Looking back at the history of Chinese games going overseas, from the page game to now the Genshin is popular around the world, and major domestic game IP is emerging in an endless stream, the revenue of Chinese overseas games has surged 254 times, but with the sharp rise in the cost of game customers, the competition in overseas markets has intensified, and the policies between countries have become stricter, the Sea is entering the Red Sea market. The era of the game industry lying on the sea to make money is also over. Under the new background of the coexistence of opportunities and challenges of Chinese games going overseas, how should Chinese game manufacturers respond? EqualOcean collects relevant information about China's game going global, analyzes the current situation of China's game industry going global, and predicts the development trend and potential risks of China's game going global based on the observations gained from conversations with top players in the game industry and core global business operators.
Go Global, or Go Home
Since 2021, the number of domestic game license numbers issued has been reduced, and many manufacturers have been forced to turn to the overseas track, while the domestic policy support and perfect industrial structure have enabled game manufacturers to gain advantages in the competition of international market.
Since the number of new license numbers issued from 2021 is small, some enterprises can't get the license numbers for a long time, going abroad becomes the only way out for many game enterprises, and many domestic game enterprises choose to put old products on line overseas to expand revenue sources and avoid domestic market risks. At the same time, the Chinese game market has become a stock market, and the overseas market has more opportunities. The degree of competition in the overseas game market is lower than that in the domestic game market, and the mobile game market in some regions is still in the high-speed growth stage, and the mobile game development experience and industrialized process of Chinese game enterprises can gain advantages in the overseas competition, and almost all domestic listed game companies have overseas business nowadays.
In the report of the 20th National Congress, it is proposed to promote cultural self-confidence and self-improvement, and the game industry will focus on the self-improvement and self-confidence of Chinese culture, improve the cultural connotation of game products, respond to the call of national cultural power construction through going abroad, and enhance the influence of Chinese culture. The 14th Five-Year Plan for Cultural Development points out that it will promote the high-quality development of cultural industry. As a cultural carrier and an important mass cultural consumer product, the game industry has a large user group, and the threshold of understanding by users from different cultural backgrounds is lower than that of other cultural consumer products, which makes the game able to spread better abroad. At the same time, local governments also support the construction of cultural trade export bases, for example, Shanghai has launched the "Thousand Sails Plan", a government support program for game enterprises to go abroad, and Beijing National Cultural and Creative Experimental Zone to build a 100-billion-dollar cultural industry cluster.
The main participants of Chinese games going abroad are game developers, publishers and channel operators. R & D developers are the creators of game product content; publishers obtain game products from upstream developers and are responsible for marketing, promotion and operation of game products; overseas publishers also need to undertake translation, content localization and docking with local downstream enterprises overseas. The promotion channels of overseas games are mainly Facebook, Instagram, TikTok, and the channels for players to download are mainly Google Play and iOS store, and the percentage of overseas channel draw is generally lower than that of domestic channels.
Doing Business in Deep Waters
Although the shrinking global game market makes domestic game makers face more or less challenges at sea, but the long-term positive trend has not changed, overseas still has good development space, and the global competitiveness of Chinese handicraft manufacturers continues to grow. At the same time, we should pay attention to the risks of overseas laws and regulations, geopolitics, product compliance and operation in the high-speed development stage.
In 2022, the actual sales revenue of Chinese self-developed games in overseas markets was US$17.346 billion, down 3.70% year-on-year, the first decline since 2018. The overseas business of Chinese companies has also been affected by multiple factors such as the contraction of the global economic environment, the strengthening of regulation of imported games in some overseas countries, geopolitics, international conflicts, inflation, and exchange rate fluctuations. Among the 40 Chinese game stocks that disclosed their overseas revenue, more than half of the overseas revenue declined, and only 9 had revenue above 1 billion yuan. Among them, Tencent topped the list with 46.8 billion yuan, followed by Sanji Mutual Entertainment, Century Huatong and Kunlun Wanwei, with overseas revenue of 5.99 billion yuan, 4.04 billion yuan and 3.672 billion yuan respectively.
Although overseas revenue temporarily declined, the number of Chinese overseas domestic game publishers in the Japanese, UK and German markets all showed growth, indicating that more Chinese game products are going out and the international competitiveness of Chinese manufacturers is increasing. In 2022, the penetration rate of Chinese mobile games in the overseas mobile game market was about 28%. With the accumulation of commercialization of domestic manufacturers, the head advantage of the stock products and the space to improve the penetration rate of overseas mobile games, the research report of Caixin Securities expects that the market share of Chinese games at sea will increase by about 1 percentage point per year on average.
