also in the living room as well. Sony need to appeal to Chinese gamers and bring more games to PlayStation 4 that are both free to play and also promote Chinese cultural values.
Family- Another challenge that Sony face in China is that gaming is that living room gaming is not accepted by most traditional families. It’s one of the reasons that consoles were banned in the first place. There are still a lot of negative stigmas around gaming, especially in the older population and so many parents are unwilling to buy dedicated gaming consoles for their Children. Chinese kids used to have to convince their parents to buy them a PC under the pretence of using it for studying but there is no such excuse for a dedicated video games console.
Of course a lot of this negative stigma has dissipated in the last few years as mobile gaming has taken off and many are now more open to the idea of gaming. There are always plenty of negative stories about gamers in the Chinese media, such as those addicted to gaming or committing crime because of gaming, but these stories have died down and ultimately there are more people today who are accepting of gaming than there were 10 years ago but it still remains something in the culture there and it’s not going to fully go away for another few years.
What did Sony do right?
Region Unlock- Sony hit a home run with the launch of PlayStation 4 in China. Console gamers in China had eagerly awaited news of the console launch but were gradually losing confidence after they saw what had happened with Xbox One. The Xbox One launched at a high price, was region locked and had a drought of no games for around 5 months after launch. Sony did the exact opposite and launched at a much lower price than Microsoft (Despite Sony being more expensive in the West) and also made sure that the console was region unlocked, this means that gamers could insert any disc into their console and it would work. They also released a steady stream of games each month. The region unlock was the biggest feature as it meant that gamers could play any PlayStation 4 game on their console. Xbox One gamers who purchased the official Chinese version were stuck with the 10 launch games and could not play anything else.
Sony also made sure to appeal to Chinese gamers through hardware bundles. To date there have been more than 10 custom hardware bundles or limited editions that have launched in China and have been tailored to appeal to Chinese gamers. Sony also helped lessen the upfront cost of PlayStation 4 by packing in 4 free games with the console which meant that gamers did not have to spend anything upfront in order to start playing games. Games were also considerably cheaper in China than the West with most AAA titles retailing for just $40 compared to the $60 they usually retail for. Sony also dropped the price of the PlayStation 4 last year to make the console even more affordable to gamers in China. Shanghai Oriental Pearl, the distributor, say they have sold more than 500,000 PlayStation 4’s and Xbox One’s to date. While there is no official split, some retailers are saying that PlayStation 4 sales overtook the Xbox One sales only a month after launch.
Monthly updates- Sony have been able to maintain a steady release schedule in China thanks to their first party teams, support from third party and also Indie devs. They have of course faced issues but their communication with gamers has been top notch. The marketing manager for China, Takehito Soeda, has done an excellent job at getting people excited about the console space in China. He is very similar to the current image Phil Spencer holds in the West where he listens to gamers and acts on his words. It’s a very different approach from the social media team at Xbox China who have, I’m sorry to say, hired a suit to provide PR statements of no value. Sony have been able to gain trust in China by continually supporting the gamer there.
Sony have even gone as far as to try and solve some of the issues with China’s console market. They were the first ones to bring a region unlocked console to China, they were also the first ones to bring simultaneous launches to China and they also are trying to work with the Government to bring in an independent body to approve video games (similar to ESRB). There is no age rating system in China and Sony are pushing hard for one to be introduced in order for game approval times to be sped up. For now the majority of games that have launched in China are kids games that don’t need to be censored such as ‘Minecraft’ for the Xbox One and ‘Little Big Planet 3’ for the PlayStation 4. Sony believe that by introducing a rating system it means more games can launch in China, that may have been outright banned before, and that it can speed up approval times to allow for more games to launch in China and the West at the same time.
