Episode 50: The Top 3 Trends in the Chinese Mobile Game Market in 2023

Introduction and celebration of the 50th episode

[00:00:00] Jon Jordan: Hello, and welcome to the Mobile Game Playbook. Thanks for tuning in for another episode. In fact, I’ve just been reminded this is our 50th episode. Well done to us.  If you haven’t listened to all 50, you need to have a look at your podcast history and see what we’ve been talking about for the last 49 episodes. Just a reminder, this is the podcast all about what makes a great mobile game, what is and isn’t working for mobile game designers, and all of the latest trends.

I’m your host, Jon Jordan, and joining me today, we have two experts to dig into a particularly interesting area. We have Kalle Heikkinen, who is the chief market analyst for China at GameRefinery. How’s it going, Kalle?

[00:00:40] Kalle Heikkinen: Very good. Thanks for asking. How about you, Jon?

[00:00:42] Jon: Not bad at all. 50 episodes, wow. That crept up on me there.

[00:00:47] Kalle: Wow. That’s amazing.

[00:00:48] Jon: Good. I think for the first time– It’s always exciting to have a new expert, so we have Inka Reinola. How are you doing, Inka?

[00:00:57] Inka Reinola: Inka, yes. I’m doing fine. How are you?

[00:00:59] Jon: Very good. You are another Chinese market expert at GameRefinery as well. Obviously, we are talking about China. It’s hard to know where to start with China, I think, with it being the largest mobile games market for quite a while just in terms of having a lot of people who play a lot of games, but increasingly also is the place now where games are made that are successfully globally, and not just in the Chinese or the Southeast Asian region. Kalle, you’re going to kick us off. Just give us a top overview to get our minds into shape around the Chinese mobile games market. Then we’re going to drill into some various topics as we go.

Overview of the Chinese mobile games market

[00:01:42] Kalle: Yes. I was thinking about what makes the Chinese market so special, and I really made it down to three major points, I think. I would say, first of all, it’s like you said, Jon, the market is huge. They have a big domestic market that has a big appetite for gaming. For example, last year, the market size was something like $45 billion. 500 million people in China play online games, which translates to 52% of the population. That’s quite interesting numbers, and that’s a huge market by any standards.

The second point is the access to capital in the market and access to a very talented and relatively inexpensive workforce. There is money to make investments domestically as well as overseas. That’s why we see these splashy investments: Tencent buys shares of Riot, Epic, Supercell, and stuff like that. As I mentioned, great access to relatively inexpensive labour then enables studios such as miHoYo to exist that have a headcount of something like 4,000 employees or something like that.

Then, as the third point, I would say the regulations in the way that they shield the domestic market from foreign games to enter the Chinese market. I know that we are going to discuss this topic later on. Let’s just put it that way: it has never been a very straightforward process for Western developers to enter the Chinese market and operate their games.

[00:03:31] Jon: As you said, we’ll discuss this; it’s not always been the easiest place for Chinese developers either.

China’s unique gaming history

[00:03:38] Kalle: That’s true as well. Also, I think it’s good to– People a lot of times ask why is mobile so much associated with Chinese gaming and stuff like that. I guess just giving a bit of context around that could be interesting as well. Concepts like games as a product, boxed products and stuff like that, and console gaming in general, never actually played a big role in China. There are various reasons for that. We don’t want to go there right now, but things like piracy and the fact that console gaming was banned for a long time in the country played a role.

The gaming population was always exposed to free-to-play and mobile gaming from the get-go. There wasn’t a big shift from box products or console gaming to free-to-play we saw in the West. Instead, what we saw is that for a lot of Chinese players, their first exposure to gaming was through mobile and PC, and the prevalent business model has always been free-to-play in China.

A lot of Chinese also live in relatively small and cramped apartments, and the families are big. There’s often multiple generations that live under a single roof, so it’s not easy to find a place where you can actually have your PC rig set up or TV console set up installed. Even if you did, gaming has never been commonly perceived as a healthy hobby. The underaged have always been forced to go outside or play secretly, and mobile devices allow you to do that if you understand what I mean.

