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The growth of Chinese gaming is humbling cocky game companies and changing the entire industry

The growth of Chinese gaming is humbling cocky game companies and changing the entire industry

If you've been watching the international games industry over the past decade there's one territory on the planet that's been more exciting, and evolving, than practically all the others combined: China.

It's become obvious that China is already shaping the global games business in a major way, and it still hasn't reached its full potential.

“Remember that when Niko Partners first started doing [research on Chinese gaming] in 2001, the market size in China was $10 million and at the end of 2012 it was $10 billion,” said Lisa Hanson, founder of Niko Partners, an intelligence firm focused on the Chinese gaming industry.

The growth has been so significant that we’re increasingly looking at a world where the center of the games business may lie in the East, rather than the West.

Gold rush

As game consoles saturated more and more homes in North America, Europe, and Japan, publishers looked toward other places for new opportunities, and it was impossible to ignore the huge impending growth of China.

“10 years ago or so, game development companies from the West saw China as this amazing frontier, tons of people, tons of gamers, and it had all of this growth potential,” said Hanson. “But their approach was to just assume that these gamers would appreciate Western style games with Western themes, and play them in the manner that Western gamers did. Which is to say: on console. That they could somehow overcome the piracy aspect of packaged goods.”

There was an abounding cockiness to the whole situation, and a lot of companies were humbled very quickly. Just as quickly as, say, a South Korean company would have been if they tried to launch a free-to-play MMO in North America back in 2003. It didn't go very well for anybody.

“Asia was different, and Western companies needed to come up with a different plan,” said Hanson. “A plan that targeted Asian gamers with themes that they liked to play, with game playability that they could appreciate, and most importantly games for the machines they had. Which is to say, PC online games on PCs that may not have the same specs as PCs in the West, and are often only played in internet cafes.”

Appreciating China

“I think it's very difficult for Westerners to fully grasp that just because they're the big man on campus here, they might not be there as well,” she said. “They think that they will be the exception. And there never is an exception, you just have to put in the work. You have to learn and understand the market. The behavior, the trends, the rules, the framework, and then systematically try to succeed there.”

Working in China is very, very different in a lot of ways compared to working in the United States, for example. The US has a very open free market with very little regulation, and some companies experience a bit of culture shock when they get to China and realize all that must be done to appease the powers that be.

For instance, Hanson said game makers can’t run their own online games, as they must go through China’s telecom system and the government has deemed that a national security risk. There are also obscenity laws which restrict the type of content that can be included in a game.

“You have to get all of your game content approved, there's no rating system,” she said. “It's not up to the gamers and parents, it's up to the government. These were all new things for our companies to learn about. Some of them learned it well.”

Some of them learned it extremely well, in fact, as China has become a huge new area for companies like Blizzard with World of Warcraft and StarCraft, as well as Riot Games with League of Legends, which is currently the top game in China.

Low-hanging fruit

Everything is changing though, and Western companies are once again seeing China as a big opportunity. Apart from Riot and Blizzard, Activision is also planning to introduce the Call of Duty series to China soon as well.

Hanson said that once Blizzard achieved success with World of Warcraft in China, other Western companies woke up and realized that games like WoW were low-hanging fruit. That even greater success could be achieved by building games specifically for that audience.

Rather than shipping one of their established titles across the Pacific, Activision opted to create an entirely new game called Call of Duty Online, built in China and designed specifically for the sensibilities of Chinese gamers.

These efforts are companies playing catch-up, however. At this point we’ve imported a great deal more of the Chinese and South East Asian gaming market to the West than we’ve exported. You know that smartphone you love to game on? Or that free-to-play game that you love/philosophically loathe? Those trends were very much incubated in the East, and only years later did the West catch up.

These trends changed the fundamentals of gaming in the West, to the extent that Hanson said game companies are on the lookout for talented Eastern companies to acquire, not just to better serve Chinese and Southeast Asian gamers, but to act as a watch tower for change that might head westward.

We’re living in a world where the West is stuck in the past with its big, clunky game consoles from yesteryear, while China and Southeast Asia are in many ways pioneering the future of the business.