SHENZHEN, China, May 12, 2014 /PRNewswire/ -- At China Mobile Games and Entertainment Group Limited (CMGE)'s internal training held for its employees on April 29, CEO Xiao Jian shared his insights on the global mobile games market. The following is the full text of his speech titled "The road to survival in the business of the global distribution of mobile games":
Speaking of culture, we often say that there are no borders among countries. The same applies to mobile games. Whether one is operating only in China or the global arena, visionary mobile game developers and publishers no longer confine their focus to domestic products and markets. Premier foreign game developers have joined hands with Chinese publishers to launch many multinational mobile games in China, including Temple Run 2, Plants vs. Zombies, Despicable Me: Minion Rush, and Frozen, all of which have achieved remarkable results. Chinese publishers have distributed several products that have each generated revenues exceeding 10 million yuan (approx. US$1.6 million) overseas, including My Name Is MT, DDTank, Ao Jian, and Wu Shuang San Guo.
A Western idiom says that whoever opens the window first will be the first to enjoy the sunshine. Although there are countless mobile games imported into and exported from different countries each year, very few can, in fact, claim success. When considering a mobile game for export, generally, the developer will not seek entry into an overseas market until the game has undergone testing and achieved positive results in the domestic market so as to reduce some risks to failure. However, it goes without saying that it is highly challenging either for foreign mobile games to enter China or for domestic games to go international. Due to the differences in political structure, economy structure, and local customs, there are five issues that determine success or failure of a game title in a local market:
With that said, how does one overcome the non-acclimatization issue in the global distribution of mobile games?
Overview of China's Domestic Mobile Game Market
After the development of mobile games in 2013, China's mobile game market moved towards both a higher level in terms of sophistication and globalization in 2014. The past two years have witnessed a rapid growth in the number of smartphone users, with the number on track to reach 420 million by the end of this year. Android devices will become less expensive, and the "serious" mobile player segment will become dominant. Statistics show that in China's mobile game market, profit growth is outpacing user growth, with more and more mobile gamers willing to pay to play.
In terms of distribution channels, in contrast to overseas markets dominated by two distribution platforms, Google Play and Facebook, the Chinese market is quite cluttered. China does not have Google Play, but is rather home to numerous distribution channels -- among them are 360, Baidu, uc, Wandoujia, and more, resulting in intense rivalry and forcing channel vendors to turn to continuously refining their modes of operation so as to attract more publishers. Baidu Duokoo CEO Zhang Dongchen has mentioned that during 2014, the "infrastructure" of mobile game channels will shift from horizontal to vertical, i.e., towards a deep, highly refined mode of operation.
With respect to game types, casual games remain very popular across the market, yet are not profitable. RPG and CCG games are still taking the lead in terms of profitability, which is reflected by the fact that the top five pay-to-play games are all CCG games. Another point to note is that action and sports games have been showing great potential so far this year, with basketball game titles performing well in China. With the World Cup approaching, football game titles are expected to seize a large market share. For example, Kunlun Game is acting as the agent for Fantastic Eleven developed by Klab. CMGE signed BFB, a football game title that ranks third on Japan's free game list. Overseas game giants have stepped up their efforts to develop football game titles in order to position themselves to capture the World Cup market.
How Can Overseas Mobile Games Enter the Chinese Market?
Five characteristics of China's mobile game market:
I. Most of the top pay-for-download games in China's Apple App Store originated in the U.S. or Europe
Although the domestic game industry is very active in China, European and American titles still dominate the pay-for-download game sector. For instance, PopCap and EA's Plants vs Zombies as well as Fruit Ninja are among the top ranked paid games in the Apple App Store. In fact, the vast majority of the top 10 paid titles originate from the U.S. and Europe, indicating a strong interest among Chinese players in European and American titles.
However, the above view only applies to "paid" games, while the other sectors are exhibiting a different set of characteristics, leading to the next point:
II. Chinese players tend not to buy games, but are willing to spend a lot within games
While a handful of Apple/Android games have attracted a large group of Chinese players, they are actually a small fraction of the total market as Chinese players are highly reluctant to buy games outright. In contrast, their preference is to try a slew of free-to-play games.
However, once they find a title they like, Chinese gamers typically monetize at extremely high rates through in-app payments.
At the moment, all of the top 10 grossing games in China's Apple App Store are free. Unofficial industry sources suggest the top free mobile games in China earn US$1-2 million a month through in-app payments -- twice as much as they were generating six months ago. But why do Chinese gamers spend so much?
