The Purpose of this thread:
Over the past couple of weeks, or months even, we've been getting quite a lot of information on the plans of both Sony and Microsoft in China, the one untapped console market in the world. While reading through the threads I have come to realise that many were not very familiar with the market which caused an awful lot of confusion and debate that really led nowhere since points discussed were either not relevant or weren't actually true at all.
For the past 12 months I have been writing a dissertation specifically looking at the Chinese video console market and during that time I believe I have learned an awful lot about the market. While the dissertation is too long to be replicated here on GAF, I propose to break it down into a number of chapters, threads, that will focus on different aspects of the Chinese video console market and the console ban. As even breaking it up won't allow me to replicate it word by word, should anyone want a full version please PM me.
Disclaimer I do not claim to be "an expert" on the Chinese console market or someone who's points you must agree with. I merely want to get information out there and provide for a better discussion.
Party One: The Chinese Gaming Market
To start off, before talking about Microsoft's launch of Xbox One in China, Sony's or Nintendo's plans or even about the console ban itself, I believe it important to discuss the video gaming market in China in general.
It goes without saying that China is a, predominately, PC gaming market. The scale of the market, however, is over underestimated by people when talking about China. The overall gaming market for the last year was $14 billion, with a projected growth to $16 billion for year 2014. PC gaming accounted for 80% of those 14 billion (this number includes both client-based games and browser games). The rest is made up of mobile gaming, social games and console games (they make up around $15-$100 depending on what tracker you believe through grey market).
PC gaming has been growing tremendously fast. Client based online games have grown 1700% from 2002 to 2008 and show no signs of stopping. In fact, these games made up around $10.7 billion in revenue last year. Compare that with the state of global market, which stood at $12 billion in 2012. Suffice to say, China accounts for at least half of all mobile game revenue in the world.
The next fast growing segment is mobile gaming. Just in the past year alone the increase in revenue was staggering. Mobile games made $400 million in the first six months of 2013 and then went on to make another $1.4 billion in the second half of the year. The growth for next year is projected at 93%. Just like in the west though, only about 2% of the mobile games actually make money, 5% break even and the rest are unprofitable endeavours.
Reasons for the state of the market
So why is China so PC centric, or why does China even game on the PCs? Why do they use MMOs and MOBAs instead of packaged games? It's a game of coincidences really.
At the time when China banned console games (and arcades and internet cafes, though that has hardly been enforced) the internet penetration in China began to increase rapidly. In 2002 only 6% of the Chinese were internet users while in 2006 this number increased to 50%. Most of these netizens were also quite young, with majority being under the age of thirty.
Thus, they searched for ways to past time online. The biggest issue, however, was the price. It was difficult to get a PC that could play many games for reasonable price (in China) and it was difficult to buy the expensive packaged games. The gaming publishers also didn't have much trust in the market due to the rampant piracy rates. The solution to the problem were the internet bars which allowed the ordinary Chinese to simply sit down and play. The games they would play also needed to be cheap, or better yet free. Thus the subscription MMO model took hold in China, as the base game was free to download and only required a subscription fee. In fact, subscription cards began to be sold to avoid the issue of many young Chinese not actually possession a credit card to pay the fee online.
The Government Interference
The Government is a strange friend a foe in the gaming market. Obviously in 2001 when the console ban came into effect it could be seen as a force that would encourage the online gaming phenomenon though officially its intentions were quite different - to, to put it simply, protect the children. It has continued on with this agenda, proposing to curb the maximum online playing time was proposed in 2005 and only abandoned after a public outcry. In 2010 a ban on pop-up ads and virtual currency was introduced which sent the stocks of various big Chinese developers down. In 2004, also, a ban on promotion of games in media was introduced but it is rarely followed, in fact it is pretty much disregarded at this point.
On the other hand, the government does try to help the local developers to prosper and, just like with most Chinese goods, to help them compete on the market. In 2010 online game licenses that every developer needs to obtain were allowed to be given on provincial level and registered capital for publishers and developers was decreased. Further, the government often subsidises many developers, even the more successful and profitable ones. This is especially so when their games have a particularly Chinese patriotic theme.