Localisation: Sony have been very quick to try to appeal to Chinese gamers. Sony partnered with Snail Digital to bring ‘King of Wushu’ to PlayStation 4 from day 1 as an exclusive game. The popularity of both Chinese games and Free to Play can not overstated in China so this was a genius move to bring a Chinese game to PlayStation 4 first. It meant that gamers would require a PlayStation 4 to play the game and the game was completely free. Sony have continued to embrace this model on PlayStation 4 and have bought other free to play games such as Warfare to the console as well. As well as this, Sony have worked hard on localisation with many third parties to bring games to both Asia and China. PlayStation 4 is now the best selling console in Asia and this has a knock on effect in China as it means more games are now being bought over to Asia and localised in Traditional Chinese. What this means is that gamers in China do not need to wait for the game to be localised in China, instead they can just import the Asian version of the game and play and understand the game just fine.
Sony helped bring Metal Gear Solid 5 to Asia and other foreign publishers are seeing the advantage of bringing their games to Asia as well. SEGA very recently bought over Yakuza Kiwami to Asia and found that the game sold just as well in Asia as the game did in Japan. Before the PS4 launch, Asian gamers would either have to wait for a localisation or import the English or Japanese version. With the Asian versions now supporting Chinese, it means that sales have increased by a huge amount. It also means that games that are censored in China can easily be imported, Grand Theft Auto 5 for example is a huge hit in China and despite officially being banned is often the number 1 game being streamed on websites. Sony have started to expand their localisation team and have the aim of bringing even more games to China in the future. There are many overseas games now coming to China and many are seeing success there.
Local Support- When Sony first launched in China they set a goal to provide multiple programmes to local developers including technical support and financial incentives, with the aim for these developers to create console game products on PlayStation 4 that feature both Chinese cultural characteristics and local ways of game play, all aimed at meeting Chinese consumption habits. Sony have been working very closely with a number of big publishers and Independent developers in China to bring their games and new ideas to PlayStation 4. Sony have realised that whilst they will have the advantage in overseas software it is going to be local Chinese developers that can help grow the PS4 user base in China and even overseas through free or low cost digital download titles. Some of these games have already launched, such as ‘Mr Pumpkin’s Adventure’ where as some like ‘Chinese Paladin 6’ are still in development.
Sony have opened up a couple of competitions to support Independent developers through crowdfunding. The Indie game competitions are open to any indie developer in China who wants to develop their game for the PlayStation 4. The second competition, which ended in January, was arranged by Sony Computer Entertainment (Shanghai) in association with Oasis Games. Oasis Games are a publisher based out of Hong Kong who help support Chinese developers by bringing their games to market in China and overseas. The competition is run in a way very similar to Kickstarter, in fact the competition is run on ‘Modian’ which is the Chinese copy of Kickstarter. A total of 32 indie developers signed up to enter the competition. How it works is that gamers will watch videos and read descriptions of the games to see which ones they like best and then will help fund that game with their own money. The competition lasts for two months and the top 3 games that received the most funding from users would win and enter into a contract with Sony to receive more funding to release their game on PS4.
During the two months a total of 6,500 gamers funded more than $33,000 across all the games. Similar to kickstarter the funders do not go away empty handed, as Sony was the sponsor all the prizes were pretty much Sony merchandise. Funders actually got a generous return as whatever they funded was paid back to them in the form of a product that cost the same amount at retail. For example if a gamer funded $60 or more they were given a Dualshock 4 and their name would be credited in the game, as well as this they would be entered into a sweepstake to win a PS4. Or, they could actually fund the retail cost of a PS4 in China ($370) and get the PS4 as the reward for funding that much. So no matter how much you pledged, you were always rewarded with a PlayStation product of the same value.
One of the games to win the first completion was ‘Koi’. They raised more than $1,500 and as the winner of the competition they also received additional funding of $7,500, a PlayStation development machine and outside support from PlayStation’s Japan Studio on their game. They also entered into a contract with Sony to release the game on PlayStation 4 first with an exclusivity period of 1 year (excluding PC and Mobile). During this exclusivity period the game will also get full marketing support both in China and also overseas. The game launched in China on March 29th and will be coming to North America later this month. Sony plan to continue supporting Independent developers in China and bringing more locally developed Chinese games overseas.