III. Chinese gamers not only buy virtual high-end equipment -- they brag about buying them
Unlike Chinese gamers, European and American gamers typically prefer projecting the perception that they have advanced in the game solely through skill and the length of time they have spent developing those skills. Less emphasis is placed on their virtual high-end equipment. This logic is totally reversed in China -- Chinese gamers boast about game upgrades they have purchased, and enjoy showing them off whenever they can. This fits the general atmosphere of conspicuous consumption common in modern China, where luxury fashion brands and cars are popular status symbols.
Smart designers can leverage that desire by making it easy for gamers to show off their purchased items -- for example, through premium virtual items that can be displayed on a gamer's avatar.
Another game mechanism that monetizes well: items and abilities that guild leaders can buy and gift to other guild members. This behavior leverages the Chinese cultural expectation that "The Boss" pays for his underlings, and, as a result, has become the preferred way by which wealthy players gain (i.e. buy) more in-game social status.
IV. MMOs on mobile are strikingly popular in China
While European and American developers still associate MMOs with PC gaming, China's extremely large audience for the sub-genre is trending toward mobile.
The Apple/Android ports of MMOs like Hoolai's 3 Kingdoms have netted a user count in the millions. Not surprisingly, all of the current Top Grossing games in China's Apple App Store are MMOs or multi-player social strategy/simulations of some kind.
Chinese World of Warcraft gamers also interact with the PC version of the MMO through their smartphones.
V. China's mobile game market is still a wild frontier -- nevertheless, there are ways for European and American developers to protect themselves
To be sure, China's mobile market is still highly fragmented and difficult to navigate. After all, there are over 100 Android app stores. What is even more worrying for developers is that piracy of European and American games is still rampant. Despite these obstacles, there are ways for European and American developers to protect their intellectual property (IP) and their revenue.
Since mobile games in China mostly monetize through in-app payments, it is a good idea for developers to tie their game's log-in and in-app payment authentication process to an internal server. By doing so, even if hackers manage to bypass the client or Apple's IAP process, they would not be able to broach the developers' last line of defense.
Beyond technical solutions, working with a local partner makes all the difference when it comes to protecting games. China's app stores attach more importance to IP protection of games from local game companies than that of a foreign developer. For this, we have developed and implemented a range of measures, and have replaced copycat games with the official versions.
China may seem like an uninviting place for European and American developers, but if you look closer, you will be impressed by how much the country wants to play -- and pay -- for your games.
For distribution of foreign mobile games in China, the following considerations need to be taken into account:
(1) Select game types that are suitable for China. Chinese gamers are relatively less patient. On the one hand, they want short, simple games, so light casual games become very attractive. Popular games in foreign countries such as swipe, match-3, and parkour games have great potential to succeed in China. On the other hand, they like online games tremendously, as they do not require a major mental effort and allow the player to have the option to advance in-game by spending either time or money, rather than being limited solely to the length of time spent playing.
(2) Localize distribution: Localization includes translating the game title into something attractive to local gamers. The installation kit must not take up much disc space so that it can accommodate a large number of low-end devices. Consideration for 256MB memory is required, and much time needs to be spent in Android SDK and testing. Only properly localized games will appeal to and be accepted by Chinese mobile gamers.
(3) Maximize distribution channels: Unlike single application channels such as the App Store and Google Play available in most countries, there are literally hundreds of mobile game distribution channels in China. Aligning a relationship with these channels alone is a complicated affair. Additionally, the user base of each channel has its own characteristics. Marketers need to develop different operating strategies based on these characteristics, and efforts must be made for joint distribution through multiple channels.
(4) Localize billing models: Taking China and the U.S. as examples, Chinese gamers are more willing to buy premium items to enhance their gaming experience, while U.S. gamers will not boast about it. However, as casual gamers are becoming increasingly dominant in the U.S. gaming market, game spending behaviors in the both countries are converging.
(5) Partner with telecom operators: Launching gaming products via a telecom carrier's mobile game platform enables one-point access for the game developer. Moreover, billing and full coverage of the product on the operator's proprietary channels and Internet channels are achievable. Once users get to download and use the app, his or her SDK can automatically identify the operator for billing. As the transaction process to obtain the software directly determines user experience, the ability to make the entire payment process as convenient as possible will enhance user experience and developer revenue. Besides, as telecom operators have the strongest support capabilities in terms of the user billing network, they own 30 percent of the user market share. Thus, they can deliver user support to the distribution of mobile games.