The Grey Market
So have consoles were not been sold in China until Xbox One? The answer is no. There is a huge and quite visible grey market for the consoles in China. These are obiously illegal shops that sell Hong Kong imports of consoles and games. Many times, the consoles sold are already pirated and games sold are pirate copies stored on a harddrive. The market is quite large, as it is estimated that around 1.3 million consoles are sold in China every year, with the peak of last generation being 1.7 million consoles in a year. Certainly not a small number and for comparison that's actually more than what PS4, Xbox One and Wii U will sell in Japan this year.
The Grey Market has some Chinese characteristics but also bows down to the global trends. While at the beginning of the year when I made a survey of the illegal stores I was told that the best selling SKU was Xbox 360 with Kinect at around 66% of the shops (PS3 and Vita comprising the other 33%) the answer was a 100% PS4 victory one month ago. The 360 was ahead before simply due to the supply constrain on the PS4 and the fact that the SKU sold was a pirated one with an additional harddrive containing pirated games. PS4 that is being sold is not pirated and thus actually revenue from games sold has increased quite a bit as well.
Conclusion
So just a small little conclusion. China is a huge market for video games. It has grown tremendously over the paste decades and shows no signs of stopping. While the PC gaming dominates, mobile gaming is also catching on. We have very little data on the consoles as they were, up until this year, banned. However, the little data that we do have show us that while the grey market is much smaller than the PC or mobile market it is still quite a large market for the consoles. This is notwithstanding the fact, that all of these shops are illegal and prior to last month no console has really launched in China in well over a decade.
Personal comments
Thanks for reading this. I hope you enjoyed it and found it interesting. In the next part I hope to focus on the console ban itself and how it was exactly lifted.
References:
C. Custer, Chinas Gaming Market Took in $13 billion in 2013, PC games generate way more than mobile, Games in Asia, December 30 2013. Available at: http://www.gamesinasia.com/chinas-g...-2013-pc-games-generate-way-more-than-mobile/
The actual wording of the ban in Chinese can be found at: http://www.gov.cn/gongbao/content/2000/content_60240.htm. An article with some English translation of the ban is also available: Lai Richard, Chinas Complicated History with Video Games: When a Ban Isnt Really a Ban. Engadget. Available at: http://www.engadget.com/2013/01/30/china-console-ban/
C. Custer, Chinas Game Market Took in $13 Billion in 2013, PC Games Generate Way More than Mobile, Games in Asia, December 30 2013. Available at: http://www.gamesinasia.com/chinas-g...-2013-pc-games-generate-way-more-than-mobile/
RNCOS: China Online Gaming Market Analysis. ,June 2009. < http://www.rncos.com/Report/IM197.htm>
Nir, Kshetri. The Evolution of the Chinese Online Gaming Industry. Journal of Technology Management in China, 4(2) 2009 158-179.
Legatt, Helen. The State of Online Gaming in China. Bizreport April 1 2010 < http://www.bizreport.com/2010/04/the_state_of_online_gaming_in_china.html>
C. Custer, Chinas Online Game Market Ranked in $5.1 Billion in the First Half of This Year, Games in Asia, July 25 2013. Available at: http://www.gamesinasia.com/chinas-online-game-market-raked-51-billion-year/
Takahashi Dean, Chinas Mobile Game Market to Grow a Scorching 93% to $2.9B in 2014 (exclusive), Venture Beat, August 4 2014. Available at http://venturebeat.com/2014/08/04/chinas-mobile-game-market-to-grow-a-scorching-93-to-2-9b-in-2014/
Freifelder Jack, Chinas Mobile Gaming Market to Top US and Be No 1, China Daily USA, May 8 2014. Available at: http://usa.chinadaily.com.cn/epaper/2014-05/08/content_17493372.htm
Clendenin, Mike. China Tightens Online Gaming Regulations. InformationWeek June 25 2010 < http://www.informationweek.com/china-tightens-online-gaming-regulations/d/d-id/1090262?>
Chen, Huang. China Online Gaming Operators Heavily Subsidized Caixin Online. March 6 2011 <http://english.caixin.com/2011-06-03/100266099.html>
"China Clamps Down on Online Gaming The Economic Times June 23 2010. <http://articles.economictimes.indiatimes.com/2010-06-23/news/27609239_1_online-population-great-firewall-online-gaming-market>
Koo, Shang. The China Angle: Rumors and Regulations Gamasutra. April 17 2007. <http://www.gamasutra.com/php-bin/news_index.php?story=13523>
Over the past couple of weeks, or months even, we've been getting quite a lot of information on the plans of both Sony and Microsoft in China, the one untapped console market in the world. While reading through the threads I have come to realise that many were not very familiar with the market which caused an awful lot of confusion and debate that really led nowhere since points discussed were either not relevant or weren't actually true at all.
