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Everything from the PlayStation China conference

27th July, 2016 · ZhugeEX · Leave a comment

The below is a round up of all the important information shared during the PlayStation China conference in Shanghai today. Please note that the announcements made at this event were tailored towards the China Mainland market and will have minimal effect on the rest of the world, unless otherwise stated. This won’t go too in depth, but will attempt to show the impact of each announcement.

Hiroyuki Oda, SIEJA executive vice president, said , “China is an important market for Sony Interactive Entertainment Japan Asia, we have been committed to bringing the newest and coolest PlayStation® game content and hardware products for Chinese users. At the same time, we hope to vigorously support game developers in China . We want to help China‘s original console games succeed on the world stage, and contribute to the development of China‘s game industry. ”

Sony Interactive Entertainment held a Press Conference at ChinaJoy 2016 today. Hiroyuki Oda and Takehito Soeda both took to the stage in order to talk about what was new for the world of PlayStation in China. In the last ChinaJoy press conference, Sony had announced a number of brand new game titles which have slowly been released over the past year. Some are still missing or have been rejected by the government. There have always been many barriers to entry for foreign games (covered in my previous articles) and so Sony are keen to push local Chinese development.

Sony announced a brand new initiative called the “China Hero Project” as a way to support local game companies in China. The project is designed to assist in the production of more Chinese developed games for PlayStation and then to distribute them both in China and global markets. The first game to take advantage of this initiative was a locally developed game called “Project Boundary”. The game is being developed by Studio Surgical Scalpels, a games studio based in Guangdong. Their title is utilising Unreal Engine 4 to create a first person shooter set in space for PlayStation 4 & PlayStation VR. The game will launch in the China Mainland and then will look to launch worldwide after.

The project brings together many middleware, engineering, financial & marketing companies in order to assist these local Chinese developers and help them create a “Hero” project. This is something that Sony have talked about since launch and so it’s great to see that they’re finally implementing this officially in the country. It’ll certainly be interesting to see just how many developers will jump on to this project and in turn that could lead to a more successful console games industry inside China with the cultural influence spreading outside of China as well.

Sony also confirmed that the PlayStation 4 is selling better in Asia compared to the PS3 and PS2. The console has struggled to find an audience outside of a niche in China but PS4 continues to remain the number 1 selling console in China and has the most potential for growth. The slew of games announced today will certainly increase the appeal of PS4 to Chinese consumers and if Sony are able to get the games approved to launch them on time then we could see a somewhat notable boost in PS4 shipments to China this year.

The big highlight of the show was certainly Final Fantasy 15. Hajime Tabata took to the stage to confirm that the game, movies, animation, VR experience and other items from the Universe of Final Fantasy would be launching in China with Simplified Chinese localisation. Chinese consumers would also have the options to buy the limited edition SKU’s that are being advertised in the West. Square Enix said that their previous games have performed well in China and they want to bring more content to the country in time. The issue once again was that Square Enix could not commit to a date for release as the game was still awaiting approval by the government.

One of the complaints from PlayStation fans in China has been the lack of AAA or big First Party IP to get an official localised version. These concerns were quickly put to rest as Sony confirmed that GT Sport, The Last Guardian, Gravity Rush 2, Toukiden 2, King of Fighters 14, Street Fighter V, 3on3 FreeStyle and more would be coming exclusively to PlayStation 4. Sony also confirmed the games listed below-

Neverwinter Online
Anima: Gate of Memories
Heart & Slash
Guilty Gear Xrd Revelator
Phantom
WRC
Sword Art Online: Hollow Realization
Gundam Breaker 3
Saint Seiya: Soldier Spirits
Sword Art Online: Lost Song
Blaster Bannies
Attack Hero
Mighty No 9
Romance of the Three Kingdoms 13
Hidden Dragon
Sebastien Loeb Rally Evo
NBA 2K16
World of Final Fantasy
Xuanyuan Sword
Lego Star Wars
Lego Marvel Avengers
ICEY
Urban Trial FreeStyle

Please note that the games listed above are subject to approval before release.

Sony also confirmed that PlayStation VR would be coming to China at the same time as the worldwide launch. This is a huge contrast to Microsoft, who earlier announced that Xbox One S would be coming to China, but confirmed it wouldn’t be at the same time as the rest of the world and that they did not have a date to announce at all. There is no denying that it can be very difficult to launch a product in China at the same time as the rest of the world, due to regulatory approvals needed. However, when companies like Apple and Sony are launching brand new products there on day 1, it’s quite telling of how Microsoft view the China market. Not important.

PlayStation VR launches October 13th in China and pre orders are taking place tomorrow (July 28th). The base unit will cost ¥2,999 on its own whilst the bundle with camera will come in at ¥3,299. There is also a third bundle that comes with the Headset, Camera and Move controllers which will cost ¥3,699. The peripheral certainly isn’t cheap, but it is a fair price for Chinese consumers and many core fans will look to buy this on day 1. Sony have already said that pre orders are limited and so I fully expect the headset to sell out straight away. It’s hard to say how well the headset will do in China, I certainly expect it to have a good attach rate. However, being the expensive add on peripheral it is, I don’t expect it to have a huge sales impact.

List of games to be approved-

Sony China have once again shown their commitment to the China market and have worked very hard to make ChinaJoy a success in order to show consumers that they are taking China seriously. The event has 53 PS4’s 18 PS Vita’s and a total of 61 games to demo on both systems as well as PS VR. The market for consoles still remains niche in China but this conference has done well with core fans who will no doubt buy more software this holiday, as well as new PS VR hardware. The local Chinese titles and big name AAA foreign titles will also go some way towards attracting a new audience to the console as well.

Pokemon Go – The Power of Mobile

19th July, 2016 · ZhugeEX · 2 Comments

A full 5,000 word write up on the success of Pokemon Go.

Pokémon Go was a hit the moment it hit the app store, jumping to the number 1 grossing spot in all launch countries within just a few hours. The new location based / AR game from Niantic and The Pokémon Company has done exceptionally well on both iOS and Android with more daily active users in the US than Candy Crush. The game also holds the number 1 grossing spot across all 34 countries that the game has launched in so far. Despite having officially launched in just 34 countries, it is clear that the game is already a global phenomenon with many in other countries downloading the APK through unofficial sources in order to get a taste of the game. It’s estimated that the game has already generated more than $40 million in gross revenue in just two weeks, a number that is generally unachievable unless you’re Supercell or another big mobile publisher.

The Pokémon franchise is a little over 20 years old at this point and to date has found success in traditional video games, trading cards, movies, tv shows and licensed merchandise. To date, more than 280 million units of Pokemon game software have been sold for Nintendo hardware and more than 21.5 billion individual trading cards have been sold to consumers. There have also been 18 full length feature films and an animated cartoon series which was hugely popular during the 1990’s. At retail, licensed merchandise generated over $2.1 billion in 2015 and overall the entire franchise has grossed over $50 billion in its lifetime, making it one of the biggest game related franchises ever.

