I wrote up the below earlier today. Apologies if it's too long or the English is bad. Hopefully It can help provide some insight into the China market.
You probably won’t know this but sales of consoles produced by foreign game companies were banned in China back in 2000. Since then consumers in China have had to resort to importing games consoles from abroad, or simply playing a PC game at an Internet cafe or downloading a mobile game. For many the option has been simple and China has grown to be the largest games market in 2015 with the majority of revenue being generated by PC and Mobile games. There are over 130 million PC gamers in China and almost 400 million Mobile gamers in China but officially there have been no console gamers in China outside of a very small niche who have imported their PS2’s, Xbox 360’s and Nintendo Wii’s. In 2014 the Chinese government introduced a new ‘reform and opening’ policy which was a set of economic reforms designed to make operating in China easier for everyone. One of the reforms was to lift the ban on console sales and so the Government created a trial period where they would allow games consoles to be made within the Shanghai free trade zone to be distributed across China, subject to standard local inspections on multimedia goods.
Microsoft and Sony decided to work with this policy and so launched their 8th generation consoles there with the Xbox One launching in September 2014 and the PlayStation 4 launching in March 2015. Shortly afterwards in July 2015 the government decided to declare the trial over and put a regulation into place that allowed the production and sales of consoles throughout the country. This was of course great news for Sony and Microsoft as it allowed them to distribute more freely but what it didn’t do was change gamer mentality in China, nor did it speed up the Government’s understanding of console video games. Chinese gamers play on Mobile which they have on them all the time, or they play on PC either at home or at an Internet cafe. Not many have the time or the money or even the will to buy a console and so far sales in China have been disappointing with only 500,000 PS4’s and XB1’s sold to users in China as of the end of 2015. Revenues generated from mobile gaming software in China hit $7.94 billion in 2015 but the console software market in China only generated $21.6 million for the year. Yes, you did read that right, that is Million Vs Billion. So you can really see just how small the console market is compared to the Mobile market and the PC market ($12.76 billion).
Not only do Sony and Microsoft face an uphill battle with getting consumers to buy their consoles and games, they also have issues with getting the right content out there to attract a user base in the first place. The Chinese Government still upholds traditional censorship laws and apply this to console sales in the country as well, what this means is that the government has to approve everything Sony and Microsoft do before they are allowed to do it. In this case it means that all game releases have to go through the Government first, if the game is too violent, has adult content or goes against Chinese cultural values then it will not be allowed to go on sale. Games like GTA 5 are outright banned whilst other games like Halo MCC have had to censor parts of the game or remove blood splatter just to get the game to pass the censor. This approval process, along with the localisation process can take a very long time and so some games may not be released until long after they have released in the West, or in the case of Assassin’s Creed Chronicles: China they may end up being banned at the last minute due to cultural insensitivity and violence issues. In the year and a half that the consoles have been on the market there have been less than 50 games approved to go on sale for the PS4 and XB1 whilst Mobile and PC have received more than 700 games in the past year alone. Microsoft recently announced their biggest line up in Xbox history which included ‘Gears of War: Ultimate Edition’, ‘Halo 5’, ‘Rise of the Tomb Raider’ and ‘Forza 6’ but none of these games have released in China Mainland yet.
The good news however is that gamers can simply import the Asian version, Japanese version or English version to play on their region free Chinese consoles but that’s not going to be that simple or a valid option for the average gamer who will want the simplicity of buying the game in their own language like they can do on Mobile or PC. The same applies to Sony as well, their flagship titles of 2015, ‘Uncharted: The Nathan Drake Collection’ and ‘Bloodborne’ have not yet been released in China. If Sony did want to localise them they would need to translate and localise the game into Simplified Chinese, note that the version of the game released in Asia will always be translated into ‘Traditional Chinese’ so extra work is required to change the text and/or voice to Simplified, they would then need to ensure that the game meets the censorship criteria before the Government take around 20 days to decide if the game should release or not. It’s a long process, and it’s one that Sony and Microsoft are working to simplify. For one there is no age rating system in China and Sony are pushing hard for one to be introduced in order for game approval times to be sped up. For now the majority of games that have launched in China are kids games that don’t need to be censored such as ‘Minecraft’ for the Xbox One and ‘Little Big Planet 3’ for the PlayStation 4.