[00:05:29] Jon: That’s a good point to know. I guess the point at which free-to-play mobile games were getting big was also the point at which you had this big change in the Chinese market as well. You have, obviously, a large population and a lot of very strong middle-class people developing there just at the same time when the world is really getting free-to-play mobile, and there’s just no history of gaming anywhere else.

You have that a little bit in Japan, but Japan would obviously be massively into consoles as well. In Japan, you have really strong consoles, not a lot of PCs, but a lot of mobiles, but in China, just all that growth and all those interesting games were just pushed into free-play mobile. That’s just why it very quickly became this enormous power.

[00:06:11] Kalle: Yes. That’s a good point. There are overlapping timelines there, for sure.

[00:06:18] Jon: Cool. That’s our headline. Now, Inka, you’re going to go into a bit more about what’s going on trend-wise at the moment, which is obviously– Give us some detail.

Current trends in the Chinese mobile games market

[00:06:28] Inka: Yes. It was a bit of an oral market at first, so Tencent and NetEase still dominate the market. Mid-core is still a big thing, but actually, interestingly, the casualness has been on the rise right now. It’s like last year: Mid-core lost 7% of the revenue market share, casual actually grew 4%, and casino 2%. There are a lot of different interesting things in the casual world that have been affecting this, and one of the most interesting is the game called Eggy Party. It’s this stumble guy type of game, which has very deep social experience. For example, you can walk into a shop and see other players at the same time there. Eggy Party was actually the third biggest in Q2, and it’s grown into this whole big thing within a year. That’s drawing a lot of casual players in. In addition to that game, there are also a lot of other casual games that are interesting. For example, there’s one merge game called Fat Goose Gym. Merge games are not very common in China, but that has been very popular. General-wise, there’s also a lot of interactive story games that have been published. Not quite recently, but there are new interactive story games every now and then, so it’s definitely growing. Also, there’s this cozy game thing. It’s also in China because there’s this one tycoon game, which is this very beautiful water-painted soothing game where you manage a village somewhere in the fantasy world. It’s very cozy and soothing and a nice gameplay experience. Also, feature-wise, there’s interesting stuff happening, like limits on gacha spook gacha discounts. They have all become more popular, and there’s a big difference between the top 20 games and other games. The overall idea is more casual, I think.

[00:09:01] Jon: You go ahead.

[00:09:03] Kalle: Go ahead.

[00:09:03] Jon: When you say cozy games, that’s more like a genre or a style of game that makes you feel comfortable.

[00:09:11] Inka: Yes. I think that’s also a Western thing. In general, people like to have these cozy games, and apparently, China also has this kind of thing happening that some people want to play these more chill games, not so stressful. Yes.

Social elements in Chinese games

[00:09:30] Kalle: I just wanted to add on the– Inka mentioned about the socialness of the game. If you look at basically all the top games in China, but also the casual games, we mentioned Eggy Party, which is obviously entirely based on social experiences. Inka mentioned the social hub that is there, and you can create your own home there, decorate it, invite friends to come over, decorate the home with them, and engage in all kinds of social activities in the game with your friends. Also, the Fat Goose Gym that you mentioned, the merge game–One of the things, there’s actually a lot of interesting aspects in that game because, in the West, the merge of two genres has been a little bit of– How should I put it? Stagnant in the sense that we haven’t seen large feature evolutions in the genre. I’m not saying Fat Goose Gym is doing anything super wild there, but what they have there is, for example, a chat function. They have friend lists and send-us features, which are something that we haven’t seen in the top-grossing Merge Two games. That just tells about the Chinese developers and their emphasis on the social aspects of games. No matter the genre, they are thinking about how we can add social elements into the game, which obviously, as we all know, is a huge weapon for you to utilize if you think about retention and how to make your players stick to your game and stuff like that. They are definitely masters of that.

[00:11:13] Inka: The Chinese people especially love the social aspect of the games, but of course, it’s like in Western games, it has also become more popular to have some kind of social elements. Maybe it has something to do with China having a lot, so we don’t know.

[00:11:33] Jon: I guess, again, very high level, not an expert view for me, but mobile apps in general are much more sophisticated in that respect in terms of China. People in the West say people are spending too long on their mobile phones or on Instagram or something like that. Obviously, in China, you have these– We’ll see what Elon Musk manages to do with X, but this idea of everything apps. You have these apps that are Facebook, Twitter, and shopping all merged into one.