The idea for Pokémon Go was created by Nintendo, The Pokémon Company and Niantic/Google. The concept was originally just an April Fools prank by Google that allowed you to catch Pokémon on Google Maps and was later announced as a fully fledged game in September of 2015. The development and publishing of the game was handled by Niantic, a start up that was spun off from google with a $20 million investment from Google, Nintendo and The Pokémon Company. A further $10 million was also put up on the condition of the company achieving certain milestones. Milestones which are no doubt met thanks to the hugely successful launch of Pokémon Go. Partnering with Niantic was a genius move as the company already has a ton of experience with AR, as well as a huge database of locations, from their previous game called Ingress. Pokémon Go builds on Ingress by utilising that database to create a world map and fuses that with the Pokémon IP and gameplay to create a new and unique mobile experience that resonates with gamers today.

Pokémon Go has been labelled the most successful mobile game in week 1 by many research firms due to the fact that it is the fastest game to reach number 1 on the iOS grossing chart and because the game has more daily active users on Android than Twitter and other popular social apps. The main takeaway from this is that the game has managed to not only reach a huge audience, it’s also encouraged users to spend in app and this has caused Pokémon Go to shoot to #1 on both the download and revenue charts in all launch countries so far. There are a number of factors as to why there has been this immediate response from gamers. The first point is that this was the perfect time to bring Pokémon to mainstream gamers on Mobile. The millennial audience which grew up with the original Pokémon games and anime are now in their late 20’s and early 30’s making them the perfect demographic for a new mobile gaming experience that features a nostalgic brand.

However brand & nostalgia alone are not the only reasons why Pokémon Go has been so successful, otherwise Pokémon Shuffle would have also been a hit. The location based gameplay and AR features play a role in why the game is so successful, but again it’s not the only reason, otherwise Ingress would have been a hit. Instead It is the combination of Pokemon’s brand, location & AR based gameplay, nostalgia and platform that has caused Pokémon Go to become a hit in such a short amount of time. It’s really no surprise that the game is doing well, but what is so surprising is how the game has sort of become a phenomenon on its own with little to no marketing. Publishers like Supercell and Machine Zone will spend millions on acquiring new users and it’s no secret that the cost per user is constantly increasing for publishers. With Pokémon Go the game wasn’t even featured on the app store front pages, nor was it heavily advertised on TV or in other ad form, yet it still shot to number 1 in a very short amount of time. Word of mouth for the game has been amazing and it really shows just how strong the Pokémon brand is.

What is also of note is how Pokémon Go has found success in a radically different category to what is in the top 10 at the moment. The most successful mobile games so far have typically been in the endless runner category, in terms of high downloads, and in the match three or Tower/Military strategy game category, in terms of high revenue. Instead Pokémon Go has proven that it can do well despite being in a completely different category thanks to the pairing of a nostalgic franchise and location based/AR gameplay. As noted above, this isn’t something that you can emulate as it took both the big franchise and location based AR gameplay for this game to do well. Data suggests that Pokémon Go is serving a portion of the market that is hungry for new gaming experiences on mobile. Slice Intelligence data shows that 53% of Pokémon Go players, who had made an in app purchase, made one or fewer in app purchases on other games in the last 6 months. In fact the demographics of Pokémon Go are quite unique overall with 52% of all buyers in the 18 to 34 age category. No doubt the brand is bringing in those who used to play the game on handhelds back in the day.

Despite the overwhelming success of the game, there have also been a number of issues for Pokémon Go. The most notable of which being that the servers seem to crash every time a new country is added or too many people try and play the game at the same time. It can serve to be frustrating to consumers on mobile who are used to games just working and the downtime could cause some people to abandon the game. However, the game itself is very unique in that it’s similar to an MMO where gamers are all playing in one world together and can see the same world and influence it together. This means that playing with friends is fun and so it makes it harder for users to leave the app when all their friends don’t mind the servers being down and will continue playing the game. It’s clear that the game has a huge amount of players, due to the servers being down all the time, and so far the number is seemingly continuing to grow. Therefore it’s not an entirely bad thing that the servers are down all the time and honestly it may have a minimal impact on churn.

There have also been a number of stories in the media of how Pokémon Go players are finding themselves in dangerous situations as a result of the exploration that is encouraged in game. Some have discovered dead bodies, been robbed and even been shot at as a result of playing Pokémon Go. This negative press has had some speak out about how the game is dangerous and shouldn’t be played. However a lot of the stories of this nature are fake and also the number of stories is tiny in comparison to the overall player number. These situations are just as likely to happen when using pretty much any social app on your mobile phone and it’s no different to the texting and driving situations. One other issue I want to point out is the issue of privacy in the app, at launch the game was able to access your entire google account with read/write access. This rightly outraged a number of users who realised how this data should not be in the hands of Niantic and The Pokémon Company and many complained about it. Thankfully Niantic quickly pointed out it was a mistake and quickly updated the app permissions to have basic level access.

Another issue I see with the game is how Nintendo have not had a huge amount of involvement with this game. What I mean by that is that this game is clearly not part of Nintendo’s push into mobile with DeNA, and whilst it’s great that Nintendo are working with other partners, it means that they’re fracturing the user experience for gamers. In Miitomo, you can log in with a Nintendo account and earn rewards in game through your Nintendo account. For Pokémon Go there is no option to log in with a Nintendo account, there are no rewards, there is also no way to add your friends list from Miitomo either. Whilst it’s understandable that Niantic would choose to focus on Google account integration and Pokémon account integration, adding a Nintendo account option would have been a great way for Nintendo to grow their new membership system and also create a consistent experience for all Nintendo IP games and properties. This is certainly something that should be considered for a future update as a lot of cross functionality can be added through the use of a Nintendo account to enhance the gameplay experience for gamers who are already invested in the Nintendo ecosystem / encourage new gamers to invest in the Nintendo ecosystem.

The main issue however, which links back to the first one, is how Niantic have managed the worldwide roll out of the game. Niantic have tried to get the game to as many regions as possible but each new launch leads to more server downtime. It leaves the company with a dilemma, in that everyone wants the game to launch in their region, but at the same time they want reliable servers. Niantic do seem to be prioritising new launches over server reliability right now and it seems to me that they want to maximise the opportunity for additional revenue as soon as possible. It may also be a way for Niantic to increase the value of their company as soon as possible or achieve company milestones attached to the additional $10 million from Nintendo/TPC/Google. I am sure there are many interested in buying Niantic, perhaps even Nintendo at this point.

Following on from the point above is that the game will face difficulties launching in countries like China and South Korea. The world’s 1st and 4th largest smartphone markets. The issue arises due to the use of google maps as the base of Pokémon Go. Google Maps is banned in China whilst in South Korea the maps service is very limited in terms of functionality. It’s highly unlikely that Niantic will be able to release the game in China unless they partner with a Chinese company like Baidu to use their maps instead, and with the new regulations in place that requires all mobile games to be approved, it’s highly unlikely that the Chinese Government will even approve a foreign GPS tracking game in the first place. It should be easier in South Korea but will still be fairly difficult to launch there.

Whilst this issue is very much outside of Niantic’s control, it is a problem for them as the game has already become huge in these countries outside of an official launch. The Pokémon Go fan page on Baidu Tieba has over 300,000 followers already and in South Korea there are reports of gamers flocking to the North of the country where the game is playable. In fact Pokémon Go has become so popular in China that a similar game called City Fairy Go is now the #1 game in China. It’s basically a Chinese version of Pokémon Go but with enough changes to make the game unique. Many gamers are downloading and playing that instead as there is no official release of Pokémon Go in sight. Pokémon Go does technically work in China, through a VPN, but it lack the ability to process payments. If you were interested in getting a VPN by the way, check out vpn free trial. Given that the top grossing mobile games in China and South Korea can make a combined $150 million each month, there is a huge potential loss of revenue by not being able to launch in the two countries.