Furthermore, it is best for foreign games to remain neutral and seek for partnerships deals with publishers as much as possible when entering China. Publishers have core competencies, such as strong marketing systems, spatial marketing capabilities, powerful regional or global distribution networks, product reserve capabilities, and good control over publishing, delivering better-than-expected product performance in the market to channels and CP - key capabilities that are unmatchable when compared to the other components of the mobile game ecosystem. For example, Despicable Me: Minion Rush, developed by GAMELOFT, debuted in partnership with 360 and then released in partnership with CMGE, received major marketing support, assuring wide promotion of the title in the local market.
It has already become evident that, when foreign mobile games enter China, they are finding a gap between game developers and Chinese gamers. Chinese publishers can help with closing that gap. At present, the leading mobile game publishers in China include CMGE, Chukong, FL Mobile, iDreamSky, and Kunlun. CMGE ranks No.1 with a market share of 17.9 percent.
Another factor that needs to be noted is that Tencent, which owns China's largest social media network QQ and WeChat, has a client base of 1.4 billion users, among which over 400 million of those WeChat users are closely related to the mobile game industry. With its strong client base, Tencent is now having significant presence everywhere on the Internet. At the UP2014 Tencent Interactive Entertainment Annual Conference, the company finalized its "pan-entertainment + gaming" strategy based on its three physical business platforms, book.qq.com, comic.qq.com, and game.qq.com. Meanwhile, the company has announced the release of several popular foreign mobile games, including Candy Crush Saga, a popular elimination title the European and American markets, Taming Monster from South Korea, and Sangokushi Rumble from Japan. Tencent, the largest social platform in China, has become a springboard for foreign games to enter the Chinese market. However, the company has stringent requirements that must be met before any games can be released through its channels, making it extremely difficult for the average developer to get a game published on its social platform.
Overview of overseas mobile game markets
The number of mobile phone users worldwide has now surpassed the four billion mark, among which 2.05 billion actively text and 1.08 billion use a smartphone. As of 2011, the number of worldwide users accessing the mobile Internet topped 1 billion, and is on track to surpass PC Internet users as well as the 2 billion mark in 2014. The global mobile game market has also seen an unprecedented increase in total value: it stood at roughly US$5.6 billion in 2011, with the world's top 10 mobile game companies together occupying a market share of 12.9 percent and representing about US$720 million of the total value. This reflects a market that is highly fragmented.
Overseas markets with potential include Thailand, Vietnam, Indonesia, Brazil, and the Middle East. When deciding to go beyond the borders of the home market, game developers need to first obtain a good grasp of overseas distribution markets. Emerging market demand and hot money inflow is not an indication that the threshold for publishers is being lowered. When taking into account factors such as severe competition as a result of rapidly evolving mobile gaming products, gamers' stringent tastes, and the massive differences between domestic and foreign environments, the threshold for successfully distributing mobile games outside of one's home country remains very high.
How Can Chinese Mobile Games Tap into the Overseas Markets?
In terms of user payment habits, communal spirit, as well as the prevailing rules of the market, mobile game markets outside of China actually operate in a more welcoming environment, making them an excellent outlet for domestic mobile game vendors who may be having "problems" at home. In fact, some companies have already benefited from going overseas, with a significant number of Chinese games being distributed in Japan, South Korea, Southeast Asia, Europe, and the U.S. As far as the Chinese market is concerned, the "going overseas" option for domestic mobile games is just warming up. Many companies began to expand abroad in 2014. This year will see a breakout of domestic mobile games moving into overseas markets.
Rui Wang, Founder of TFJoy, a company specializing in the distribution of mobile games in overseas markets, said that overseas distribution of mobile games is not by any stretch of the imagination "a piece of cake." There are four key points that domestic mobile game developers need to be aware of when jumping into the international arena:
(1) Fully localized distribution. Given region-by-region cultural differences, gamers' varied preferences when selecting titles, and major differences in payment and promotional channels, in-depth research is required in each territory for each title so that any adaptation is the best fit for the territory. It is best to have a local team on the ground in the target market along with strong partnerships with local resources. The objective is to maximize benefits from the most effective marketing efforts through the most efficient channels at the lowest cost.
(2) Product selection and communication skills. Domestically popular games are not necessarily suitable for overseas markets. Rather, many small, little-known game titles may fit the appetite of European and American markets. This requires publishers' ability to identify good titles, communicate effectively with their teams, and help developers make proper changes to their R&D efforts so as to establish a viable operating system.