For the past 12 months I have been writing a dissertation specifically looking at the Chinese video console market and during that time I believe I have learned an awful lot about the market. While the dissertation is too long to be replicated here on GAF, I propose to break it down into a number of chapters, threads, that will focus on different aspects of the Chinese video console market and the console ban. As even breaking it up won't allow me to replicate it word by word, should anyone want a full version please PM me.
Disclaimer I do not claim to be "an expert" on the Chinese console market or someone who's points you must agree with. I merely want to get information out there and provide for a better discussion.
Party One: The Chinese Gaming Market
To start off, before talking about Microsoft's launch of Xbox One in China, Sony's or Nintendo's plans or even about the console ban itself, I believe it important to discuss the video gaming market in China in general.
It goes without saying that China is a, predominately, PC gaming market. The scale of the market, however, is over underestimated by people when talking about China. The overall gaming market for the last year was $14 billion, with a projected growth to $16 billion for year 2014. PC gaming accounted for 80% of those 14 billion (this number includes both client-based games and browser games). The rest is made up of mobile gaming, social games and console games (they make up around $15-$100 depending on what tracker you believe through grey market).
PC gaming has been growing tremendously fast. Client based online games have grown 1700% from 2002 to 2008 and show no signs of stopping. In fact, these games made up around $10.7 billion in revenue last year. Compare that with the state of global market, which stood at $12 billion in 2012. Suffice to say, China accounts for at least half of all mobile game revenue in the world.
The next fast growing segment is mobile gaming. Just in the past year alone the increase in revenue was staggering. Mobile games made $400 million in the first six months of 2013 and then went on to make another $1.4 billion in the second half of the year. The growth for next year is projected at 93%. Just like in the west though, only about 2% of the mobile games actually make money, 5% break even and the rest are unprofitable endeavours.
Reasons for the state of the market
So why is China so PC centric, or why does China even game on the PCs? Why do they use MMOs and MOBAs instead of packaged games? It's a game of coincidences really.
At the time when China banned console games (and arcades and internet cafes, though that has hardly been enforced) the internet penetration in China began to increase rapidly. In 2002 only 6% of the Chinese were internet users while in 2006 this number increased to 50%. Most of these netizens were also quite young, with majority being under the age of thirty.
Thus, they searched for ways to past time online. The biggest issue, however, was the price. It was difficult to get a PC that could play many games for reasonable price (in China) and it was difficult to buy the expensive packaged games. The gaming publishers also didn't have much trust in the market due to the rampant piracy rates. The solution to the problem were the internet bars which allowed the ordinary Chinese to simply sit down and play. The games they would play also needed to be cheap, or better yet free. Thus the subscription MMO model took hold in China, as the base game was free to download and only required a subscription fee. In fact, subscription cards began to be sold to avoid the issue of many young Chinese not actually possession a credit card to pay the fee online.
The Government Interference
The Government is a strange friend a foe in the gaming market. Obviously in 2001 when the console ban came into effect it could be seen as a force that would encourage the online gaming phenomenon though officially its intentions were quite different - to, to put it simply, protect the children. It has continued on with this agenda, proposing to curb the maximum online playing time was proposed in 2005 and only abandoned after a public outcry. In 2010 a ban on pop-up ads and virtual currency was introduced which sent the stocks of various big Chinese developers down. In 2004, also, a ban on promotion of games in media was introduced but it is rarely followed, in fact it is pretty much disregarded at this point.
On the other hand, the government does try to help the local developers to prosper and, just like with most Chinese goods, to help them compete on the market. In 2010 online game licenses that every developer needs to obtain were allowed to be given on provincial level and registered capital for publishers and developers was decreased. Further, the government often subsidises many developers, even the more successful and profitable ones. This is especially so when their games have a particularly Chinese patriotic theme.