In 2022, the overseas game revenue of Chinese mobile games is mainly concentrated in the United States, Japan, South Korea, Germany and other countries. The revenue from the U.S. market is 32.31%, 17.12% from the Japanese market and 6.97% from the South Korean market, which are the "basic plate" for the overseas business and the place for manufacturers to compete. On the other hand, many major economies in the world have experienced large inflation, and the overseas games depend on the global game market, and the revenue from the game overseas has negative growth in the major markets in the world, with negative growth rates of more than 10 percent in the UK, Germany and Japan, 16.7 percent, 15.7 percent and 11.1 percent respectively, and negative growth rates of 6.7 percent and 4.5 percent in the Korean and American markets respectively. In an interview with EqualOcean, Tony Chen(陈博), the founder of Mujoy Network(妙聚网络), said he was optimistic about the Korean market because of the high acceptance of games in the Korean market, the recognition of games in the capital market, and the government's support for the game industry, the relative maturity of the overall market, and the cultural integration.
Red Ocean vs. Blue Ocean Strategy: Winning with Quality Products and Long-term Vision
Emerging Trends in China's Gaming Industry's Overseas Expansion：
Firstly, on the market level: China's gaming industry is showing a trend of continuous exploration in emerging markets.
Looking at the overall market situation, although the global gaming market saw an overall decline in scale in 2022, the situation differed between mature and emerging markets. In terms of the dominant mobile gaming market, mature gaming markets represented by East Asia, North America, and Europe experienced varying degrees of decline, while emerging markets represented by Latin America, the Middle East, Africa, and Southeast Asia achieved counter-trend growth in 2022. In terms of mobile game downloads, according to Sensor Tower statistics, Latin America, Africa, and Southeast Asia saw growth rates of 2.1%, 5.5%, and 6% respectively from 2021 to 2022, while Europe and North America both declined by 3.6%.
Turning to the situation of China's gaming industry going global, although over 50% of the revenue in 2022 still came from the United States, Japan, and South Korea, the combined revenue share of these mature markets has declined in recent years, while the number of regions involved in international expansion has increased, and the revenue share from emerging markets has significantly increased. In 2022, Saudi Arabia, Indonesia, and Brazil accounted for 1.16%, 0.90%, and 0.88% respectively. Furthermore, there is a more noticeable growth trend in user acquisition in emerging markets. For example, Latin America and Africa ranked first and second with growth rates of 6.4% and 4.5% respectively.
EqualOcean believes that the gaming industry in different regions and the market selection for Chinese gaming companies going global are influenced by factors such as population structure, level of digitization, and local policies. For example, the booming Middle Eastern market in recent years is largely attributed to favorable local policies. It is reported that Saudi Arabia's "Vision 2030" explicitly sets GDP targets for the esports and gaming industries. By 2030, Saudi Arabia aims to have 250 gaming companies and studios, contributing $13 billion to GDP and creating 39,000 job opportunities. In addition, the large population base, proportion of young population, and relatively less competitive market environment in South America and Southeast Asia further highlight tremendous opportunities and potential.
Secondly, at the product level: Chinese gaming companies going global are embracing a trend towards product diversification, aiming to achieve higher profits through lighter and more casual approaches.
One of the reasons is the strong development of China's internet industry, which has driven the gaming industry to expand overseas. Additionally, the involvement of capital has further supported this trend. As the challenges of cultural differences, policy risks, talent shortage, localization marketing strategies, and customer service arise during the process of going global, more companies within the ecosystem are encouraged to venture abroad. For example, TikTok's international expansion has provided new marketing channels for Chinese gaming companies. Furthermore, domestic investments in overseas gaming companies have provided them with ample financial resources to conduct localized market research and develop game categories and gameplay that are more suitable for local cultures.
