US probes Riot and Epic; How Unity entered China; Next-gen console grey market; ByteDance's 1,000 new gaming hires — China Gaming News Roundup
Prices for the PS5 have soared by nearly five times its recommended retail price in Hong Kong.
Hi team,
School has started for me so juggling among a full-time job, moving to a new apartment and studying for my master degree is definitely no easy task. But the truth is this newsletter offers me a space where I can do some original thinking. As such, I just want to express how enormously grateful I am for y’all.
For this semester, I’m doing a class on courts and another one on the financial market. Although there won’t be a whole lot of overlap between this newsletter and my classes, I’d love to share with you any interesting and relevant finding I may come across in class.
Off to this issue of roundup.
🕵️ CFIUS questions Riot and Epic on Tencent stakes
CFIUS is now investigating Riot and Epic on data security grounds given Tencent’s ownership of the former and its 40% stake in the latter.
Many of us expected this to come up when the White House first started to target WeChat last month. At the time, many tech journalists — myself included — were frantically looking for answers as to what a WeChat ban may mean for games. It appears the consensus is that nothing will change in the immediate future but Riot and Epic may frequently find themselves on the hot seat.
Look, the chances of Tencent being forced out of these companies are slim, and Tencent has been famously hands-off with its investments. From what I’ve heard thus far, Riot and Epic would likely just accept the grilling of CFIUS and try to make it go away.
So what would be the worst case scenario, you ask? Admittedly, it may be a bit tougher for Riot since it is wholly-owned by Tencent. But at the end of the day, it’s a US-based company through and through. The worst case scenario would be Riot’s co-founders having to buy back the company, which they can well afford to do.
What about Epic? Well, I don’t think Trump will find Tim Sweeney an easy target to bully for starters. Plus, Sweeney has been repeatedly making the point that Tencent does not control Epic. Last year when Blizzard was panned for punishing an esports player for shouting a Hong Kong protest slogan in an interview, Sweeney famously went the other way and publicly announced on Twitter that “Epic supports the rights of Fortnite players and creators to speak about politics and human rights.” As such, chances are Sweeney and those in North Carolina will likely just answer CFIUS’ questions, which will be the end of it.
It doesn’t take a rocket scientist to put two and two together: Trump’s priority right now is to create headlines and stoke anti-China sentiment ahead of the election. That said, considering the logistics and everything else, going after Riot and Epic is simply not an urgent project for Trump.
But it is important to note that legal groundwork on which now the White House bases its probe into Epic and Riot was laid back in 2018. Pillar Legal, perhaps the top foreign law firm when it comes to servicing gaming companies in China, published an highly useful blog post detailing how the President’s power had been broadened by the 2018 CFIUS reform such that even minority stakes by foreign companies could be questioned and unwound.
That said, the pressure and scrutiny that Tencent faces will definitely not let up no matter who will take office. So we can’t rule out that the US may start to restrict and even force out Chinese games from the US like India had. But even that remains an unlikely scenario given the fact that gaming is simply not that strategically important considering everything else that is happening.
💸 How Unity Entered China
The IPO of Unity is probably the biggest gaming business news of last week. Dean Takahashi has a great piece explaining the business of Unity here.
Well, turns out, Unity’s stock rose 32% in first-day trading to $18.1 billion value.
As such, I think it’s necessary to investigate Unity’s performance in China and its ties with its Chinese investors. Most notably, Raymond Yang published a revealing piece recounting how WestSummit Capital led a B round in Unity back in 2011 and how it witnessed the transition from the David Helgason era to the John Riccitiello era.
The gist of the story was that Unity picked WestSummit Capital in 2011 to lead its US$12 million series B in hope of accessing the China market, even though WestSummit offered the lowest valuation.
Indeed, Unity quickly entered China in 2012. According to the company, it saw its business grew by 10 times over the span of two years. By 2014, Unity reportedly already had 3.3 million registered users and the number of developers in China surpassed that in the US as the world’s No.1 in 2014.
Unity had not published any official data about its business in China since. But in a Tencent event this May, Tencent said that Unity has about 3 million developers in China and 76% of new Chinese mobile games from late 2019 to May 2020 were made with Unity. It is unclear whether the 3 million user number is new or Tencent’s research team just recycled the old number.
(One interesting side note: Unity is also rolling out some China-specific features including the integration of an anti-addiction system. 🧐🧐)
Yang said that John Riccitiello’s leadership has been critical to the success of Unity. While Helgason was able to build the company from the ground up as a co-founder, JR, who made EA one of the biggest gaming companies in the world, was recruited to be Unity’s CEO to launch the company into the stratosphere. Company staffers reportedly resisted JR’s leadership in the beginning but, in the long run, JR was able to initiate many critical changes to reshape the company, including a pivot towards Unity Ad which has proven to be critical for Unity’s growth.
Yang and his WestSummit Capital have invested in Unity and Twitch. (Picture: Linkedin)
🛒 PS5, Xbox Series X grey market
Despite all the attendant chaos, the pre-ordering of PS5 was what was on everybody’s mind last week. Here in Hong Kong where there’s an extremely vibrant parallel import market, people are just as crazy about the forthcoming next-gen console. People started to line up even before the sun came up.
