Biden’s impact on games, Among Us clones, Q3 revenue, Next-gen in China, VPNs break Wild Rift, Hong Kong as a gateway, AAA firms' push into mobile — China Gaming News Roundup #9

Also addressing a WSJ piece called If You Play Videogames, China May Be Spying on You.

Hey team,

Hope y'all are doing well. New consoles are out. The election was held. And Q3 earnings are being published. The past two weeks have been intense. As such, this issue will be another super bundle in which I want to start by addressing some major current affairs news. Here is the bullet point outline. 

  • US election’s impact on games in China

    • A potential break for Tencent

    • Addressing a WSJ piece called If You Play Videogames, China May Be Spying on You

  • Hong Kong as a gateway for games into China

    • The elimination of the opposition bloc

    • PlayStation’s presence in Hong Kong

  • Q3 games revenue

    • Games made US$10.4b in Q3

    • Tencent reported its Q3 revenue at US$5.95b

    • Tencent’s take on China’s new antitrust initiative

  • Among Us clone tops download charts in China

    • Among Us clones finally spring up in China

    • Don’t write off Among Us as just another novel game  

    • UGC platforms should take notes

  • Western AAA firms’ new push into mobile

    • Activision and EA reveal new mobile plans

    • How much they rely on Tencent and NetEase now

  • Gaming VPNs from China can break games

    • People play LoL: Wild Rift with VPNs on

    • Gaming VPNs rack up insane downloads in China

  • Next-gen consoles in China

    • They won’t be available at launch in China

    • The Covid gaming boom, closed borders, and rising middle class make for a vibrant resale market

    • PS5 is priced at above US$1,000, with XSX/XSS being more affordable. 

    • Rumor on a December China release

US election

I hope this year's drawn-out election didn’t keep y’all from sleeping these two weeks. As a former resident of two swing states, elections always feel highly emotional. What stood out to me, though, is how international this year's election has felt. It seems that there were more people in China tuning in to follow the election than ever. From where I see it, that's a great thing.

How does it relate to games in China? Well, the thinking amongst experts was that if Trump won, Tencent would probably be picked on. The whole headless-chicken farce with TikTok was proof enough that Trump just wanted to antagonize Chinese tech firms to drum up support for himself. But now that Biden has won, we don’t foresee too much craziness in the near term.

That said, the trend towards a splinternet is unmistakable as China-US tension is bound to rise. Games will likely be affected in some way or another. And now we’re hearing that Trump is planning his one last all-out assault on China. So maybe we don’t even have to wait that long.

Now, kinda related, let’s talk about this opinion piece penned by Dave Aitel and Jordan Schneider on the WSJ.

To address this, I think Adam Telfer from WB Games puts it best in a DoF podcast. 

“This seems like clickbait to me [...] No shit China is spying on you. Like, everyone is spying on you technically, if all we're talking about is analytics, right? But I guess the question of this is: what are they going to use on that console that’s leveraging my data for evil? Like that I buy a lot of games? [...] Like Microsoft's already got this data. And [all] they're talking about is my play patterns in Genshin Impact?”

Again, I get that it’s an opinion piece. But this piece is pure speculation. Look, these two authors are no chumps. They knew what they were doing. They were essentially picking a low-hanging fruit, a populist narrative fueled by fear. If there turned out to be any smoke at all, they had made themselves look prescient. If nothing happens, they can expect to get away scot-free. Look, I can get behind an initiative that calls for better data security. But publishing a baseless opinion piece in the name of pushing that agenda forward just reeks of opportunism for publicity to me.

A changed Hong Kong

The entire opposition bloc in Hong Kong’s legislature has resigned after a recent resolution by the NPCSC in China disqualified four legislators of the pan-democracy camp. Analysts said that the latest move by Beijing has rendered opposition participation in LegCo meaningless

There’s no question about how Hong Kong has changed significantly in the last few months given the recent introduction of the national security law and now the ousting of the entire opposition bloc in the legislature. People can argue about the pros and cons of having a united government till the cows come home. But the reality is that more and more people have been asking me about whether games will get censored in Hong Kong as they have been in mainland China. 