(3) Data analytics ability. Constant data and operation analysis on distribution channels is of key importance. A continuous effort on data analysis and distribution channel strategy enhancement is needed to distribute in a precisely and eventually lower the costs per user.
Internationalization has always been one of Tencent Interactive Entertainment's three strategies, and WeChat has been focused on the Southeast Asian market. At GMGC 2014, CMGE president Ying Shuling said, "Mobile game publishers should slip off the leash of the domestic market. They can expand only by 'going out.'" Chukong CEO Chen Haozhi added that in 2014, overseas markets are where they have placed their expectations. FL Mobile CEO Ni Xianle said the coming years will be the exploration stage of overseas distribution for his company. Jiang Zuwang, deputy general manager of Mobile Game Division at 360, said that the company may join hands with its Chinese partners for overseas distribution of its copyrighted games in 2014, while helping Chinese game vendors export medium-heavy games to overseas markets.
Domestic game vendors are going abroad, reflecting a trend seen in the domestic market. The threshold of entry is low for mobile games that can be developed at a low cost. Many titles are launched after some changes are made to existing products. This speculative and opportunistic practice cannot be sustained, although it is working for the moment. Locojoy founder Xing Shanhu said, "The domestic mobile gaming landscape is reaching a plateau, hence, it is time to expand into overseas markets in order to go to the next level."
Kunlun Game president Zhang Yihao described Kunlun's overseas distribution concept as "getting closer to users and communicating with developers continually so as to satisfy gamers." Taiwanese gamers like cute graphics, while Korean gamers prefer heavy game titles and have high requirements for visual effects. Game developers need to cater to local gamers by getting closer to them.
Getting closer to the market: select the right channels at the right time
Getting closer to partners: interact with CPs and partner with local developers
As the international gaming market becomes increasingly flat, creating a global game title like COC or Candy Crush requires not only game quality, but also global distribution by taking into account localization, marketing, and management, in combination with the characteristics of each targeted market. Localization is critical to tapping into a local market and is an essential step in overseas distribution. For the three key markets of Japan and South Korea, Southeast Asia, as well as Europe and the U.S., domestic publishers must localize for different market environments.
1. Japan and South Korea
Among the top 5 grossing countries in Google Play, South Korea and Japan boast a smartphone penetration rate of 73 percent and 25 percent respectively. In the two countries, the average number of apps per smartphone user is 36 and 18, while the mean number of paid apps is 40 and 4 respectively. 70 percent of Korean smartphone users have installed game apps, while the figure is 50 percent in Japan.
Both countries have a good user base. Nevertheless, the potential of the Japanese and Korean markets have not been fully exploited. The main reason is that mobile gamers in the two countries have "unique" tastes due to their cultural characteristics and prefer games based on comics and animation, super powerful young women, or lolitas, love games, and even some heavy games. In Alpaka Evolution, a hit in Japan, for example, the objective is to kill and absorb other alpacas through simple yet violent means and mutate into the ultimate alpaca. Given these examples, to excel in these markets, great attention must be paid to the cultural aspects.
Next, attention should be paid to player habits. In Japan and South Korea, texting plays a big part in promoting mobile games. Kakao and LINE respectively dominate the best-selling lists in South Korea and Japan. Japanese and Korean gamers generally play a game for a short time every time they play -- 1-2 minutes from time to time while at work, as a result, the focus needs be placed on short games with a lot of action. They also favor puzzle games and games with a plot.
For example, in order to adapt to Japanese customs and habits, cherry blossom scenes were added to Catelgame's Rabbit Journey Endless, and kimonos were added to the array of clothing attire. Furthermore, the developer considered the specificity of the Japanese language and undertook in-depth research to obtain a good understanding of Japanese honorifics and how different words or expressions by persons of different sex and age are used to convey the same meaning, as reflected even in the title of the game. The title was well received after going live.
2. Europe and the U.S.
Like China, European and American mobile game markets have emerged with the development of smartphones. Currently, the markets are flourishing, with leaders including both large game companies with many years' experience in online game production, like Blizzard, and non-gaming companies with their own strengths and well-developed channels, such as Facebook, joining the fray. Compared with the channel environment in China, Europe and the U.S. are less sophisticated.
In the U.S. and Europe, iOS and Android are the dominant platforms for the distribution of mobile games and each have their own unique advantages. For example, Mouse Games promotes its products by leveraging its own platform and includes full-screen pops-ups advertising new titles in its popular games.