The Grey Market
So have consoles were not been sold in China until Xbox One? The answer is no. There is a huge and quite visible grey market for the consoles in China. These are obiously illegal shops that sell Hong Kong imports of consoles and games. Many times, the consoles sold are already pirated and games sold are pirate copies stored on a harddrive. The market is quite large, as it is estimated that around 1.3 million consoles are sold in China every year, with the peak of last generation being 1.7 million consoles in a year. Certainly not a small number and for comparison that's actually more than what PS4, Xbox One and Wii U will sell in Japan this year.
The Grey Market has some Chinese characteristics but also bows down to the global trends. While at the beginning of the year when I made a survey of the illegal stores I was told that the best selling SKU was Xbox 360 with Kinect at around 66% of the shops (PS3 and Vita comprising the other 33%) the answer was a 100% PS4 victory one month ago. The 360 was ahead before simply due to the supply constrain on the PS4 and the fact that the SKU sold was a pirated one with an additional harddrive containing pirated games. PS4 that is being sold is not pirated and thus actually revenue from games sold has increased quite a bit as well.
Conclusion
So just a small little conclusion. China is a huge market for video games. It has grown tremendously over the paste decades and shows no signs of stopping. While the PC gaming dominates, mobile gaming is also catching on. We have very little data on the consoles as they were, up until this year, banned. However, the little data that we do have show us that while the grey market is much smaller than the PC or mobile market it is still quite a large market for the consoles. This is notwithstanding the fact, that all of these shops are illegal and prior to last month no console has really launched in China in well over a decade.
Personal comments
Thanks for reading this. I hope you enjoyed it and found it interesting. In the next part I hope to focus on the console ban itself and how it was exactly lifted.
References:
C. Custer, Chinas Gaming Market Took in $13 billion in 2013, PC games generate way more than mobile, Games in Asia, December 30 2013. Available at: http://www.gamesinasia.com/chinas-g...-2013-pc-games-generate-way-more-than-mobile/
The actual wording of the ban in Chinese can be found at: http://www.gov.cn/gongbao/content/2000/content_60240.htm. An article with some English translation of the ban is also available: Lai Richard, Chinas Complicated History with Video Games: When a Ban Isnt Really a Ban. Engadget. Available at: http://www.engadget.com/2013/01/30/china-console-ban/
C. Custer, Chinas Game Market Took in $13 Billion in 2013, PC Games Generate Way More than Mobile, Games in Asia, December 30 2013. Available at: http://www.gamesinasia.com/chinas-g...-2013-pc-games-generate-way-more-than-mobile/
RNCOS: China Online Gaming Market Analysis. ,June 2009. < http://www.rncos.com/Report/IM197.htm>
Nir, Kshetri. The Evolution of the Chinese Online Gaming Industry. Journal of Technology Management in China, 4(2) 2009 158-179.
Legatt, Helen. The State of Online Gaming in China. Bizreport April 1 2010 < http://www.bizreport.com/2010/04/the_state_of_online_gaming_in_china.html>
C. Custer, Chinas Online Game Market Ranked in $5.1 Billion in the First Half of This Year, Games in Asia, July 25 2013. Available at: http://www.gamesinasia.com/chinas-online-game-market-raked-51-billion-year/
Takahashi Dean, Chinas Mobile Game Market to Grow a Scorching 93% to $2.9B in 2014 (exclusive), Venture Beat, August 4 2014. Available at http://venturebeat.com/2014/08/04/chinas-mobile-game-market-to-grow-a-scorching-93-to-2-9b-in-2014/
Freifelder Jack, Chinas Mobile Gaming Market to Top US and Be No 1, China Daily USA, May 8 2014. Available at: http://usa.chinadaily.com.cn/epaper/2014-05/08/content_17493372.htm
Clendenin, Mike. China Tightens Online Gaming Regulations. InformationWeek June 25 2010 < http://www.informationweek.com/china-tightens-online-gaming-regulations/d/d-id/1090262?>
Chen, Huang. China Online Gaming Operators Heavily Subsidized Caixin Online. March 6 2011 <http://english.caixin.com/2011-06-03/100266099.html>
"China Clamps Down on Online Gaming The Economic Times June 23 2010. <http://articles.economictimes.indiatimes.com/2010-06-23/news/27609239_1_online-population-great-firewall-online-gaming-market>
Koo, Shang. The China Angle: Rumors and Regulations Gamasutra. April 17 2007. <http://www.gamasutra.com/php-bin/news_index.php?story=13523>