My quick take is: censorship will loom large in the background but Hong Kong remains an important gateway for games looking to enter China in the near term. 

For the uninitiated, Hong Kong has been a safe haven for Western games in China. Many vendors smuggle games across the border and sell them to millions of players in the mainland on e-commerce platforms. Digitally, PlayStation’s Hong Kong service has also been hugely popular amongst mainland gamers. Mainland Chinese gamers can access foreign games through the Hong Kong server, although recently a common backdoor has been closed due to increasing regulatory pressure. 

But all in all, for my money, PlayStation’s presence in Hong Kong will remain strategically important. One of the most popular comments people in China made about the next-gen consoles is: “we are waiting for the Hong Kong version”. So if Sony and other console game companies want to expand in China, Hong Kong as a gateway for games to find their ways into China remains critical.

That said, there are signs worth paying attention to. For example, Apple Arcade has skipped mainland China, Hong Kong, and Macau. Apple never said why that is. So make of it what you will. Additionally, because games become very social these days and, at times, more similar to social platforms with all of their UGC content, it doesn’t take a prophet to see how some radicals may abuse the freedom provided by certain games for their own political agendas. So if games don’t want to deal with such risks, they may want to play it safe in Hong Kong by enforcing similar policies like they do with the rest of China. 

Q3 gaming revenue

Fresh off the press, here’s a story I just wrote about China’s 68.5 billion yuan (US$10.4 billion) Q3 gaming revenue. 

In short, gaming revenue peaked in Q1 but Q2 and Q3 numbers are still significantly up compared to the same periods last year. I won’t repeat all the important data points reported in the article. 

This report came just days after Tencent reported its own Q3 results. The world’s largest gaming company said that it’s made 41.4 billion yuan (US$5.95 billion) in games in Q3, marking a 45% year-on-year growth. About a quarter of its gaming revenue comes from overseas, according to Daniel Ahmad. So if we round it down a bit to offset all the potential double-counting, Tencent appears to have captured about 40% of the market revenue. 

The above indicates Tencent's revenue. 

But it is also important to note that Tencent domination is not the whole picture. Gregory Zhao from Barclays raised a really good question at the analysts’ call. 

“So if you look at the top 10 mobile games ranking the past two to three years ago, we can see that actually Tencent and NetEase mostly dominated the top 10 games in China with about eight or nine games. But today if you take a look at the top 10 games in China, actually several smaller studios have also launched some very successful games. Meanwhile, Tencent and NetEase [saw their games on] the top 10 games declined around four to five games and the trend is a bit different from the street expectation of further market consolidation.”

In response to that, James Mitchell from Tencent said, “We think the diversification is good because it shows the market is becoming more dynamic and users are becoming more sophisticated and there are new genres of games that are becoming popular and monetizable that Tencent historically didn't focus on, but we can now focus on and that represent new opportunities for us.”

Lastly, analysts at the call brought up China’s new antitrust initiative and how it may affect Tencent. Tencent dismissed those concerns as relating to games. 

In his reply, Tencent’s CEO Pony Ma said, “it looks like right from the paper that it's more related to transaction platforms. So for games, which are essentially individual products rather than platforms, I think they are less of the focus. And in terms of the digital entertainment industry, I look at the video platform as an example. And as we talk about the video platform earlier, it's actually quite a bit of a money-losing business right now. So it probably doesn't really fit into the focus of the regulator at this point in time as far as the consultation paper is concerned.”

Among Us clone in China

Among Us is blowing up in the West. It is hitting 3 million downloads a day since the end of August, fully organic. And now: Among Us clones are gaining traction in China. Here’s a story I wrote. 

A few words about Among Us itself first. The rise of Among Us in the West was, in large part, due to that it was in the right place at the right time. After all, the game was two years old and little known when it was first released. 