Simultaneous launch- Sony have been working hard to bring games to China and one thing they’ve worked on is simultaneously launching games in China at the same time as the West. Sony saw an opportunity to make Gravity Rush a hit in China and so launched the game in the country at the same time as Japan and with an exclusive limited edition bundle. Sony also launched Ratchet and Clank in China this week, the same time as the West. Another game launching in the future is Final Fantasy XV, the series is hugely popular in China and so Sony are hoping that this simultaneous launch will mean that the series grows the popularity of PlayStation in China.
Sony have realised that software is key to attracting a large install base for PlayStation 4 and so are continually bringing over AAA overseas titles, Independent Chinese titles and other experiences as quickly as they can. This is one thing that has put Sony above their competition in China and has allowed them to have a successful year so far.
What went wrong?
Sony’s first year has been good for them when it comes to building a relationship with their user base, but they haven’t had the best of times when it comes to growing the console market in China. They generated a loss during their first quarter in China, which is to be expected, but also shows that it may take some time before Sony recoup the costs from launching in China. It’s also become clear that localising games for the China market is still something that publishers are not 100% confident with. Only a small number of games are submitted for approval each month and I’d honestly be surprised if there were more than 100 games on PlayStation 4 in China by the end of the year. Most publishers are instead just opting to release an Asian version of their game and hope that the Chinese install base are willing to import, most are but there are of course some lost sales in that.
The biggest issue still plaguing Sony is censorship in China and this means that they haven’t been able to bring over many games themselves. Their top line of exclusive titles are nowhere to be seen and even Uncharted 4 is still in the queue to be approved in China with no approval date in sight. Games are supposed to take 20 days to be approved and despite appealing for an improved rating system there has been no word on if the Government will be acting on Sony’s suggestion for an Independent body to rate Video Games.
Sony have been criticised in China for their PlayStation Plus service. They charge around $30 a year for online multiplayer but the service at launch was very bare bones. There were no free games, no online services, and even the share button didn’t allow streaming of games to any site. Sony have indeed added in free games now but it took them a very long time and they still haven’t solved the issue of online services that provide local content. A lot of people are unhappy with the state of PS plus in China but Sony are looking to improve this in time. It’s just that it’s already taken a very long time already.
Sony continues to face many challenges in China, PlayStation marketing manager Takehito Soeda said at the PS4 launch “A lot rides on how rich of a software portfolio you can offer to users, so we intend to find the right blend of overseas titles and games developed in China. We are creating a console market from scratch here.”. Soeda is spot on here, the PlayStation has launched in a market where Mobile and PC is king, where the government censors cause popular overseas games to be banned and where Mobile companies are launching rival products with games that appeal to Chinese gamers tastes. Sony can’t do anything about the upfront cost of a PlayStation 4, outside of sell the console for a loss, and so they need to get their software portfolio right in order to attract gamers, this is how PC gaming became so successful.
The analogy that many, including Sony, use at the moment is that the console industry is very much like the Chinese box office market 10 years ago. Back then it was plagued by piracy and entry barriers – now the China film market is rapidly becoming a close rival to the US film market, and Hollywood has found many ways to achieve success in China. Many believe that Sony can find success in the console market in China and help grow it to be a huge gaming force in the living room like it is in the West. The console market has remained untapped in China for a very long time but it’s ultimately going to be Chinese gamers that decide if they’re willing to change their gaming habits from playing on Mobile & PC to buying new games hardware and software to play at home. Personally I remain cautious about the future of consoles in China and believe that it can be a successful niche but console gaming can never be much more than that.
The winning combination is to continue lowering the cost to entry, publishing AAA games from Western/Japanese publishers in China, Introducing locally developed Chinese games that are free to play or low cost and finally to continue innovating in the digital space with a meaningful PS Plus subscription that offers you similar functionality to that of Android ‘TV Gaming’ devices.