Words on the street are that a lot of these people are scalpers looking to resell these machines online. As reported by Unwire HK, some particularly audacious resellers on eBay and Carousell are asking for five times the recommended retail price for the PS5. (Its RRP in Hong Kong is HK$3,980 but many are asking for HK$7000, with the highest asking price reaching HK$20,000).
Hongkongers are extremely shrewd scalpers. (Picture: Carousell)
Beyond Hong Kong, there’s also a bigger play here. Scalpers will try to sell these next-gen consoles to hardcore gamers and collectors in mainland China where the PS5 and Xbox Series X/S will likely not be available for a few more years. As is the case with all the current-gen consoles, the government likely takes its sweet time approving these gaming consoles. And by the time them machines arrive, all the features allowing gamers to play unlicensed games or connect with foreign players will most definitely be neutered. The only remaining question is whether Sony or Microsoft will leave a backdoor for hardcore gamers to hack around those restrictions.
But in any event, as my friend Daniel Camilo pointed out here, many unofficial channels for the pre-ordering of the next-gen consoles in China had already kicked into high gear even before the pricings were revealed. Given the ongoing rumor about how Sony is struggling with production, chances of these consoles getting an enormous markup at launch in China are very high. Also, since there’s still no officially sanctioned movement of people across the border between mainland China and Hong Kong, there’s no doubt in my mind that there will be a shortage of PS5 and Xbox Series X/S in China in the coming months.
I'm keeping this segment short because I plan on writing a longer piece on the next-gen consoles in China. All things considered though, I personally have decided that as a PC, PS4 and Switch owner , I won’t get a PS5 until at least the release of Miles Morales, and that also depends on whether the performance of Miles Morales on the PS5 will be a significant upgrade from that on my PS4. If it’s just about skipping loading screens and being able to play it in 4K, I don’t think I’ll be feeling any itch get the PS5 so soon (considering I’m actually suffering from a pay cut this year). So overall, because there really isn’t anything superb to play at launch, I feel like waiting is the only sensible move that I know I will not regret.
Anyway, here’s a China reaction piece Karen published on PS5.
👨💻 ByteDance ramps up gaming hires
ByteDance has just listed 1,000 new gaming jobs for the coming year. 700+ are business operation jobs and 300+ are technical jobs. The number is not small but experts I spoke to said that ByteDance’ gaming business still does not knock their socks off.
As quoted in this story, Liao Xuhua from Analysys said that ByteDance’s gaming team now likely has just under 2,000 people. It’s a number which can rival a top 20 gaming company in China but it doesn’t stack up against that of Tencent or NetEase. NetEase has famously claimed that it has 10,000 people working for its gaming unit.
ByteDance’s foray into gaming remains interesting as there are both ups and downs. In a previous story, I wrote about how ByteDance’ first two core games Art of War: Infinity Evolution and JJ Street Basket had struggled to live up to expectations.
But all things considered, ByteDance is still the hottest thing in gaming. Its every gaming move is being put under the microscope. Its earlier deals with Kaiser and other companies whipped up so much optimism that the entire gaming sector of the financial market in China moved on the news. It is important to note that ByteDance has stashed up a lot of ammunition by securing the rights to Kaiser’s Naruto: Slugfest and CMGE’s One Piece: The Voyage.
Most recently, it also appears that ByteDance has nabbed the once highly popular battle royale title Rules of Survival from NetEase. Rules of Survival was one of those PUBG clones which flooded the mobile market in 2017/2018. It even licensed the Terminator IP to boost the game’s appeal. But eventually NetEase picked Knives Out as its marquee battle royale and relegated Rules of Survival to the bench.
The Rules of Survival sale between ByteDance and NetEase happened without any fanfare. But it seems like a sensible move for both companies. On the one hand, NetEase managed to pawn off its unwanted son to ByteDance for a profit. ByteDance, on the other hand, has nothing to lose by giving the game starter minutes for a few months and see how it will fare. Anyway, ByteDance is basically just throwing everything on the wall and sees what sticks. Therefore, so long as the price is right, it doesn’t hurt to try to resuscitate Rules of Survival.
All in all, ByteDance, with the amount of traffic it brings in across all of its platforms, is well positioned and ought to have a big gaming operation to help its enormous traffic into revenue. But while all the stars align for ByteDance on paper, I’m trying to rein in my expectation. Until and unless I see ByteDance with a bona fide hit or some big-name hires, there’s no reason to believe that it can catch up to the other gaming giants anytime soon. The gaming industry in China has become quite predictable and crowded with competition in recent years. A modicum of skepticism may be the best defense against hype.
📖 My reading list
PlayStation and Xbox have both failed to sell next-gen
Firing the starting pistol on the next generation
Sony plays for keeps with PlayStation 5
PS5 and Xbox Series X are a waste of money without a 4K TV
The PS5 Reveal Has Put All the Pressure Back on Microsoft
Unity Technologies raises more than $1.3 billion in IPO at $13.6 billion valuation
China Is Ready for the PS5 and Xbox Series X/S, even if Sony and Microsoft Aren't
公布首月预约110万,B站游戏重点新作《刀剑神域》手游长什么样?