I guess, in general, that audience just expects a more sophisticated experience from just it being a game that you have your game friends in there. People are just much more, I think, used to sharing that sort of stuff. At least, that’s my impression.

[00:12:25] Kalle: Yes, that’s a good point. There are a lot of gaming experiences in China that, like you said, they offer under one roof. As to say, they offer a lot of different experiences. Just to give you an example, you have Honor of Kings, which you all know is a MOBA game, but you can have four-guys mode there, you can have an auto chess mode there and stuff like that, or QQ Speed, which is a Mario Kart racer. You can have a dancing game mode there, you can have among us mode there and stuff like that.

They’re very quick to look at what’s trending not only in China but also in the West and then add those elements that they see trending to their own games. It doesn’t matter if the core genre or the core loop in the game has anything to do with that trend that they’re looking at. That’s always very interesting to see when those things happen.

[00:13:29] Inka: Yes. Also, the addition of something else in the core game is the thing. For example, in the Fat Goose Gym that you mentioned and I mentioned before, it’s a merge game, but there is this menu where you can access multiple different mini-games. You will never get bored because if you’re bored with the merge game, then you can play some other type of game mode at the same time.

I think the new games now have added even more of that stuff than before. There’s also this new MMORPG called Justice, and that one also has a really social wall where you can see where your game friends right now are doing whatever they are doing inside the game. I think they’re thinking about it even more than before.

[00:14:22] Jon: Maybe a silly question, but I have to ask it.  Obviously, you talk about games, which I guess the translation or the transliteration of something like Eggy Party or something like Fatgoose Gym obviously sounds funny in a maybe different way to us. In China, does something like Fat Goose Gym— Is that just like a translation of those words? In China, does that seem like in English, stumble guys?

[00:14:49] Inka: It depends on the game. Sometimes, they have their own translation name, but sometimes, we just need to put it into action by ourselves, and it might sound a bit silly.

[00:15:01] Jon: Yes, because I’m wondering, there may be phrases in Chinese that the game title plays off of, which would make sense to a Chinese audience, whereas for us, it just sounds like no one here would release a game called Fat Goose Gym, or I don’t think they would do that. [crosstalk] Maybe. I don’t know.

[00:15:17] Kalle: I know that Eggy Party, at least, is the official name that they use, but actually, with Fat Goose Gym, I’m not 100% sure if one of our analysts made it up or if we look it up from somewhere. That’s actually something that I’m not 100% sure about.[00:15:31] Inka: Yes, unless you’re a writer.

Changes in player demographics

[00:15:33] Jon: Yes. Interesting. From what you’re saying there, it’s interesting that mid-core, which is Chinese and Asian markets, has always been very focused on because that market size is better. I guess maybe if that’s going down a little bit, maybe the market will expand a little bit. Can we make that as a broad trend, or is that my making stuff up there?

[00:16:01] Kalle: You mean that the market expanded beyond mid-core to agile and other spaces?

[00:16:06] Jon: Are people playing less mid-core and moving on to these other things? I imagine over time, more people who wouldn’t call themselves gamers eventually end up playing games, so you have a widening of the audience but maybe becoming less concentrated in the more core element.

[00:16:25] Kalle: The way I see it is that I think we, as players, at times, might be motivated by different things. If we think about games, like I mentioned, that a QQ Speed has– Maybe a mid-core game is a better example. If Honor of Kings has a casual-ish game mode in there, I think a lot of people don’t mind playing that casual-ish game mode, even if it happens inside a mid-core game.

Especially these big games that have tens of millions of players, there are so many different player types and so many different motivations to play the games that a lot of them might have additional motivations and appetites for the game genres in addition to, let’s say, the mobile gameplay in Honor of Kings. I think that’s just adding more value to these players and giving something that they can– the specific motivations that they might have. I guess that’s how I think about that.

[00:17:55] Inka: In addition, I think that it might have something to do with the same thing as in the West, that the gender who play the games have also diversified. Maybe earlier, it might have been a more male-dominated thing, and then it’s more female players. Often, they play, for example, interactive story games, customization games, or something else casual. There’s a need for those genres to– Yes.