Pokémon Go also has a number of mechanics in the game that have contributed to the overall success of the game. The first mechanic being the overall simplicity of catching a Pokémon. In the console games you would have to start a battle and win in order to catch a Pokémon, with Pokémon Go the capture feature has been simplified in such a way that it just requires a flick to catch a Pokémon. It’s the mechanic that all gamers were taught through Angry Birds a few years ago and one that is simple, intuitive and makes the game much more accessible. The second mechanic of note is how the game is essentially a real world MMO with players seeing the same content on screen as friends that they are standing next to. It means that friends can play together, hunt the same Pokémon together, and see the status of nearby Pokestops and gyms together. This simple mechanic has allowed many players to interact with each other in the real world and keeps players engaged with the game.

However, there are a few mechanics that are missing from the game that were originally advertised in game. The ability to trade Pokémon, fight against other players and group events are still missing. Niantic CEO John Hanke has assured users that the game will receive regular updates every couple of weeks with new features and mechanics. The launch has been smart in a way as Niantic have put in just the right amount of content to keep players engaged. With the addition of the three features above, as well as other features like in game chat, new Pokémon and more, it means that Niantic can create a roadmap for Pokémon Go to continually release new content to keep players engaged and spending. It also allows users to gradually learn the game mechanics as time goes on, rather than be confronted with a bloated and hard to play game on day 1. It’s clear that mobile games today need to adopt the games as a service model in order to have any chance of remaining in the top 10 all year round, the game has done exceptionally well to get to number 1 already and this roadmap could be exactly what Niantic need to keep the game at the top through the next few years.

This brings me on to my final point about monetisation of the game. The primary way that the game is monetised is through the purchase of Poke coins. The prices range from $0.99 for 100 coins to $99 for 14,500 coins. These coins can be earned over time in game but purchasing the coins allows you to get instant access to various temporary and permanent items. Poke coins allow you to buy temporary power ups such as Incense, which increases the number of Pokémon that spawn around you, as well as Lucky Eggs, which double your XP for 30 minutes, and also Lure Modules which you can attach to a Poke Stop to spawn Pokémon there. Permanent power ups include backpack and storage upgrades which allow you to carry more items/Pokemon. You can also buy Pokeballs, these are used to catch Pokémon. It’s a fairly simple list, but what is of note is that the majority of micro transactions in the game provide temporary power ups to you and/or other players which encourages players to spend on these options more often.

Data from Slice Intelligence, Apple and App Annie suggests that the $0.99 option is the most popular option in most markets. What this shows is that in game spend is being driven by a high number of users and not just a bunch of whales who are spending huge amounts. The fact that the game continues to remain at number 1 in each market shows that gamers are also being enticed by the temporary power ups and are continuing to buy those each time they want to have a boost. With a roadmap in place for new content, microtransactions, features and events, Pokémon Go could keep users spending in app and this could very easily turn into the most successful game of the year. However there is still a lot of uncertainty as to whether Niantic will be able to add content that keeps users engaged.

However one other way that Niantic can generate revenue from the app is by utilising a monetisation model that they had in Ingress. In Ingress,Niantic were able to generate revenue through sponsorships of items and locations in game. These sponsorships encouraged players to arrange meet ups at certain locations and made the game more interactive for gamers and allowed Niantic and the sponsors to see the benefits through a constant revenue stream. The pokemon Gyms would be perfect for this, and the CEO has already confirmed that sponsored locations will be included in a future update. It could add a whole new dimension to the game and not only provide a boost in footfall for local business but increase engagement and spend in game (Not to mention rev. from sponsors).

In fact we’re already seeing some local businesses embrace Pokemon Go by offering customers money off products and many users have seen this as a positive thing. In a way, these unofficial sponsored locations are serving to keep people playing Pokémon Go and make their experience better. GameStop recently confirmed that they had run an event last weekend where they dropped lure modules across 462 pokestops that were near to their stores. This increased sales by 100% over the weekend and helped drive additional footfall in store. With official sponsored locations added in we could see an even bigger positive response from players. The game is due to launch in Japan tomorrow and McDonalds will be the first official sponsor for the game. Not only will this boost sales of McDonalds, it will encourage players to play more in order to reach the required levels to take advantage of each reward.

Overall Pokémon Go has been a hit for Nintendo. Investors have wanted to see Nintendo enter the Mobile games market for a while now and whilst Miitomo had a fairly poor launch, Pokémon Go has had the best launch ever. Pokémon Go has acted like a proof of concept for Nintendo as it shows the potential for Nintendo IP on Mobile is there and can be a success. With a few hit games, Nintendo could easily create another $1 billion+ segment, something that they could have used during the Wii U era. Pokémon Go solidifies Nintendo as a player in Mobile, the game has very high user acquisition at little cost to Nintendo due to the brand and gameplay mechanics encouraging strong word of mouth. The game is also the #1 grossing across all launch countries with what is arguably just a standard bunch of micro transactions and the game has generated increased brand awareness which can feed into Nintendo’s traditional console business and the upcoming releases of Pokémon Sun and Moon.

This has caused Nintendo’s market cap to double in the past week as investors are now confident that Nintendo can do very well with the right product in the Mobile games market. It’s shocking to think that only two years ago they were saying that they would never develop for mobile. Thankfully over the past couple of years we’ve seen Nintendo finally understand that diversifying the business is the best move to make right now as it’s become clear they can’t rely only on their traditional console business. Especially if the Nintendo NX fails to find a place in today’s market. With Mobile, Nintendo can not only create games that reach a wider audience, they can expand the popularity of their brand as well as cross promote their other products.

The reason I’m saying this is a hit for Nintendo (as well as for Niantic and The Pokémon Company) is because Nintendo will receive some of the earnings from Pokémon Go simply for giving the green-light to the project. Not to mention that they’ll earn revenue through the sale of Pokemon Go Plus hardware. Nintendo own the copyright to Pokemon, along with Creatures and GameFreak. As well as this, Nintendo are the sole owner of the Pokémon trademark. Don’t forget that Nintendo have a 33% stake in The Pokémon Company which is a joint investment between Nintendo, Game Freak and Creatures. Nintendo also have an undisclosed stake in Creatures as well, not to mention an undisclosed stake in Niantic. So to cut a long story short, Nintendo have a huge part in this game, even though they didn’t publish it.

To break it down, Apple/Google will take a 30% cut from the total gross revenue, leaving the remaining 70% to be split among The Pokémon Company, Nintendo and Niantic. Of course Niantic will get their cut, and The Pokémon company will get their cut. But Nintendo will not only have their own cut, as a stakeholder in The Pokémon Company and Creatures, they will be entitled to over 33% % of what The Pokémon Company earns. Not to mention anything they earn from their small share in Niantic and any other dividends. In other words, Nintendo are indeed benefiting from the success of Pokémon Go, but there are other benefactors here which means that overall Nintendo are still getting a small part of the pie.