In terms of gaming products, a broader range of game genres has become a new growth curve for outbound gaming companies. Chinese gaming companies still have a strong presence in traditional popular genres such as role-playing games (RPGs) and strategy games (SLGs). However, in recent years, as user preferences in overseas markets have evolved and social media has influenced lifestyle changes, a more diverse range of game genres has gained popularity. Genres such as puzzle games, shooting games, and gambling games have entered the top 20 revenue rankings for Chinese mobile games overseas. According to data from Data.ai, Chinese developers have significant growth potential beyond RPGs and SLGs. On the other hand, from TikTok's expansion into the H5 mini-game market, it is evident that lightweight games such as single-player casual games, synthesis games, and casual games may have a larger market overseas.
Thirdly, at the operational level: Chinese gaming companies going global are showing a trend towards branding, refinement, and long-term operational strategies.
Game user acquisition through buying traffic, which involves spending money to acquire targeted users through advertising, has been a survival method for game developers in the past. However, since the iOS 14.6 update in May 2021, the cost of user acquisition for heavy mobile games has skyrocketed by 78% globally. In the Southeast Asian game market, the cost of buying traffic has increased by 2.5 times in just six months in 2021. As a result, an increasing number of game companies going global are adopting more precise data-driven approaches for their user acquisition decisions. However, this trend has faced obstacles due to the growing emphasis on privacy protection and data transparency in overseas markets.
On the other hand, diversified user acquisition channels have become prominent for Chinese gaming companies going global. They are no longer solely relying on traditional advertising channels but exploring and utilizing various avenues. In addition to app store ads, they are leveraging social media advertising, video trailers, and collaborations with live streaming platforms to acquire users. This multi-channel promotional strategy helps expand exposure and coverage, enhancing game awareness and user acquisition effectiveness.
EqualOcean believes that the era of relying solely on platform dividends for growth is gradually fading away. With the soaring costs of user acquisition, establishing player communities centered around content, accumulating potential users, and effectively managing the game's private traffic are essential. Exploring new advertising channels and strengthening localized management are also crucial for future development. Tony Chen also said that in the future, Chinese games going abroad will enter a more difficult stage, increasing the influence of IP and brand investment, community building, so that Chinese game companies going abroad can achieve healthier and longer-term development, rather than making a wave of money and leaving.
Mitigating the Unpredictable: Embracing Risks and Challenges in International Endeavors
With the gradual development and establishment of emerging markets, some countries have been improving the regulatory system for imported games in recent years. Take the Southeast Asian market as an example, many countries in Southeast Asia (such as Vietnam, Thailand, Indonesia, etc.) have introduced new regulatory measures for imported games and network services since 2020, including setting up licenses and levying taxes, and this trend is likely to continue in the future. This trend will probably continue in the future, and enterprises going abroad need to pay attention to avoid the legal risks brought by changes in overseas regulations.
After the global epidemic, the geopolitical game between the major powers has heated up, which in turn has caused international political tensions and an intensified trend of counter-globalization. On the one hand, this impact is reflected in countries with which China has territorial disputes, resulting in domestic games being banned in that country; on the other hand, Chinese games' revenue in the local market decreases due to factors such as war, for example, Chinese games going abroad in Ukraine and Russia in 2022 are affected, and the revenue from going abroad decreases.
The challenges of product qualification and operation, after selecting the target countries or regions for future sea-bound, preliminary compliance strategies should be formulated according to the local copyright law, trademark law, consumer rights protection law, user privacy protection law, tax law and grading regulation closely related to the protection of minors. Before the product goes abroad, we should first exclude our own IP licensing risks, especially if there is a sub-licensing situation, and we suggest to ask a professional legal service team to clarify it. At the same time, the culture, customs and religion of different countries or regions will have an impact on game products. For example, some countries explicitly prohibit the appearance of specific logos and specific contents; furthermore, if a certain history in the game is modified, whether the product will have a significant impact in the local area.
In the process of long-term operation in the future, the conversion of quality game service enhancement may become a new challenge. In the game operation process, there are often problems such as unreasonable game mechanics, recharge bugs, and players' emotions need to be appeased, which often cannot be solved in time due to language and cultural differences and team resources. For this reason, we interviewed Duan Xinlong, the head of internationalization of domestic game service provider Sobot, who believes that unlike some short and fast games, games that generally want to develop in the long term can realize game AI customer service to cooperate with operations with the help of AI technology, and these AI customer services are often multi-tasking. On the one hand, after special training, they can solve problems with different situations of consumers, and on the other hand, they can help game developers collect and organize the points of poor game body and bugs, optimize game experience, and save the time and energy that developers have to spend on setting up separate customer service and operation personnel.