One pattern among all the recent hit games is obvious: from Animal Crossing to Fall Guys and now Among Us, it shows that, during Covid, people crave social experiences. Additionally, the meteoric rise of these social games also reflects how effective of a reinforcement loop Twitch is. To quote Telfer in another DoF pod:  

“Like a big streamer picks up this game. Lots of people watch it. It rises on Twitch, and more streamers shift because they can get more eyes, which means they get more money. And around it goes. Like that's a very, very positive reinforcement. So there's just a lot of stories of new streamers blowing up because they jumped on this bandwagon. And because this game doesn't require the same type of skill that, say, Fortnite or League of Legends takes. There's a lot of new types of streamers, which is actually really great to see.”

That said, I disagree with Telfer who dismissed the game as just another novel game. In the pod a month ago, Telfer said, “Key question: will this game last? No. Just like Fall Guys, it will be very hard to retain the spot without fresh content at a very fast cadence. I think Fall Guys at least had mechanisms within it, like swapping the little mini-game rounds, to keep people interested. This is gonna be a lot harder. And I think people are actually even moving on now. So there's a game called Phasmophobia, which is now the next thing to blow up on Twitch, a new whodunit that players find.”

Well, look at what Among Us has done recently. It ruled as the most downloaded game on mobile in October and it is still one of the top 10 most popular games on Twitch. Meanwhile, Fall Guys fell by the wayside very quickly and Phasmophobia is also cooling off. 

And as mentioned before, there are now Chinese clones of the game. I think this is proof enough that Among Us has staying power. 

I’m not saying Among Us will top Twitch again. But Among Us will stay relevant, very simply because Mafia and Werewolf themselves have been so popular for so long (especially among us Asian millennials). The way I see it: Among Us has already zoomed past an inflection point in terms of acquiring users such that people are now associating Mafia/Werewolf on mobile with the game. Given many casual players already know the rules of the game and they are usually unwilling to learn new games, Among Us is in pole position to stay as the most popular digital Werewolf game for a while. 

So unlike what Telfer said Fall Guys would have a comparative advantage as it can add new mini-game rounds, etc, I reckon the opposite is true: Among Us doesn’t fall exactly under the novel game scope. As such, it doesn’t need a crazy amount of content to keep it fresh because the game’s core mechanic is social, addictive, tried-and-tested. The game’s simplicity and doodly art are just the right ingredients in this case. 

That said, there is one point Telfer made I do agree with: UGC-centric games like Roblox and Fortnite Creative Mode should take notes and think about how to allow these social, party games to flourish within their own platforms. After all, the ideal scenario for Roblox and Epic would be games such as Among Us and Fall Guys emerge straight out of Roblox or Fortnite.  

Western firms bet on mobile games

After diving into Q3 revenue in China, let’s look at what EA and Activision had to say as they shared their results. 

I don’t have a whole lot to say on EA. Jeff Karp is brought back to head up its mobile division and it bets on the FIFA franchise on mobile? Fine. But what many of us in China are wondering is actually when Apex Legends is gonna come out. Apex Legends launched to an absolutely explosive start in China. I’d argue that there hasn’t been a launch of a game on PC that was as successful as Apex Legends in China except for Genshin Impact. If done well, I can see Apex Legends on mobile becoming a huge hit. But we have not heard any updates on Apex mobile since almost two years ago when the announcement was first made. 

Moving onto Activision Blizzard. At this point, when we think Activision Blizzard and mobile games, Call of Duty Mobile and Diablo Immortal come to mind. Obviously, the former is built by Tencent and the latter NetEase. Activision and Blizzard mostly just do the publishing for these games.

In a DoF pod, Miska said something that resonated with me as to how these Western companies can build up their mobile game development capacity. What Miska said was essentially that Activision should first start with publishing and later, through acquisitions of smaller mobile studios, build out its own internal mobile game development team. 