[00:18:29] Kalle: Yes, that’s a good point. I think it was researched some time ago that the demographics, for example, for Honor of Kings, was– The percentage of female players was really high. It was close to 50% or something like that, so that was really surprising. No wonder that they’re also looking to serve that kind of demographic.

Chinese games going global

[00:18:58] Jon: Honor of Kings is like a mobile MOBA; it’s effectively a League of Legends type game, isn’t it? That would be an interesting point of view if it were that the audience had a wider demographic because you have these games which are about one thing but have all these other things in there. That’s a more interesting audience. Whereas it is striking– In the West, I don’t know, probably culturally that if you had a shooter game and then put a merge in there, the family would be– Maybe this is me putting too much stress on the point, but it seems to me maybe that Western ordinances treat the coherence of the game as that’s quite important.

If you have a game, the game needs to make sense. You can do weird things in the game, but there needs to be some sort of reason why you’re doing weird things in the game. Whereas I think Asian markets, not just for China, it doesn’t matter if you’ve got a shooter game and you put a merge game in there. If everyone likes it, that’s fine because we’ll get on with it.

[00:20:00] Kalle: Yes. Then, on the other hand, in the West, we’re seeing a lot of hybrid games, and we have things like puzzle RBGs that combine mid-core elements with certain casual elements and other examples like this. Yes, I get your point. Maybe in the West, it wouldn’t be that easy in a way to pull that kind of thing off.

[00:20:18] Jon: I think for a live game, you probably find the core audience. The core audience generally gets very moany about things they don’t feel are part of the core experience. Anyway, let’s move on. I guess one of the other big trends over the last probably maybe five years, more than that, but previously, Chinese were already good at making games for China, Southeast Asia, maybe Japan, Korea, but we’ve really seen now, I guess, Chinese games be very successful globally.

The Chinese developers co-develop or have access to IPs like Harry Potter and Diablo and all these things. Really that’s been, I think, quite a big change to my mind that Chinese games aren’t as big globally as they are in China. Do you think that’s a fair assessment? Is that a big trend, or am I overseeing that?

[00:21:11] Kalle: Chinese games not being so big?

[00:21:14] Jon: No, they are so big now. Previously, Chinese games tended just to be big in Southeast Asia or China or those areas, whereas now I think Diablo clearly was– There’s lots of discussion around that game and how grind it was going to be, but I think most people just think Diablo Immortal is a really good game. That’s my impression of it, at least, the fact that it was made by a Chinese developer. Call of Duty Chinese developer. Almost like all the big IP games now.

[00:21:46] Kalle: Yes. I think there’s been a definite change that we see a lot more China-originated games in the West and globally as well. If you look at, for example, the forex strategy space in the West, it’s all China games. Really, it’s dominated by them. We see they have a big presence in genres like RPGs and shooters. Where I think the next big move is going to be is going to be casual. We are already seeing some signs of that in Merge Three; for example, makeovers have origins in China, and games like Gossip Harbor by Micro Fun and stuff that I think will get bigger.

Chinese regulations in the gaming market

[00:22:41] Jon: Cool. One thing we headlined at the start was Chinese regulation. I don’t know how much detail you want to go into on that one because that could be a podcast in and of itself, all the changes that have happened.  How do you want to inform us about the Chinese regulation of mobile games and the impact that has?

[00:23:00] Kalle: I think, as you said, this could be its own podcast, and definitely, I’m not the expert out there when it comes to this topic, but it’s always been an interesting one, and definitely as a China analyst, you get exposed to this stuff. I guess what I want to just go through is the different types of regulations that are there because that’s also sometimes a bit confusing.

People talk about regulations, but what do they actually mean? Obviously, there’s regulations on the market entries for Western developers in China. You need that special license to enter the market. Maybe some of the listeners might know that there were several years when no licenses were given to Western games, but now, in the last year or two, these regulations have been slowly being eased off. That’s one thing.

The second thing is that there are regulations on children’s playtime and money spent. How they are tackling this is with different kinds of locking credential requirements and stuff like that, but according to some of the reports and research that I’ve found, apparently, the restrictions can be bypassed quite easily. Actually, when minors’ playtime has been researched after these regulations have been implemented, there hasn’t really been any major decline in minors’ playtime. It might be that these regulations haven’t worked as well as they were initially planned to work.