It’s hard to say how big of an impact Pokémon Go will have on Nintendo’s financials this year. If the game remains at number 1 all year round then the game will certainly have some impact on Nintendo’s revenues, but even in the best case scenario I don’t expect the single game to have any significant or material impact to revenues/profits. However the addition of Animal Crossing and Fire Emblem this year, along with the success of Pokémon Go could cause a boost in Rev./Profit for FY16. Animal Crossing will no doubt be aiming for mass market adoption due to the popularity of the game whilst Fire Emblem will be aiming for a good number of core console fans to play and pay due to the game still being fairly niche/core overall. If these two games do well this year then they will certainly have an impact on Rev./Profit, however once again I don’t expect it to be significantly above what Nintendo have already forecasted. A full year of revenue from a handful of hit mobile games in FY17 will be what provides the biggest impact to Nintendo’s financials.

Unlike console games, mobile games don’t generate the majority of their revenues on day 1. The Free to Play + Games as a Service model means that Mobile games can generate just as much as console games, if not more, but it will take considerably longer to get there. Hence why I believe Nintendo’s mobile division will not have a material impact on overall rev./profit this year but has the potential to provide a huge impact in FY17. Assuming a Mobile game remains in the top 5 worldwide for a full 12 months, it has a huge chance to be a billion dollar generating game. Pokémon Go could be the first Nintendo game that reaches that benchmark and it’s not hard to imagine that another Nintendo IP paired with unique gameplay on mobile could do the same. Nintendo have gone from FY16 being a write off year, with the discontinuation of the Wii U, to this being a transitional year when we finally start to see Nintendo get serious about other opportunities outside of traditional consoles.

However, I should point out here that I’m not saying that Nintendo should stop making consoles or console games. The success of Pokémon Go has nothing to do with suggesting that Nintendo should get out of the console game and to suggest such a thing is ludicrous. The performance of the NX should be used as a measure as to whether Nintendo should continue in the console market. The success of Pokémon Go shows that Nintendo can diversify their revenue streams and add on Mobile as a new business segment. It’s clear that Nintendo still make the most money from their traditional hardware and software business where they control the ecosystem. Being a successful platform holder in the Console Games market and also being successful in Mobile games is considerably better for any company, rather than to just focus on Mobile games. Only if NX fails should a conversation be brought up about Nintendo going third party or purely mobile. Especially when you consider how fickle the Mobile market can be, remember ‘Draw Something’.

What is of note is how Nintendo are able to reach new audiences with their expansions into other mediums. On Mobile for example we’ve seen that Pokémon Go has indeed reached a younger audience and also a fairly casual audience which has been missing from the Wii U. Nintendo has an opportunity to reach out to the casual market again, which they haven’t had since Wii and the aim will no doubt be to use Mobile as a way to cross sell and promote their console products. This also serves as a lesson to other games companies, especially Sony and Microsoft, that they have a huge opportunity in mobile as well, not only the concept that big franchises can work on mobile, but the idea that they can reach a new demographic. Microsoft indeed discovered this with Minecraft, whilst Sony hasn’t really been able to have any presence in Mobile outside of their Sony Pictures/Aniplex games development company.

The Mobile market has been stagnant for a while with the same sorts of games entering the top 10 and staying there. There have been AR games for over a decade as well as many location based games too, but combining those two features with the brand of Pokémon has allowed Pokémon Go to become a killer app in an app category that was never popular before. The AR category. I should point out that this game isn’t true augmented reality, but it is the first experience that many will have with an augmented reality experience and can be the catalyst that drives more in depth AR experiences on mobile and could even allow AR to take off on dedicated devices (Hololens), however dedicated AR is still a way in the future. Pokémon Go is indeed taking all the AR related buzz at the moment and many are predicting that we’ll see lots of similar experiences pop up. Although how successful those copycat apps will be without a big brand behind it remains to be seen. Instead I believe this will open up the market to completely new AR experiences. Snapchat Lenses made AR popular and Pokémon Go took it even further into the mainstream. These are two completely different apps and are successful in their own right. With more unique apps like these two we could see AR play a big role on mobile and bridge the gap to dedicated AR devices in the future.

In Summary, Pokémon Go has been a huge success for Niantic, The Pokémon Company and Nintendo. The perfect marriage of the Pokémon brand with Niantic’s map database and AR functionality has allowed Nintendo to launch the right product at the right time and capture a large audience that either grew up with Pokemon or are trying it for the first time. The hype for Pokémon Go is amazing right now and the unique gameplay is empowering gamers to experience a new way to play. The game has acted as a proof of concept for Nintendo in the mobile space and investors have been quick to price that in. Although I should note that the game hasn’t even released in Japan yet so there is plenty of potential for Nintendo’s stock price to rise further should Japan respond favourably, which they will. Everyone will now be watching to see what Niantic does in order to enhance the game in the next few months to keep gamers engaged and spending. All eyes will also be on Nintendo’s upcoming games on Mobile this fall to see if they can replicate or prove successful in the mobile market. It’s shocking to think that Nintendo weren’t even planning to release any mobile games just a couple of years ago and now Pokémon has had the most successful launch on mobile ever and is driving sales of Pokémon related merchandise and games. But they are not the only ones entering into this market, with fortnite setting up a mobile application. If you want to learn about their new incarnation of the popular game then you may like to visit Battle Royale Insider. to find out about one of Nintendo’s competitors.

Nintendo’s financial results briefing will be on the 27th of July and they will certainly be talking about a roadmap for Mobile. Nintendo can very easily create a multi-billion dollar segment through mobile games with just a handful of hit games. If they continue to expand into content licensing (Movies/TV/Merchandise) and also create a successful console then we could be looking at a very different Nintendo in a couple of years from now.

Legal sales of PS4 & XB1 to exceed 1 million in China

12th July, 2016 · ZhugeEX · Leave a comment

PS4 & XB1 legal console install base to hit 1 million in 2016
Grey Market console install base to fall short of 2 million in 2016
PS4 continues to be the console leader in China
New Chinese consoles won’t have a huge impact in the market
Console gaming to remain niche overall as mobile continues to grow

With more than 400 million gamers on Mobile and 130 million gamers on PC, 2016 is the year where China shows its dominance in the worldwide games market by surpassing the U.S. to become the undisputed number 1 games market in the world. The march has been led in recent years by mobile, which has seen explosive growth and is on track to generate upwards of $7 billion this year. Client/Web PC games have been around much longer and have solidified their popular position among core gamers in the country, now generating upwards of $12 billion each year. China’s game market is on track to see revenues of over $24 billion this year (according to Newzoo) thanks to Mobile & PC . The two different categories are set to continue growing into the future. The U.S. market has also seen explosive growth from mobile and PC. but unlike China, the country has a huge console playing population of more than 70 million (according to EEDAR) and generated over $7 billion in revenues from Console game software at retail and via digital download (according to NPD & DFC – CY2015). The number of PS4’s & XB1’s now installed in the US is over 26 million with the number increasing every month. This is a huge contrast to China where the amount generated from console/tv games in 2015 didn’t even hit $100 million and where the install base of PS4 & XB1 is considerably low, despite a huge gaming population.

