Game makers not worried by China’s freeze on approving new games
Tencent has a stock of pre-approved games to buffer the impact and NetEase will focus on growing overseas
There are more gamers in China than anywhere else. But since March, those gamers have had a little bit of a problem: The government hasn’t approved any new games for sale.
The reason is allegedly a bureaucratic matter, as the reorganization of departments causing a mess that has backed up approvals vital in a country that loves regulation.
Now, that doesn’t necessarily mean there haven’t been new games available. Some games got their approval before the freeze; others slipped through, but without any monetization options.
But as the freeze drags on (and on, and on) with no end in sight, how are companies planning to deal with it -- and how will gamers get new titles to play?
As the world’s largest gaming company by revenue, responsible for games like Arena of Valor and PUBG Mobile, the Shenzhen-based company is obviously affected by the freeze.
Tencent reported quarterly earnings just a few days ago, revealing that gaming revenue is down 4% -- primarily due to a 15% plunge in PC gaming revenue.
You’d think that, like everywhere else in the world, having the Chinese license for Fortnite would be the money tree for Tencent to lean on. But Fortnite didn’t take off in China the same way it did in the West. In its third quarter report, Tencent didn’t even mention Fortnite.
As for smartphone revenue, that actually rose in the last quarter -- thanks to good planning from Tencent. Niko Partners’ Daniel Ahmad said the company actually had a number of games that were approved prior to the March 28th cut-off date when game approvals stopped.
“Tencent has been able to spread these releases through the year in order to drive growth in its smartphone games segment. Many of these new titles have found success this year, debuting in the iOS top 10,” Ahmad said.
In fact, Tencent still managed to roll out 10 mobile games this quarter. The company told investors that it currently still has 15 unreleased games in development that have already received monetization approval.
But Ahmad said Tencent is still in a very tough situation because the company has more than 40 games in its pipeline but only 15 have been approved.
What if the approval freezes continues after those 15 games are published? Ahmad said Tencent will then have to buy approved titles from other companies and distribute these games itself.
According to the South China Morning Post, there is a grey market for placeholder licenses. They were purchased by gaming companies prior to the licensing freeze, only to resell them later. Each shell license could cost as much as six figures as of this September.
Remember NetEase? The company that Blizzard is tapping to make the mobile version of Diablo? Compared with Tencent, the China’s second largest gaming company reported a much rosier third quarter, with a 27% increase in gaming revenue.
How is that happening? Because NetEase is focusing on their efforts outside of China.
Its CEO Ding Lei said, “Our international expansion, took another leap forward this quarter, contributing more than 10 percent of total online game net revenues for the first time in our company's history.”
NetEase’s games are particularly prominent in Asian countries. For example, its battle royale game Knives Out earned US$274 million from Japan in less than one year, repeatedly ranking as the country’s most downloaded game for months.
In the last quarter alone, the PUBG clone pulled in US$135 million, which makes it 13th among all apps for performance.
In response to this, NetEase’s CFO Charles Yang told investors, “Out of the three largest online games markets in the world, we now have reached critical acclaim in two: China and Japan. The United States market is a next frontier for NetEase.”
He then added that the company sees the opportunity to develop Diablo Immortal as a huge opportunity to show Western gamers what NetEase can do.
Of course, Chinese companies aren’t the only ones selling their games in China.
Take-Two told GamesIndustry.biz that they already have approval for NBA 2K, so they’re not worried about that -- a message echoed by EA, which already has FIFA approved for sale. And Ubisoft pointed to the impact of a game already on sale, Rainbow Six: Siege, as continuing to provide plenty of revenue for the company.
None said they were too worried, and suggested the problem will sort itself out sooner rather than later.
But it still remains to be seen how long the freeze will go on for… and when gamers can finally enjoy an uninterrupted stream of games.