Perfect World CEO hails China's gaming market despite tough environment
The global video game industry is currently worth 150 billion U.S. dollars, and has an estimated 2.5 billion active players worldwide, according to Newzoo. That's larger than the global box office and digital music industries combined, and the industry's value will expand to 200 billion U.S. dollars in 2022.
However, the industry is also under pressure, with the market slowing as the sector matures, with anti-addiction regulations adding further pressure. For nearly nine months before December last year, Chinese authorities suspended issuing licenses for new games, and at the beginning of November this year, the government released new rules to curb video game addiction among young people, stipulating that minors can't play more than 90 minutes on weekdays and no video games at all after 10 pm.
Meanwhile, the industry is also seeing dramatic changes, mobile gaming is overtaking consoles and PC gaming's market share, accounting for nearly 50 percent of the market globally. New technologies, such as AR, VR and 5G are also set to disrupt the industry, but which one will really be the next big thing for gaming? Dr. Robert H. Xiao, CEO of Perfect World, one of China's largest game publishers, shared his opinion with CGTN.
Weather through difficult times
Xiao recognizes the market environment is more challenging now, since China's gaming industry has transformed from an incremental market to a stock market. However, Perfect World's revenue during the first three quarters of this year maintained 5.43 percent growth year-on-year, which Xiao put down to the company's diversification strategy.
The consumers are changing, they want to explore more, he said, "so we develop an IP, then we try develop several different games around the IP, in different genres."
The company, which is well known for its role-playing games (RPGs) and massively-multiplayer online RPGs (MMORPGs), has also moved to diversify its market, with Perfect World expanding overseas in the past 13 years. The company now has over 20 overseas branches, and has launched games in over 100 countries and regions. "The market is going through a very rapid consolidation phase (in China), but other markets are actually growing fast, we are seeing profits growing in various regions around the world," Xiao said.
The company also tapped into e-sports very early. About seven years ago, the company launched the e-sport version of MMORPG Dota2. "We attract people not by attracting them only to play games, but attract them to really view the game, try to form a viewership around traditional sports format. So I mean this year we've been assisted in hosting the TI9 which is the biggest championship of Dota2 ever."
"I believe e-sports will continue to run as the fastest growing sector in the gaming industry," Xiao said.
Is 5G the next boom?
For the traditional gaming industry, the market is reaching a mature stage, and it's natural for growth to slow down. Yet Xiao pointed out that there are new areas to be explored, such as AR and VR.
"The technology is already there, but because of the high cost of the hardware, it's still pretty hard to become a consumer suitable device which everyone can afford, but all those technologies can advance at light speed at any time," he said. "Then there might be huge market growth."
On top of that, the advent of 5G will be a game-changer to the gaming industry as well.
5G will lift barriers between different devices and create better experiences for players, according to Xiao.
"You can use any device, and you just log into a cloud, and then just download and play immediately. It will become so convenient, and will attract more users," he said.
"The band width is high enough, which means we can build even higher-quality games on the cloud, so that people can have a more immersive and real-life experience," said Xiao, comparing it to like being in a movie theater using whichever device and in any scenario.
"It's like when you start to travel faster than sound, you are getting into a completely different stage," he said.
Phil Spencer, head of Microsoft's gaming business, shares Xiao's expectations for 5G. There are three things critically important in the future of gaming industry: a community of gamers, gaming content and global cloud infrastructure, said Spence in a Financial Times interview.
Ernst & Young predicts that cloud-based or streaming games will be the dominant form of gaming in five years, and if major games companies do not provide cloud-based games, they will be at a competitive disadvantage in five years.
Further more, industry analysts believe that China will become the largest cloud game market by 2023, as 5G and new business models for cloud services enable mobile gamers to play cloud games, according to Daniel Ahmad, an analyst at Niko Partners. The consultancy predicts that revenue will be more than 1.1 billion U.S. dollars per year by then.
London-based trade body GSMA predicts China should have 600 million 5G mobile subscribers by 2025. Unlike in the U.S. and Japan, where cloud gaming will be predominately based around PCs, televisions and consoles, most cloud gaming in China is likely to be on mobile phones.
How to compete with the biggest market players?
For anyone who has had any experiences playing video games, it's common knowledge that this industry is dominated by the big names such as Sony, Nintendo and Microsoft from Japan or the U.S..
Notwithstanding the strong competitors in the Western market that started decades earlier, Xiao believes they can still find a niche market.
Xiao gave an example of how his company managed to find a niche market in the U.S. market six years ago, which has been dominated by console games developed by U.S. studios for decades, whereas Perfect World had no experience in console gaming before then.
U.S. gamers are used to single disc, multiplayer, but weak Internet-connected gaming, and what Chinese companies do best is creating MMORPGs on PC. "So we decided to make its first try of creating MMO on console, and used the free-to-play model, which is unheard of in the U.S. market," Xiao said.
"It turned out to be a huge success, we have been gaining a lot of profit out of that segment. Now the big players like Microsoft , are trying to turn into the console gaming in the sector in the genre of MMO free-to-play," he said.
The second card up Perfect World's sleeve when competing overseas is localization. In every different market, they try to be a local company.
"We hire local people, use local systems, and customize to the local culture. We don't just export our way of doing things to other markets. In that way we can serve a consumer better."
Optimistic on China's gaming market
China was at one point the world's biggest gaming market before 2017, but when regulations tightened last year, the U.S. bounced back ahead of China. But that doesn't change the fact that it's still the single most important market for international and domestic gaming giants.
Market research firm Niko Partners estimates the number of gamers in China will hit 768 million by 2022, and said the market is growing faster than expected.
"If you look at the population, China has the biggest population in terms of the mature gaming market, eventually China would be much bigger than the U.S. in terms of market size in mobile, PC and any other kind of games," Xiao said.
"We are very optimistic about the market, even though the market looks tougher by a lot of people, but I do believe that in coming years, the market will be more stable, still grows. It will become a mature entertainment format for a lot of young people."