Another huge challenge that Sony and Microsoft face in China is the start up cost for the average person to buy a console and games. For example, the Xbox One with Kinect still retails for a total of $570 in China which is very expensive for the average gamer. The PlayStation 4 does better with a recent price drop that took it down to $370 but this is still a lot more expensive compared to the U.S. price of $299 for both consoles. Sony and Microsoft do try to get around this by bundling in some free games, the Sony PlayStation 4 for example now comes with 4 free games in its starter pack and all additional games for the PS4 and XB1 are a lot cheaper compared to their US counterparts. In the US a console retail game will cost $60 brand new but in China each game is around $40 brand new which is a good point for gamers but the price of software still pales in comparison to free to play games on PC and Mobile. Gamers in China are more than happy to spend a small amount of money each time to play at an internet cafe or buy virtual items in their games where as a $400+ upfront cost for a home games console and paid game probably isn’t viable for the mass market there.
Speaking of upfront costs, a new phenomenon has risen in China recently among many big Mobile companies like Tencent, ZTE and Lenovo. They know that Mobile is the future in China but they also know that Mobile can be expanded and so they have introduced a new ‘TV Gaming’ category. Companies like Huawei, Tencent and others are releasing their own Android mini consoles onto the market that you can hook up to your TV to watch TV shows, Movies and play games. It’s basically an Apple TV or Fire TV for those in the West but there is a bigger emphasis on the gaming features with Tencent’s MiniStation console allowing you to control the games with your smartphone as well as promising PC and Mobile games playable on your TV with exclusive content. Tencent even plan for their future MiniStation variants to support VR. Ultimately this is a way to bring your Mobile into the Living room and play Mobile and PC games from your favourite publishers on the big screen. It doesn’t help that these Android consoles are targeted at families and come in considerably cheaper than what a PS4 or Xb1 costs with some as low as $50. A number of big Mobile companies continue to invest in the ‘TV Gaming’ market and whilst it is technically bigger than the console market in China it hasn’t exactly taken off just yet or generated a huge return.
Sony continues to face many challenges in China, PlayStation marketing manager Takehito Soeda said at the PS4 launch “A lot rides on how rich of a software portfolio you can offer to users, so we intend to find the right blend of overseas titles and games developed in China. We are creating a console market from scratch here.”. Soeda is spot on here, the PlayStation has launched in a market where Mobile and PC is king, where the government censors cause popular overseas games to be banned and where Mobile companies are launching rival products with games that appeal to Chinese gamers tastes. Sony can’t do anything about the upfront cost of a PlayStation 4, outside of sell the console for a loss, and so they need to get their software portfolio right in order to attract gamers, this is how PC gaming became so successful.
Everyone in China these days plays free to play games and so Sony’s strategy is to attract gamers to the PS4 with well known and brand new free to play Chinese games whilst at the same time promoting their selection of exclusive overseas titles like ‘Dynasty Warriors 8: Xtreme Legends’ and ‘Knack’s Adventure’. Both Sony and Microsoft partnered with Chinese gaming companies from day 1 in order to bring at least one big free to play title to the console at launch. Sony partnered with Snail Games to bring ‘King of Wushu’ exclusively to the PlayStation 4 and Microsoft partnered with Perfect World Entertainment to bring ‘Neverwinter OL’ to the Xbox One. Since then a few more big free to play games such as ‘Warframe’ have been brought to the PS4 and others for the Xbox One.
Sony have realised that whilst they will have the advantage in overseas software it is going to be local Chinese developers that can help grow the PS4 user base in China and even overseas through free or low cost digital download titles. Sony confirmed earlier this year that they will be providing multiple programmes to local developers including technical support and financial incentives with the aim for these developers to create console game products on PlayStation 4 that feature both Chinese cultural characteristics and local ways of game play, all aimed at meeting Chinese consumption habits. Right now a number of these games are just mobile ports but there are a few other games in the works such as ‘Chinese Paladin 6’ which came out on PC in 2015. Not only are Sony working with big name Chinese developers but they have also reaffirmed their commitment to supporting independent developers. Since the PS4 has launched in China, Sony have held two indie game competitions.
