China is stealing the video game industry right from under the U.S.
Do you like playing games? I mean video games. Not those baffling Kickstarter board games a friend brings to your house and then spends three hours explaining the rules about. I mean the kind of digital games that build communities and then tear them to shreds when somebody needs to be blamed for losing the match. If you do, it’s highly likely you’ve played a video game owned by China.
The country’s conglomerates have been purchasing Western video game studios for years: quietly, secretly, like the eight spiders that crawl into your mouth and throw a party while you’re sleeping (which isn’t actually true). In fact, if you’re one of the over 100 million players logging into League of Legends each month — screaming at people who are definitely worse at the game than you — then you’re playing a Chinese-owned MOBA (Multiplayer online battle arena).
Riot Games — which developed League of Legends — is owned by the silent empire called Tencent, a company that was recently dubbed one of the seven wonders of tech stocks by The Economist; sitting in league with Facebook, Amazon, Alphabet (Google), Apple and Alibaba, together making up a $3.6 trillion industry.
There are in fact twelve zeroes in a trillion.
Not only does Tencent own the biggest MOBA in the world, the Chinese company also owns 84 percent of SuperCell, a Finnish game studio that made Clash of Clans, a game that allows frat boys to flex their trust funds by buying upgrades faster than anyone else. Tencent even owns 5 percent of Activision Blizzard, the stubborn portmanteau studio that united Call of Duty with World of Warcraft back in 2008.
And Runescape — that MMORPG you played in the middle school library when you were supposed to be learning about the evils of Wikipedia — is also owned by Chinese company Zhongji. It says it’s not done buying everything in sight, either. It plans to add more Western studios to its stacked portfolio, which is apparently a reassuring sign to investors.
Meanwhile, a Chinese poultry farm purchased UK game studio Splash Damage (Wolfenstein, DOOM 3 multiplayer).
Who knew this was happening? Not the players, that’s for sure. Only investors and media insiders have gotten the scoop about China’s business takeover. Even then, information often travels along hidden rivulets that aren’t meant to be seen.
Because Chinese companies don’t want you to know.
Turns out, it’s all about strategy. Sun Tzu once said, “He will win who knows when to fight and when not to fight.” Why posture to the [Western] world and risk a bad reception? After all, Chinese studios buy companies to have them keep doing what they’re doing: printing money.
“I think it has a lot to do with culture: on a high level you have to imagine the cultural difference between a Western publisher and a Chinese owner is akin to having international national diplomacy issues: you want to walk the line very carefully,” says Joost van Dreunen, SuperData Research CEO. “So you’re by default incentivized not to disclose too much for the fact that you don’t want to ruin the relationship or jeopardize it in any way.”
SuperData Research is a leading market intelligence firm covering the global games market, which in 2016 generated a staggering $91 billion. And since Joost von Dreunen is the head honcho and an NYU Stern Business school adjunct professor, he knows if we ought to be riled up, making gaudy placards and singing tone deaf chants while marching down main street just yet.
Turns out there’s no reason to start tweeting #NotMyGame anytime soon. Just because League of Legends has an invisible red flag with five stars hiding behind the launcher doesn’t mean it’s about to be imbued with Chinese culture. Nor is anything going to really change. “Most of the time they’ll localize it in some way or the other,” says Joost. There’s nothing to fear. “Or, they [Chinese companies] want to buy the team that built something amazing and have them build something else.”
Which kind of happened. One of the most profitable games in the world recently released under the Tencent banner: a mobile MOBA called Honour of Kings, which Bloomberg estimates will bring in $450 million by the end of 2017. It’s like League of Legends on your phone. Honour of Kings is out in the West too. You can go download it right now from the app store — it’s called Strike of Kings here — but it’s nowhere near as popular in the U.S. as it is in China, where 50 million players log in every day.
China may have 1.3 billion potential players, but that hasn’t made Chinese companies look inwards. Last year SuperData predicted “Chinese companies will scoop up 1-2 western publishers a month from here on.” And yeah, Joost says the Magic Eight Ball they use to make predictions isn’t wrong. Chinese companies want to own super sexy Western assets. Chickens and pickaxes don’t raise stocks, but owning a big chunk of Warframe sure does.
As China’s wrapping up industrialization — and decided Beijing smog just isn’t that great — companies are looking to diversify their assets. What’s more lucrative and a safe bet than video games? Even my aunt is racking up credit buying extra lives in Candy Crush (owned by Activision Blizzard).
Still, we won’t see China purchase every Western game company. It’s more like, they’re dipping their forks into all of the dishes at the buffet (hopefully with a fork that wasn’t in their mouth). Own a little bit here; own a little bit there. When you’ve got 2 percent or 5 percent in everything you guarantee a little gold, and failures only sting momentarily.
Then Chinese studios can make its own games, primarily for its own audience, and every now and then try and push one into the West. But, really, have you played a Chinese game? Probably not. They’re not imbued with the same resplendent allure that makes Western games kind of magical.
“A Nintendo from China is like saying a Hollywood from Belgium,” says Joost. It’s not likely that Chinese produced games will ever captivate in the same way as Pokémon GO: last summer’s crack addiction. Our cultures are very different, maybe too different for TransPacific success, at least for now. Joost adds, “What works in one country, culturally or financially or from a strategic standpoint, doesn’t necessarily translate to the next one.”
To understand why, we need to know the origins of the gaming industry.
Japan’s video game industry is an extension of animation and manga, the United States from Cold War simulation programs (like seemingly every modern Western technology), and the UK from basement coders. Joost says, “Each of them has a different DNA from the get-go that slowly became a games industry.” And China’s video game industry spawned from companies that specialize in networking, like Tencent: social media, messaging: WeChat, QQ, etc.
Once you know the origin story the similarities between Chinese games are obvious: multiplayer, free-to-play, with many borrowed elements, something made quick to ship. Unlike here in the West, Chinese players didn’t have access to high-tech hardware, so they played in Internet cafes or, nowadays, on their smartphones. “Game design is something that originates in what you can’t do as much as what you can do in a certain environment,” Joost continues. These design elements and prerogatives don’t mesh with the typical twenty-something American player. China isn’t shipping its own version of Uncharted or even Counter-Strike.
But you may have seen Chinese games advertised and not even known. If you’ve ever liked a game page on Facebook then you’ve probably caught some Chinese browser game ads interspersing your friends’ status updates about their dubious lives. It’s called League of Angels 2 herpes: a relentless barrage of misleading ads for games sporting buxom ladies. Sex still sells.
Except for a small niche, Chinese produced games aren’t successful here. After all, we have unprecedented access to cheap tech: consoles, TV’s, computers, the latest iPhone, and at the right price. Why are you going to sit at your computer playing a browser game clone while your Nintendo Switch sits in its dock or your Virtual Reality headset collects dust and cat hair?
Hence, why it’s easier to break into the Western market by owning a piece of the Western market. Though we’ll definitely see the presence of Chinese culture continue to rise in the overall media industry. China’s invested in not just gaming, but Hollywood as well: Tencent Pictures has financed Warcraft, Wonder Woman and Kong: Skull Island — among others. They have the money and the resources to produce and export.
So, while China will continue to eat up Western Studios, we here in the West have nothing to fear. It may even be a good sign: that such-and-such company is expected to be around for a long time. We can all keep playing League of Legends, or whatever suits us, having fun, getting mad, and telling other players to “get good” without worrying that our messages are going to show up in Chinese.