Shanghai Oriental Pearl, the distributor of PS4 & XB1 in China announced at the end of 2015 that the install base of both consoles in the country had hit 500,000. Please note that the figure quoted here refers to legal console sales in the country via official channels. It’s impossible to know how many consoles have been imported into the country, but having looked at some data from Niko Partners, spoken to retailers and others in the industry, I’m confident enough to say that the grey market will have accounted for an additional 1.5 million unit sales leading to a total of 2 million PS4’s & XB1’s installed in the country. The number is considerably low for a country with hundreds of millions of gamers and a population of over 1.3 billion.

It all stems from the fact that consoles have been banned in China for the past 14 years. The only way to buy a console in the country prior to 2014 was through the grey market and many just didn’t bother. Instead it was Internet Cafe’s that drove gaming back when consoles were originally banned. Many who wanted to game either couldn’t afford a PC or weren’t allowed one by their parents and so would go to an Internet Cafe where they’d pay a small fee to play online games. This led to games like Warcraft becoming hugely popular and more recently it’s free games like League of Legends that have dominated in China. Mobile has led the more recent gaming revolution in China as smartphones have become increasingly affordable, widespread and replaced PC’s at their jobs. Users in China use smartphones for everything, from paying for goods, to watching live content, to games. The fact that smartphone games are free means that everyone can play and there are now 400 million gaming on smartphones in the country.

Consoles have faced numerous challenges in the country. The first is simple brand awareness. Whilst many will have heard of Sony, through electronic devices, and Microsoft, through Windows PC’s, the PlayStation and Xbox brands are still relatively unknown across the country. Censorship is imposed on foreign games which means that a lot of popular console games in the West, like Call of Duty and Grand Theft Auto, are banned on console in China due to going against Chinese cultural values. Whilst some games can edit out 1 or 2 scenes in order to get around the censor, a game like Grand Theft Auto would need to be rebuilt from the ground up and be a completely different game to be approved for sale in China. This has discouraged many publishers from taking the risk to publish their games in China and so far there are less than 100 official games available for PS4 & XB1 today due to this as well as due to the long approval process that console games have to go through. It can take months for a game released in the West to be localised and approved to go on sale in China.

The next challenge is actually getting consumers to buy the console. Gamers in China are used to paying a small fee to game on PC’s or nothing at all to game on smartphones. With console the idea is flipped on its head and consumers are suddenly being asked to pay upwards of $350 for a console and at least $30 for each full game. That rules out a large portion of the gaming population in China who either can’t afford, or don’t have the will to spend that much for just a few extra games, especially when there is so much choice on Mobile & PC. With a low install base, many foreign companies are also discouraged from publishing their games there, however both Sony and Microsoft have done well in order to bring some foreign games to the market.

There are also a number of social factors at play here, the fact that Chinese gamers prefer games made for them is an important point that can’t be ignored. It’s why games like Dynasty Warriors can do well on console whilst others based on Western history may not be as successful. Many indie developers and big publishers in China continue to publish games on Mobile and PC whilst ignoring console due to the small install base and lack of opportunity there. Traditional Chinese families still have a lot of negative stigma around gaming, hence why many youngsters game away from the living room on smartphones or at Internet cafes. Many families in China only have one TV and so a games console in these households wouldn’t make sense to older parents who would block the move. That negative stigma is starting to go away but it’s something to be aware of, especially among the emerging gamer category.

All these factors combined have meant that only a very core audience has adopted consoles today. Sony and Microsoft have tried to appeal to the family and mass market through various advertising campaigns but so far they haven’t been able to have any significant impact in that market. It all comes down to the fact that the living room gaming experience just isn’t convenient for most Chinese gamers and with no familiar games on the consoles it means that they’d much rather stick to what they know. Even local Chinese companies such as Tencent, Fuze and others who have launched Android Micro-consoles are unable to find success. These micro consoles may have the same games as mobile and PC and be familiar to Chinese users, they are also considerably cheaper than a PS4, but the demand for living room gaming just isn’t there and as such it’s the TV streaming functionality that gets used more on these boxes. In fact sales of Smart TV’s and dedicated streaming boxes are outpacing games consoles and micro games consoles in China quite significantly.

It was clear from the start that console gaming would be fairly niche and after two years it’s become fairly clear that console gaming in China will remain niche. I don’t see there being a catalyst that will suddenly spike sales. But with continued promotion from Sony and Microsoft, lower cost to entry, more AAA games from Western + Japanese publishers, the introduction of more local Chinese games that take advantage of both paid and F2P models, as well as positioning the devices as home media entertainment systems for the family, Sony and Microsoft can see their games business in China grow gradually to end the generation in a good position.

Local Chinese consoles are also set to remain pretty niche. Fuze recently released their Tomahawk F1 which targets the mid core gamer. The Android console manufacturer has partnered with many AAA/AA and Indie developers in order to bring games like Saints Row 4, Dynasty Warriors and Hawken to their console in an attempt to attract Chinese gamers who want great game experiences at a low cost to entry. Whilst the concept is good on paper, Fuze are entering a market where most still do not want to pay upfront for a console and would rather only play games that appeal to them , that are found on Mobile and PC. So whilst I do expect this to have a niche level of success, this won’t have any impact on mainstream gaming in China. Tencent recently announced their TGP box in China. It’s effectively a Steam Box that runs both Windows 10 and Tencent’s Gaming Platform. However the cost of the console is not only ridiculously high, it’s also a product that already exists today with any custom built PC with the Tencent Games Platform downloaded to it. So far the console only has around 250 pre orders and this is another failed Chinese console in my opinion. It’s highly unlikely that it’ll find success and I’m not that bullish that the TV Gaming side of the console market in China will find success. Even with Fuze trying to capture the middle ground, I still believe that it’s Sony and Microsoft that will do best in China, but even then the level of success won’t be anything to shout about.

The potential for console sales growth in China hasn’t been very high this year, only a few new titles have released for PS4 & XB1, and whilst gamers can import from overseas, the majority of core gamers in China likely already own a PS4 or XB1. With a current install base of 500,000 legal PS4’s & XB1’s, I expect the total install base to double this year as more games release for the console later in the year. Final Fantasy XV is set to have a simultaneous worldwide launch in September, even in China, and this should do well in China due to the nostalgia factor there. I believe this, as well as the slew of games due to be announced at China Joy will play a strong role in maintaining PS4 & XB1 sales in the country. I’m expecting the number of PS4 & XB1 grey imports to decline this year as legal console sales finally take the lead. Grey Imports were at their highest in 2014, before the official launches of PS4 & Xbox One in China.

The current estimate of 500,000 legal console sales in 2016 and 400,000 imported console sales would take the total install base of legal consoles to around 1 million and the total install base for imported consoles to just under 2 million. The total console install base of PS4 & XB1 in China would therefore be somewhere just below 3 million by the end of 2016. New hardware due to launch from both companies should provide a boost to the install base of both in 2017 and as long as they continue to promote their products there then the overall install base of both consoles should hit 5 million (Legal & Grey Market) before the end of 2018. From what I’ve seen, legal software sales have been low in the country with the attach rate still under 4 games per console. It looks like many are still importing games from outside of China and a few online retailers show data that seems to support this notion. Right now I don’t see the console software market in China becoming a billion dollar market any time soon. With an estimated $25 billion due to be generated by games in China this year, revenue from console games software will continue to account for less than 1% of that.