The Indie game competitions are open to any indie developer in China who wants to develop their game for the PlayStation 4. The second competition, which ended last week, was arranged by Sony Computer Entertainment (Shanghai) in association with Oasis Games. Oasis Games are a publisher based out of Hong Kong who help support Chinese developers by bringing their games to market in China and overseas. The company has localised over 35 games in more than 70 countries and in 16 languages and are the perfect company to help Sony in funding the winners of the competition. The competition is run in a way very similar to Kickstarter, in fact the competition is run on ‘Modian’ which is the Chinese copy of Kickstarter.
A total of 32 indie developers signed up to enter the competition. How it works is that gamers will watch videos and read descriptions of the games to see which ones they like best and then will help fund that game with their own money. The competition lasts for two months and the top 3 games that received the most funding from users would win and enter into a contract with Sony to receive more funding to release their game on PS4. During the two months a total of 6,500 gamers funded more than $33,000 across all the games. Similar to kickstarter the funders do not go away empty handed, as Sony was the sponsor all the prizes were pretty much Sony merchandise. Funders actually got a generous return as whatever they funded was paid back to them in the form of a product that cost the same amount at retail. For example if a gamer funded $60 or more they were given a Dualshock 4 and their name would be credited in the game, as well as this they would be entered into a sweepstake to win a PS4. Or, they could actually fund the retail cost of a PS4 in China ($370) and get the PS4 as the reward for funding that much. So no matter how much you pledged, you were always rewarded with a PlayStation product of the same value.
This reward system, along with the signing up of some popular developers made the competition a success. The first place winner was ‘Liberal Gate’ a small indie developer based out of Beijing who are making a game called ‘A wonderful World‘. The game is an interactive novel-style puzzle game that was actually first shown at the Indie booth at Tokyo Game Show back in 2015. As the first prize winner they receive additional funding of $7,500, a PlayStation development machine and outside support from PlayStation’s Japan Studio on their game. They will also enter into a contract with Sony to release the game on PlayStation 4 first with an exclusivity period of 1 year (excluding PC and Mobile). During this exclusivity period the game will also get full marketing support both in China and also overseas. The second place winner was a game called “Light Year” by an indie developer in Beijing. In this Unity3D game you can play as up to 4 protagonists in a futuristic space setting to battle aliens. It’s basically a twin stick shooter by the looks of the videos linked above. The second place winner gets the same rewards as the first developer but the extra funding is set at $4,500.
The third place winner is ‘Initory Studios’, an indie game studio created by students from Beijing University. Their game ‘Saving Gardilla’ is a platformer set in a beautiful world (reminds me a bit of Rime) where you can explore each level from a first person view. The game will also support PlayStation VR and is set to launch in the first half of 2016. I actually want to play this one as it looks amazing. These students will receive the prize listed above and $3,000 in funding to create their game. The other games that did not win still keep their funding and can use this to invest in the development of their games further. This has been an excellent way to get gamers interested in smaller indie developers in China and also to help them receive the funding to make their dream games. Sony are hoping that the investment in these smaller studios can help bring more games to their platform in order to increase the appeal of a PS4 over a ‘TV Gaming platform’ and make the high startup cost worth it to gamers. It’ll also be great to bring these games overseas so that Western gamers can experience what Chinese developers are working on and whilst the majority of games are not AAA quality it is a start for China’s console games industry.
Both Sony and Microsoft have realised that their software line up is what will attract gamers to consoles in China and these small indies games that represent China’s cultural values can pass the censor quickly, either be free to play or low cost digital downloads, and can bring in Chinese gaming audiences. There is no way that console gaming will ever become as big as PC or Mobile gaming in China, but Sony and Microsoft can build up a profitable console market and allow an entirely new audience to experience their games. The winning combination is to continue lowering the cost to entry, publishing AAA games from Western/Japanese publishers in China, Introducing locally developed Chinese games that are free to play or low cost and finally to continue innovating in the digital space with a meaningful PS Plus subscription that offers you similar functionality to that of Android ‘TV Gaming’ devices.