“So when a big company takes over the development themselves, companies like Activision, they tend to go in by scaling up internal teams. And that is very slow, because the teams need to be very large. And it's incredibly costly, because it will take a long time before the teams become actually well-functioning. And they might never even become well-functioning just like we saw with Crucible and some of the Amazon games. So in my opinion, I think it would be worth looking into the Scopely model for Activision to scale their internal production. What I mean by that is they do have the publishing expertise they built that now with Call of Duty Mobile and most likely will do that with Diablo, maybe Activision should be looking at some of these external studios, start doing projects with them, and then if they're able to execute, Activision could acquire them at a lower price, but they would already, in fact, know how to work with these studios,” Miska said. 

Look, I know the following comparison is extremely porous but the entire publishing-to-development route is exactly what Tencent, NetEase, and the other old-guard Chinese gaming companies took. But in their case, they licensed games from abroad, published them in China, and, in so doing, really developed the expertise on the publishing side of the business. From that point on, they developed some and acquired other gaming studios. And now they are the kings of the hill in the mobile space. 

Again, this is a very loose comparison but I’d just like to point out how things have come full circle. 

Gaming VPNs from China can break games

I’ll quickly go over this section because I’m in the process of writing a larger story on this. So do look out for when that story drops. In the piece I’m working on, I’ll focus much more on the general phenomenon of Chinese gamers playing on overseas servers and clashing with foreign players.

Anyway, here I just want to highlight the latest -- Riot Games is banning gamers playing with a VPN in League of Legends: Wild Rift. More specifically, Riot is targeting those mega-popular VPNs. 

Why are gamers with VPNs being cracked down on by Riot? Because Chinese gamers are now flocking to other countries’ servers to play Wild Rift, ruining the experience for many local players there. For the uninitiated, Wild Rift is not available in China yet. Breaking Wild Rift’s geofence is the only way through which Chinese gamers can play the game.  

In Riot’s reply to my email, they did not say that China was where most VPN users came from. But the fact is that downloads of the so-called game boosters had skyrocketed in China following the launch of Wild Rift. Five out of the top ten most downloaded apps earlier this month were game boosters. Most interestingly, many of these big-name VPNs are operated by big techs such as Tencent and NetEase.

In other words, gaming VPNs are becoming big business. 

Five of the top ten most downloaded free apps were game boosters. 

You can also get a dedicated device from NetEase to use its game booster service.

Anyway, stay tuned and let me know if you guys have any questions you want me to address in this forthcoming story. I may be able to sneak in a few more graphs here and there if my editors don’t think the draft is too egregiously long. 

Next-gen consoles in China

To begin with, let me flag an earlier scalper story that I wrote. 

Essentially, the Covid-19 gaming boom, closed borders, and rising middle class make for a vibrant resale market for the next-gen consoles. 

That said, the prices for the next-gen consoles have since normalized a bit.

So in terms of pricing, Xbox seems to enjoy an advantage here. But the truth is the hype around the PS5 is far greater. 

A bit more context regarding PlayStation in China. In the case of PS4, the console was released in March 2015 in China, one and a half years after its initial release in the West. Sony was quite clever about the release of the console. The device did not have a region lock and it had a server lock which was relatively easy to bypass just with a few Konami-code-esque tweaks. In other words, gamers can play foreign games on the device and, with a bit of tweaking, the device can even let you log on foreign servers of these games on which you can play with people from other countries. 

However, Sony pulled the plug on Chinese gamers earlier this year as it removed the backdoor which allowed players to treat their devices. That decision drew a lot of attention and enraged many gamers at the time.  

OK, now what follows is a rumor. So read on at your own risk.

A rumor says that PS5 is slated for a release on Dec 18 and the device will be available for pre-orders in China then. The rumor says that the disc version of the PS5 will hit the shelves first and the digital-only version of the device will be announced no later than Chinese New Year.

This rumor is now quickly making its rounds and Sony hasn’t come out to squash it yet. My guy at Sony said this info was not reliable. Personally, I wouldn’t hold my breath for it. With the help of Tencent, it took Nintendo 2.5 years to release the Switch. If this rumor had any degree of truth to it, my guess would be that it’s part of a campaign to give impetus to the recently formed RCEP (a Pan-Asia free-trade pact aimed at bolstering economic ties among China, Japan, and 13 other countries) ?