UPDATE: New Mobile Game publishing regulations in China

11th July, 2016 · ZhugeEX · 5 Comments

It’s been a little under two weeks since new regulations were put into place by the SAPPRFT regarding the publishing of Mobile games in China. If you missed my previous article on the topic then I strongly suggest you read it first as it will help understand the overall situation as well as this article.

PREVIOUS ARTICLE

When the new regulations went in place on July 1st, Chinese developers found that their publishing tools, such as iTunes connect, would not allow them to publish their games without a code from the Government that proved their game had been approved. It is now known that SAPPRFT are taking this very seriously and we’re already seeing the impact from this. Below I’ll be discussing some new developments as well as responses from the SAPPRFT themselves. Whilst the responses do clear up some uncertainty about the new regulations, they also open up new questions and there is still some confusion as to how this whole thing will work and how it is of benefit to developers.

The first point I’d like to raise is how small developers are not happy with the new regulations. Many of them have already taken to social media to voice their complaints and some have a very valid reason to do so. A couple of developers, who submitted their games for approval, had the game rejected by the Government for having English language in the game. Now I should make clear that the game was indeed in Simplified Chinese, and only a few words were in English such as ‘Mission Start’ & ‘Lucky’. The English words weren’t vulgar or overused and some of them such as ‘HP’ were just common abbreviations of known words like ‘Health Points’. The only way the developers can get their game approved is to remove the English words and then resubmit their game into the back of the queue. A process that could be long and costly for a small independent developer.

This is an odd thing for SAPPRFT to regulate but they do point out that this regulation has always existed, but it’s never been enforced before. If you read my article on console games in China you’d know that they too have to be in Simplified Chinese in order to receive an official release in China, but I personally I can’t recall a time when they were so strict as to block a game from going on sale for having English text in the game. In fact I’m fairly sure that all foreign games published in China retain some English text and even Chinese games use plenty of English text in game as those uses are understood by nearly everyone across China. Many developers believe that this is a pointless regulation, and I honestly wouldn’t be surprised if big publishers don’t have to adhere to it, given how many of their games include English text.

SAPPRFT have been quick to respond to many of the complaints with stock answers that most would expect. Whilst a lot of it is just PR, some of them are fairly reasonable explanations and could actually benefit some. For example, SAPPRFT note that the Mobile market has grown to be huge in 2016 and so they want to make sure that the market continues growing whilst rooting out problems seen in the market today. Many games are poor quality, work against the interest of Chinese people, or are pirated apps from big games. They note that these type of apps go against the interests of the entire industry, which is true, and that the regulations they’ve put in place are essential to facilitate a healthier market for mobile games. The note about piracy will certainly give big Chinese & Overseas publishers some confidence in the Chinese market. Although, a Pokemon Go clone is the number 1 most downloaded game in China today (July 11th) so it doesn’t seem to be having any impact right now. It’ll be interesting to see just how strict the regulations will be against pirated apps and whether this actually will root out what is a huge problem with the app store today.

One other complaint that SAPPRFT addressed was the policy that required developers to send in a phone with the game pre installed + active SIM card in order for the game to be approved. Whilst the actual wording was somewhat ambiguous, the SAPPRFT have clarified that this is one of three options in order to get your game approved. You can actually just send the APK to them, which they will download and install on a test phone. Alternatively you can send your own phone in with the game pre installed in order to control the test environment yourself. That is one policy which has been cleared up, and I’m glad it has as it was ridiculous to expect all publishers to send in a phone with the game pre installed.

SAPPRFT also cleared up another unclear policy. With the news that some games would be processed in less time, rumours started to spread that there would be a ‘fast approval’ option and that if you paid you’d be able to get your games approved in less time. In fact, plenty of middle men started to pop up on sites like Taobao that offered intermediary services that promised to get your game approved faster at a small cost. Thankfully SAPPRFT has said that these services are illegal and that there is no fast path process to get your game approved. They note that they’ll be cracking down on anyone offering this type of service. They also clarified that the approval process is free of cost to developers. Whilst this is excellent news, it won’t stop small developers from worrying how the long approval process will affect them in an industry where making mobile games is all about getting the app on the store as quickly as possible and using the profits to start development on the next project. Long approval times will end up costing these small developers both in time and money, even if the actual process itself is free.

It is also worth noting that some small developers may not even be eligible to have their games approved without approaching a publisher. One of the requirements for having your game approved is to hold a publishing license and lots of indie developers will not have one. Many may not even be eligible to apply for one. What this means is that a number of small developers may find themselves having to partner with a larger publisher just to get their game approved. Not only will this take time, the publisher will be entitled to take a cut of the earnings which means this new process will give indie devs a small cut of what they would be earning could they self publish their games. There is still a lot of uncertainty around this regulation and how it will work for small developers but at first glance it seems like this is just another regulation that favours big publishers in China and is detrimental to the small guys.

Top 50 mobile games in China. Revenue Share.

Whilst a number of these regulations, such as the one about preventing piracy, can be seen as good and a step forward, the majority of regulations are seen as bad. Not only do developers have to have every game approved, which could take months, they also have to make sure their games abide by all regulations, that they have all the right licenses, and that they themselves can afford the cost of the whole process. Many in China are predicting that this will affect the growth of the industry as small developers decide to stop making mobile games. Big developers and publishers could also be affected as some games may now be blocked due to having too much violence or going against another cultural rule. However most big publishers, who have the funds to get around these regulations, will not be affected. Especially as many big publishers will no doubt try to work with the Government to get their games approved faster. We could be looking at a very different mobile market within China in just a few years from now, one where only big publishers are successful and there is no indie developers.

Some indie developers have gone as far as to sue the SAPPRFT. Shanghai based Chen Yu has started a crowd funding campaign to raise money in order to launch a legal case against SAPPRFT. His complaints are based on everything that I’ve written in this article and the previous one, that these regulations will have dire consequences on small developers whilst favouring big developers who can afford all of the big changes. Chen believes that many of the new regulations, such as having to obtain a publishing license/publisher, having to censor their games, and having to wait months on end for approval will mean the small developers will stop making mobile games as the return will not be enough for them after going through the process. It’s obvious to anyone that Chen will not win a court case against SAPPRFT. But what he may be able to do is raise awareness about the issues facing small developers and in turn the SAPPRFT may change the approval process in order to be more accommodating of small developers.

It’s a very interesting time to see what will happen to China’s mobile games industry. Right now I don’t see the regulations having too much of a negative effect on big publishers in the country. They will no doubt continue to publish games in a timely manner and as the majority of revenue in China’s mobile market is generated by big publishers, I don’t see it drastically impacting growth of the overall market. But small developers may find that they need to sacrifice their independence and find a job at a big publisher in order to continue making mobile games.

(I posted about the impact on foreign games in my last article, please read that to understand more)

The challenge of publishing a Mobile Game in China

4th July, 2016 · ZhugeEX · Leave a comment

Comprehensive 3,500+ word report regarding new regulations governing Mobile Games in China and how this will affect domestic and foreign games companies. Suggestions for foreign game companies included below.