Differences abound in the methods of communication deployed by the game companies in China as compared to other countries. In China, most companies set up in-house PR teams and build a relationship with journalists through their PR staff, while Western companies prefer to appoint a PR agency who engages with journalists and maintains a relationship with them. Needless to say, Chinese companies are advised to appoint a dedicated PR agency for their marketing campaign if they want to successfully enter the U.S. market.
Another point to look closely at is the differences in payment habits between Western and Chinese users. The Western mobile game market boasts a high payment ratio and highly loyal gamers, a set of characteristics that is very attractive to Chinese publishers. According to an industry analyst, Chinese mobile games should expect considerable growth potential if they choose to enter Western markets.
Western mobile games are often inspired by a simple, fun idea and improved upon continuously by analyzing the gaming experience and operation based on data. American mobile action games are typically well produced, while titles produced in Asia, notably in Japan, are more dominated by plot and mystery.
Prior to the emergence of the Chinese mobile game market, Western markets were the most active, leading Chinese mobile gaming products that entered Europe and the U.S. Looking at several currently successful Chinese titles in Western markets such as Galaxy Empire and Spartan Wars by Nibiru, and War 2 Victory by WiSTONE, their success actually represents the success of such gaming themes in the market.
Galaxy Empire is sci-fi themed, matching the vision that Western gamers have of the future and their pursuit for innovative technology. Both Spartan Wars and War 2 Victory are militarily themed, meeting the preferences of male gamers in Europe and Americas. It can be inferred from success stories in the real world that military and sci-fi themed games are preferred by Western players.
3. Southeast Asia
In 2012, the game industry in Southeast Asia earned more than US$560 million. The region, including Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam, is expected to generate about US$1 billion (RMB6,369 million) from electronic games by 2015, according to a survey undertaken by Niko Partners. The number of gamers in Southeast Asia is expected to climb to around 100 million, delivering an important guarantee for game sales revenue in the region.
Due to the differences in culture and gaming habits, there are huge challenges in localization when exporting Chinese games to Southeast Asian markets. "Taking the experience from web games as an example, gamers in Southeast Asia tend to play games in a slower tempo. This is in contrast with the wild, high-speed click rate of Chinese gamers when playing a web game. They prefer taking their time pondering over the plot and the mechanics of the game," said Mo Xiayun, general manager of Overseas Business Division at Dream Square, who added that they even re-produced gaming fonts when exporting New Paladin Online.
Tencent is a typical representative of bringing Chinese games to Southeast Asia. The firm launched mobile games through WeChat in Malaysia and Singapore, including Craz3 Match, GunZ Dash, and 2Day's Match. GunZ Dash entered the top 10 on the free-to-play game list in Malaysia and Singapore and surged all the way to the No.1 spot on Malaysia's list on its first and third day of release. Tencent is now planning to launch its "Tian Tian" series of mobile games in Thailand, as this series of games are casual and present no cultural gap.
Today, when Chinese games are exported to Southeast Asia, localization strategies are being upgraded and are achieving promising results. Entry of Chinese mobile games into Southeast Asian markets calls for in-depth development; first moving from basic licensing agreements to cooperative R&D and joint marketing, and, more recently, to integration of platform resources. According to Kunlun Game president Zhang Yihao, distribution into overseas markets needs to be more local, requiring tacit cooperation between developers and operators.
Global distribution of mobile games is an easy-to-play but hard-to-master objective. Benefiting from the worldwide penetration and coverage of the App Store and Google Play, a large number of mobile games have quickly entered multiple markets and gained traction from overseas distribution. A huge overseas gold mine is within reach. In the foreseeable future, publishers will not only compete tooth and nail in China, but will also face competition from numerous local players in each country they enter. No matter how intense the competition is, the unwavering rule to survive in the mobile game market is to pay constant focus on refining the product. LineKong CEO Wang Feng concurred when he said, "Gaming is not like instant noodles, and the soon-ready-to-eat type of game is the worst place you want to be when positioning in the mobile game market."
Building and developing channels for overseas distribution has become a key focus of the larger players as they establish a global brand, while, at the same time, it is also an area of opportunity where small and medium-sized businesses can quickly boost revenues. In the mobile gaming market, global competition is already knocking at the door. With 2014 nearing the halfway mark, many publishers have already established their global distribution strategies. The general consensus of the industry is that "going overseas" is the next step. Major publishers are targeting overseas markets and Chinese mobile games will experience a boom when they finally take the plunge.
