Global gaming giants' arms race over console games heats up in China
What caused China's transition from a leader in the production of mediocre, monetization-focused mobile games to a rising power in the creation of AAA titles?
Microsoft and Sony are vying for more game developers to join them in China, and the arms race is expected to heat up as their Chinese competitors expand their reach into console games.
Reuters reported last week that the Xbox owner is pouring more resources into the Chinese developer community after failing to negotiate a deal for Genshin Impact, the global hit game produced by Shanghai-based miHoYo. According to the reports, Microsoft has assembled a special team to increase its talent scouting efforts among China's independent studios.
Sony quickly capitalized on the opportunity that Microsoft failed to seize. "By bundling the open-world action game with the PlayStation, Sony made a lot of money," the sources said. There is no public data on console revenue from "Genshin Impact," but data from Sensor Tower put the figure at $3 billion for mobile devices as of May.
It's hardly unexpected that Microsoft lost to Sony, since Sony has been actively recruiting and supporting Chinese developers for several years. In 2017, the Japanese business introduced its game accelerator program, the Chinese Hero Project, to assist Chinese creators in releasing games on its PlayStation.
Their competition is heating up as Microsoft ups the ante. In October, Studio Wildcard, owned by China's Snail Games, disclosed to the US Securities and Exchange Commission (SEC) that Microsoft paid $2.5 million to feature its action game "ARK: Survival Evolved" on Game Pass and $2.3 million for the sequel, "ARK 2." Meanwhile, Sony spent $3.5 million to bring "ARK: Survival Evolved" to its platform.
Global console game companies’ scrambling to recruit studios in China shows that the country's developers have become a formidable force in the global video game industry. Moreover, a closer examination of China's gaming industry reveals that Genshin Impact is not the only game to have gained international acclaim in recent years.
Titles such as the Dark Souls-inspired action-RPG "Black Myth: Wukong," the sci-fi simulation "Dyson Sphere Program," and the battle royale "Naraka: Bladepoint" are noted for their AAA-esque level of polish and production value. Within 24 hours of the premiere of Black Myth: Wukong's pre-alpha gameplay, the YouTube video received approximately 2 million views.
What prompted China's transition from a leader in the production of substandard, monetization-focused mobile games to a rising force in the creation of AAA titles?
For a long time now, the Chinese gaming industry has been a go-to for many AAA studios looking to outsource some of their development work. This has provided Chinese developers with the skills necessary to create their own premium games.
Also, homegrown gaming giants like Tencent and NetEase are devoting more resources to the development of 3A games in order to meet evolving player demands and reach a broad audience both in terms of geography and platforms.
According to Newzoo, revenue from mobile gaming accounts for more than 50% of the total gaming market, while consoles account for approximately 27% of sales. For Chinese game developers who already have a sizable presence in the global mobile game market, entering the console sector may present additional opportunities.
In an interview with CNBC last year, Hu Zhipeng, vice president at NetEase, called the console market “very appealing.” “Our Sakura Studio in Japan and in Montreal are dedicated to developing games for consoles, as one-third of overseas market shares are taken by console games,” Hu said.
The Hangzhou-based gaming company hired a console industry veteran to run its Japanese game studio earlier this year. In September, it acquired France’s Quantic Dream, which developed Detroit: Become Human and Heavy Rain.
Tencent, which formerly focused on investing in mobile games, has transferred more resources towards locating studios that make games for PCs and consoles. "Nearly half of the 51 investments in 2021 were in companies with experience developing PC and console games." "Many of them are domestic," according to a report from Niko Partners last May.
In 2022, the company extended its investment in AAA game studios, including the acquisition of FromSoftware, the developer of Elden Ring, Dark Souls 3, and Bloodborne, and an increased stake in Assassin's Creed developer Ubisoft. TiMi Studio, a subsidiary of the world's largest gaming corporation, has launched studios in Montreal and Seattle to focus on PC and console games.
When licenses grow scarce, game makers must exert greater effort to create games of a higher caliber. The domestic gaming industry is struggling as a result of the government's tight control over licensing, playtime, and other factors. The size of China's game market was 147.789 billion yuan in the first half of 2022, down 1.8% from the same period the previous year.
“[Chinese developers] are applying everything they've learned over the previous two decades, and we’re seeing a shift from China being the outsourcing center of the world to now producing its own content,” Daniel Ahmad, a senior analyst for Niko Partners, said.
As the arms competition between titans intensifies, it is expected that more independent game companies will secure financial backing, which will in turn encourage the AAA game R&D industry in China.
Writer: Rebbeca Ren
Photo by Billy Freeman on Unsplash