It’s time to talk about China again. A number of changes have taken place recently which will have huge effects on the Mobile & Online games industry. To be more specific, new regulations have been put in place that show China is getting extremely strict when it comes to the administration and approval of games in China. In China there are a number of Regulators and Ministries that are responsible for ensuring that Chinese values & laws are being promoted and upheld in the country. Or to put it simply, they’re responsible for censoring and regulating content in China. It’s no secret that China and censorship go hand in hand like… well… China & Censorship.

First there is the SAPPRFT (The State Administration of Press, Publication, Radio, Film & Television), this body regulate media in the country and are responsible for censoring anything that comes under the segments listed above. Secondly there is the CAC (The Cyberspace administration of China), they are the agency responsible for censorship and control over China’s Internet. Finally there is the MOC (Ministry of Culture), this ministry is responsible for culture policy in the country and promoting, protecting and censoring any form of cultural art.

Mobile Game Regulations

The big change that many of you may have heard about is that the SAPPRFT have introduced a new regulation that states every single mobile game must now be approved, prior to appearing on the Android and iOS app store. The regulation, which went in to place on July 1st, will have a huge impact on the gaming landscape in China and could ultimately have huge consequences. China’s Mobile Game market is currently the biggest in the world with over 400 million gamers and around $7 billion generated from Mobile games in 2015. There is also a fairly diverse portfolio of games and publishers with Tencent & Netease at the top, many companies in the middle and then a whole load of Indie developers who are also able to create mobile games and publish them on an app store. There are even popular foreign games on sale in China, such as Clash of Clans and others, and they have seen good levels of success.

With this new regulation, everything gets thrown out the window and now all new games will need to have Government approval before being added to an app store. But that’s not all, even games that were made before July 1st need to get approval from the Government before October 1st 2016 or they can risk their games being taken down. In other words, the whole situation is about to get a lot more messy. Lets take a look at these regulations in a bit more detail.

A developer will need to apply for either the simplified process or standard process

SAPPRFT have introduced a simplified policy for Mobile games that meet a certain set of requirements.

Game copyright must be owned by domestic (Chinese) individual or entity
Do not contain sensitive gameplay elements regarding politics, military, nationaility or religion
Have no storyline or very simple storyline
Are casual games like endless runners etc…

If the above applies to your game then you’re in luck and can start the simplified process outlined below. If not, then you need to follow the standard process.

Simplified process

The simplified process is far from simple and is quite absurd in many ways. In order to get your game approved you will need to submit your game to be approved at least 20 days prior from launch. The process involves filling out a bunch of paperwork, loading your game onto a smartphone with an active sim card and data plan, and sending it all to the SAPPRFT. Yup, you actually have to send a smartphone to them with the game pre-installed, in fact you have to send two smartphones if you plan to launch on both iOS and Android. It will then take an additional 5 working days for the auditor at the regional office to assess the game. Should everything be in order the auditor will then send a written letter of recommendation to the national SAPPRFT office who will make a final approval, this could take up to an additional 10 working days. Once the game is approved by the national office the regional office will then have 3 working days to inform the developer of the approval. (Sounds very not efficient)

Once that is done you can launch your game, but it’s not over yet. Within 7 days of the game launch you have to contact SAPPRFT again to report details on the launch of the game, such as the launch date, which app stores it is on and other details. Also, if you don’t launch the game within 20 days of approval then you also have to contact SAPPRFT in order to let them know why.

Standard process

The standard process is for when point 1 does not apply to your game, and seeing as lots of games aren’t just endless runners or match-3 games with no story, a whole lot of games will fall under the standard process. In fact most games will fall under the standard process. The standard process is very similar to the simplified process where you have to fill out forms and send in phones with the app pre loaded etc… but there is one very important and significant change, the approval time. It can now take up to 3 months for these games to be approved. But I wouldn’t be surprised if it could take longer, especially for smaller games. In 2015 there were over 10,000 mobile games released in China. That’s around 27 games each day. I have no idea how they expect to approve all these games in such a short time.

Impact on domestic companies

There is no escaping these new regulations and every single game now needs to go through this process. With thousands of games being submitted to app stores each month it really makes me question how SAPPRFT will keep up with the games approval process. Do they have millions of employees just playing games all day? Also how strict will this approval process be? China is known for censoring the smallest of things and to date mobile games have not been subject to anything like this before. Will we suddenly see popular games being rejected on the basis of something silly? There is way too much uncertainty around this regulation at the moment and its not hard to see why some are worried when you look at the list of game requirements below.

All Online games must not have-

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

So with this in mind, we could start to see China’s government start to block foreign games, that previously wouldn’t have been blocked, as well as other domestic games that they just don’t feel like approving due to one of the silly reasons above. But that’s not the only worry here, just going through this approval process will take lots of time and lots of money. That’s something that a lot of small and mid size mobile developers just do not have and many analysts and internet commentators are already predicting that this could have dire consequences for smaller mobile developers in China. It’s no secret that the conditions are already tough for small developers in China, due to the utter domination of large mobile publishers, and this could be the final nail in the coffin. Spending all your time developing a game and then having to spend a ridiculous amount of money and time to get it approved, only to have the government reject it, is not something anyone wants to have happen and in most cases will leave small developers with no source of income to start a new project.

It’s estimated that it could cost anywhere between $3,000 to $6,000 for small developers to work with a publishing partner to get a single game approved in China. The reality is that not everyone can afford that, especially that one guy with the next genius mobile game idea who wants to put it on the app store himself. Indie devs may end up abandoning their plans to create mobile games if this becomes too costly or too risky of a proposition. For big mobile publishers this will be a barrier for them but one that they’ll be able to overcome in time. Especially if they start flashing money…. In the end it means the big get bigger whilst the small devs feel the brunt of this regulation.

This isn’t the only regulation that has been put into place. The CAC recently put out a new set of rules that need to be implemented on August 1st. Mobile App developers will now have to follow a strict set of rules that will give the CAC access to users personal information. Mobile app developers have been mandated to collect real name information of users using their apps through mobile phone numbers or other registration methods. They are also being told to implement inspection and management systems in their apps to stop the spread of illegal content or any content that goes against China’s culture. The app providers need to keep user records for at least 60 days at a time and report any illegal or suspicious activity to the CAC. In other words, mobile app providers are now being asked to monitor users of their apps and police them if they do something ‘wrong’.

All of this is being done so that China’s government can control and regulate the fast growing Mobile Games/App industry. No doubt there are financial reasons behind it, as well as the obvious censorship and control of mass media.

Chinese iOS Developers cannot publish games without a Government code

Impact on Foreign Games Companies

This whole time I’ve been talking about how this will affect China and domestic companies in China, but this has huge implications for foreign game companies as well. China have been sending a strong message to foreign companies that China is becoming more restrictive on foreign content and games being distributed in China. It wasn’t too long ago that China’s game market was completely dominated by domestic games only. The big video game publishers never bothered with localising their console games in China due to the console ban, PC game publishers never bothered unless they had an online game that would appeal to Chinese users, and mobile game publishers never bothered until the mobile game market started to explode.

