Amid slowing growth and regulatory uncertainty in the country, Chinese game companies are increasingly looking to overseas markets. Many of them have been posting impressive growth figures in international markets for some time, but the situation in their country makes them see foreign players in a new light. Established players such as Tencent and NetEase – both of which are among the top five gaming companies in the world – are placing new emphasis on international growth, while newcomers such as MiHoYo, FunPlus and 37 Interactive Entertainment are seeing interest growing for their away titles. from China.
The diversity in terms of size of successful Chinese game companies overseas shows that the playing field is relatively level playing field outside of a domestic market dominated by a handful of majors – even small independent game makers are able to hitting hard when they look beyond their own backyard. Yet there is no cheat code to succeeding internationally, and Chinese game companies face new modes of competition and significant cultural challenges when venturing outside of China.
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To reflect the growing scale of its global games growth, Tencent began disclosing domestic games and overseas games revenue as new sub-segments in the third quarter of 2021.
In a tough 2021, Tencent’s overseas games saw an impressive annual growth of 31%, while the domestic games business grew only 6%. Tencent earned 25-30 billion RMB ($3.79-4.55 billion) in overseas games in the first three quarters of 2021, accounting for about 20% of its gaming revenue. Overall, the company saw its weakest revenue and profit growth in five years, 16.2% and 11%, respectively, underlining the eye-catching performance of the international games division.
NetEase first revealed its overseas gaming performance in the third quarter of 2018, saying revenue from overseas markets accounted for 10% of its gaming business’ total net profit that year. The latest figures show that overseas gaming revenue accounted for 11%-15% of NetEase’s gaming revenue in the first three quarters of 2021. However, the company did not reveal a detailed breakdown of gaming revenue. abroad in its 2021 annual report.
Although NetEase’s overseas gaming revenue growth has been steady rather than dramatic over the past three years, the company has set a goal of increasing its revenue outside of China to 50% of its game revenue, focusing on the Japan and North America markets. , according to a Chinese media Jimian. NetEase has also significantly increased its research and development spending ratio over the past two years, hoping to win with better game development skills. The report adds that the ratio doubled from 8% in 2017 to 16% in the first three quarters of 2021.
Chinese game companies take it to the next level overseas
In March this year, of the top 10 highest-grossing mobile games in the world, four were from Chinese game companies, according to detection tower: Honor of Kings and PUBG Mobile from Tencent, Genshin Impact from MiHoYo and Three Kingdom TacTics from Alibaba. Lilith’s Rise of Kingdoms also made it to the App Store’s highest earning list. Among the Chinese titles, MiHoYo’s Genshin Impact was the most profitable. Tencent’s PUBG Mobile finished second, with Lilith’s Rise of Kingdoms third.
Genshin Impact is a sprawling multiplayer online role-playing game (MMORPG). Launched in 2020, it hit 115 million downloads in its first 18 months, according to Data.ai, an American company specializing in app stores. According to Data.ai, the success of Genshin Impact was so significant that it helped put a positive spin on the numbers for the entire category, pushing MMORPG revenues to grow 17% year over year. another in 2021, despite other titles in the same category showing slowness. and even a negative increase in income.
Tencent’s PUBG Mobile, in many ways, followed the success of its PC version. The title found its popularity with a new game mode called battle royale, in which players fight to be the last one standing in the midst of mass competition with hundreds of other players. Its main competitor is Call of Duty Mobile, also developed by Tencent and published by Activision, which ranks seventh on Sensor Tower’s list.
Hard times at home
Chinese game companies are struggling to get new games approved and make money in the domestic market due to tighter regulations on young gamers’ gambling habits and strict limits on new game licenses.
At the end of August, Chinese regulators asked all companies to limit the access of minors to games (in Chinese), in an effort to protect them from gambling addiction. , with no playing time allowed on weekdays.
Tencent said in its 2021 annual financial report that the new regulations were hitting the company’s domestic gaming revenue due to “less spending by minors” and that the company was allocating resources to developers “to implement new measures.” .
Around the same time, China also stopped licensing new games. The regulator did not start issuing licenses again until April, eight months later. It was not the first time the regulator withheld its licensing power. In 2018, licensing was suspended from March to December. Game publishers in China need a license from the National Radio and Television Administration (NRTA), the state regulator for news, print media and publications, to be listed in app stores or downloadable from their websites in the country.
The prolonged freeze has forced many Chinese game companies to downsize. Since last year, major Chinese game companies such as NetEase, Lilith, IGG and Perfect World have had to halt projects and lay off staff.
READ MORE: Chinese gaming industry downsizes as regulators suspend new gaming licenses: report
What’s next for Chinese game companies overseas?
Amid these problems, many predict another dark year at home for Chinese game companies in 2022. DataEye, a Shenzhen-based industry analyst firm, wrote in their 2021 annual report that they foresee another slow year ahead. “The domestic market will not experience major growth. 5% growth is optimistic; no growth is also likely,” the report said. Instead, they noted that “the main industry growth will most likely come from the overseas market.”
It’s easy to see the appeal of international sales given the home image. Yet despite some major successes so far, achieving sustained growth internationally comes with its own set of challenges for Chinese game developers. There have been some surprise hits, like Chinese Parents, the crossover success of independent company Coconut Island, but for large-scale, long-term growth, a sophisticated understanding of international markets is required.
“Localization in foreign markets goes far beyond simply translating content into local languages. The key is cultural localization,” Wang Yangbin, CEO of DataEye, wrote in the company’s report. “These are issues that all major Chinese companies – Tencent, NetEase and Alibaba – and second-tier companies need to address quickly.”
How quickly they do so may well determine when and how well international markets can provide the kind of salvation that many Chinese game companies seem to seek by going overseas.