Now consoles are unbanned and PC’s are more abundant, so this has caused many big gaming companies to take China seriously and publish console and offline PC games in the country. The Online gaming market has exploded in China and is very lucrative with games like Warcraft & League of Legends finding success. More recently we’ve seen games as a service take off in China and so many like Activision Blizzard have found success in China through publishing localised versions of Call of Duty Online and Overwatch as examples. China also has the largest mobile games market in the world and many western brands such as Angry Birds, Clash of Clans and Plants Vs Zombies have become household names in China due to successful launches of these games. It’s clear that China cannot be ignored by those in the West any longer as there is a huge opportunity here.

As noted, this will have big consequences on foreign developers who want to publish their games in China. Previously there were certain loopholes that would allow you to publish your game on iOS without having to follow any Chinese Government regulations. Now that loophole may be closed, in fact it already is for Chinese devs. Right now foreign devs are unaffected and can still publish apps in China on the Chinese Apple App Store via iTunes connect. But should the government decide to make the July 1st regulation applicable to foreign game developers it will mean that every foreign game will need to be approved by the Chinese Government before it goes on sale/app store. Anyone who has already tried to launch their game in China on Android will know that it’s near impossible to do so without a Chinese publishing partner. The reason for this is because Google Play is not widely used in China, instead there are a number of different Android App stores from various Chinese companies, each with varying market share. Therefore a Chinese publisher is needed in order for your game to reach these app stores.

Publishing games on Android, PC or console already requires a Chinese publishing partner and they could also be required to launch foreign iOS games as well if China are strict about this new regulation, thus closing the loophole. I will make clear that the loophole has only been closed for Chinese developers and not for foreign developers just yet. Launching games on any other platform for now will require a Chinese publishing partner who will be responsible for every single aspect of your game in China. From creating a localised version of the game that works with Chinese payment methods, to acquiring users, to promoting the game, to getting the game approved by the Chinese government.

Finding the right publishing partner can be tough due to cultural differences. It will take time and you’ll have to work out the right set up for your game (what you do and what they do) and you need to be ready to fully commit to this as you’ll be working with them throughout the lifetime of the game/games you’ll be offering. But this isn’t even the worst thing now. You may find a great publisher to work with but with these new rules in place they may not be able to get approval for your game if it breaks any rules that China do not like. You’ve already seen the list of rules above, they’re basically a list of “China can do what we want rules” and if they’re strictly enforced then it could mean that a lot of foreign games will no longer be accepted by the Chinese government to launch on Chinese app stores. What’s even worse is that the Government can start to blacklist publishers at any time for games or apps that go against Chinese cultural values.

Now more than ever, foreign game developers will need to be prepared when it comes to launching a game in China. You will really need to consider what sort of game you’re making and whether it will fit in with the Chinese censors.

So if you’re going to be developing a Grand Theft Auto style game then it’s very clearly going to be rejected by the Chinese government and it’s honestly not even worth the time to try and get it accepted. If you know your game vision is going to be against the values above then just focus on other markets. If you believe that your games fit with the values listed above then the next thing to consider is the business model for the game in China. On Mobile the best model to use is without a doubt the F2P model, that also applies to online PC games where the abundance of internet cafes has meant that online f2p client games have become the most popular style of games. The Paid game model can still work but this would mostly apply to console games for PS4 & XB1. If you’re thinking of launching a paid PC game then its best to talk to your publisher about that, I’d recommend just going through Steam and localising into Simplified Chinese. Steam is popular enough in China and with the right promotion a paid game can do well in China through that medium.

When working with a Chinese publisher, the topic of localisation will be key. A high quality localisation can favourably impact sales of a game in China and its likely the Chinese publisher will want to do this themselves. As noted above, the Chinese publisher role is quite big these days and so it’s important to really negotiate well and make sure that there are clearly defined roles for both yourselves and the Chinese publisher. It’s important to work out what suggestions you should listen to and what suggestions you should dismiss. It’s also important to protect your game on a technical level by implementing measures that can protect the game source code. It’s best to sign a formal agreement with your Chinese publisher that outlines how the game is to be localised and how the game source code is to be used to avoid the Chinese publisher doing something against your wishes.

It’s also best to trademark the game name, art assets and key characters/mechanics as quickly as possible to avoid another Chinese company from trying to create a rip off game under the same name. Usually trademarks are served on a first come first serve basis which can be terrible for you if you wait till the last minute to do this. In addition, you will need to obtain a ‘game source code copyright registration certificate’ from the Chinese Government to ensure that you are the owner of the source code in China and so the Chinese publisher can license it. This makes it less likely for your game to be copied in China and also speeds up legal court proceedings if they need to take place.

In the end it all comes back to one point. Does the game meet the censorship requirements in order to go on sale. If the answer is yes then it won’t be hard for the Chinese publisher to obtain approval for your game. It is important that all licenses and approvals are obtained prior to the game launching on Mobile, otherwise you could face harsh consequences from the Chinese government who will not hesitate to shut down the game. China wants to control the media that citizens consume and they also want citizens to favour Chinese companies. So it is very difficult for foreign companies to enter. It is imperative that all policies, regulations and laws are followed to ensure that your game can launch with no issues. The payoff can be great if the game does well there. You know you’re doing well when China is one of the top 3 countries for your app.

To sum up.

Decide if your game is right for China and will work with current censorship policies
Find a trusted Chinese publisher to work with
Outline a game licensing agreement with them (Strict localisation rules)
Register IP trademarks and copyrights
Make sure all Governmental approvals are in place before launching
Monitor game success regularly and adapt to trends

STEAM

So Console games, Online Games and Mobile Games now require regulatory approval before going on sale in the country. But so far, Steam has been unaffected by this. Steam is the popular PC store for games and it has grown immensely popular in China to the point where China is the 2nd biggest country in terms of users on Steam. Steam has grown in popularity thanks to DOTA 2 which requires the Steam client, it has also grown a reputation for having banned games and cheap games that can be bought in China. Banned games like GTA V can easily be bought by Chinese citizens on Steam and that’s great at the moment. Another reason why Steam is so popular is because Valve worked closely with Chinese payment companies like AliPay to ensure that consumers could use local payment methods.

However, recently Steam has been getting a bit too much attention and some streaming sites have started blocking lifestreams of banned games like GTA V. Also, AliPay recently withdrew support as a payment solution on Steam for unknown reasons. Now it could just be a coincidence that these two things happened but I’m fairly sure that Steam will be next on the censor/ban list. China have done it before with Facebook for example, which is blocked in China and I have no reason to believe they won’t do it again with Steam. It’s not a case of if, in my opinion, it’s a case of when.

Summary

It’s clear that these new regulations will have an impact on Chinese developers. With every game needing approval it means that small publishers need to invest more time and money in submitting games to the government for approval and waiting up to 3 months or more for the game to be approved. It has the danger of putting smaller companies out of business and also radically changing the pace of the mobile game market in China. For big companies it will likely be business as usual though as they can adapt to this in an instance and will no doubt have preferential treatment.

For foreign companies this could close the loophole on iOS and require that all foreign companies work with a Chinese publisher to bring games in. It also means that it will take a long time for games to be approved and that’s assuming they’re even approved in the first place. The government can easily demand changes before a game goes on sale or outright ban a game and blacklist the developer. Approval before launch now applies to console, PC and mobile games.

An update to this article is now available to read here- UPDATE