The third one is regulations on the content of the game. China being China, there are things you need to consider when it comes to LGBTQ content; for example, you cannot criticize certain things about China in games and also about sexual topics and stuff like that. That’s also a bit different when it comes to operating in the West, obviously. Then monetization regulations.

One thing that comes to my mind straightaway is, for example, that starting from, I think, 2017, all the games have had to disclose their gacha drop rates, for example, in the game. There’s a lot of different types of regulations. When people talk about regulations, it’s always good to clarify what kind of regulations they actually mean.

The challenge of Western games in China

[00:25:49] Jon: In terms of the first one, are there any notable Western-developed games that are doing well in China these days that would be good to point out?

[00:25:59] Kalle: There are some, but there is a clear change that has happened. I’ve worked here for seven years, closely following the Chinese market. When I started, it was very common for Western developers to have the same game with the same game ID that they have in the West in China as well. Whenever there was an update to the game, you could always rely on it. It’s the same build, the same ID, the same update, and the same content. Of course, they still could have the texts in the game, copywriting, translating, and stuff like that, but it was the same build, the same game. That has completely changed. I think the change happened three or four years ago.

Nowadays, you have all the Western games that we see in China, let’s say, Supercell games or Playrix’s games and stuff like that. They operate with their own IDs. They usually have a partner company that they’re cooperating with. Maybe it’s NetEase, maybe it’s Tencent, maybe it’s something else. If you look at the publisher of the game, that’s usually the publisher of the game.

They might have been not only translated but really localized. Maybe the live ops monetization has been localized to a much greater extent than what the differences were seven years ago. There has been a clear shift when it comes to that. You asked what kind of games there are. There’s a couple of Supercell games, Inka, you can actually correct me if I’m wrong, but I think Clash of Clans is in the top 200. We have Brawl Stars there. Then we have Homescapes: Gardenscapes, Inka, does something else come to your mind?

[00:27:54] Inka: No, I think that’s pretty much it.

[00:27:56] Jon: Really?

[00:27:56] Kalle: Yes. One thing to know is that the number of these games has been decreasing all the time. Now it’s a very interesting time to look at how things will evolve now that new licenses are also given to Western developers. Will we see new Western-originated games getting into the top 200, or is it going to stay the same?

[00:28:22] Jon: Certainly remember when Supercell started launching there, it was seen as a very big thing. I guess that was the peak of when the Chinese market was more open, and I think it’s been downhill since then. Actually, that did remind me of one thing we have mentioned in passing a couple of times, and it may be good to go into a bit more detail.

We do mention Tencent and NetEase as the two big companies in China. Can you give some idea of just how big they are? It is not like we’d say, “Oh, Activision and EA are quite big in the West.”? There’s quite a lot of other ones as well. I don’t know the exact figures, but they are just enormously bigger than anything else, aren’t they? It’s all a duopoly.

[00:29:04] Kalle: Yes. It’s a very drastic difference, especially if you compare it to the Western market, which is much more fragmented. If you just look at the, let’s say, top 200 grossing games, you look at the publisher, if you had an Excel CSV output of the publishers of the top 200 games, you would see a lot more fragmented charts of the publishers. Then, in China, NetEase and Tencent have a huge, huge market share of the top 200 games. I don’t have any exact numbers to throw at you right now, what is the exact percentage number, but the difference is like night and day if you compare Western and Chinese markets.

[00:29:49] Inka: Also recall that Honor of Kings takes a really big market share of overall revenue, and it’s the top one game.

[00:29:57] Jon: Yes. I think at one point it was– Was it 100 million DAUs or something? I think maybe it’s dropped a little bit since then, but it’s the biggest game in the world on any platform by miles.

[00:30:09] Kalle: Yes. An interesting thing is it’s still, I think, in the top 10 downloads. Even if it’s, I don’t know, seven, eight years old games. Yes. People, I guess, turn out for a little bit and then they reinstall the game, and it’s always at the top. Yes, interesting.

Future of the Chinese mobile games market

[00:30:27] Jon: Good. We’ve had a look at where we are and a bit of the past. How do we see the future of the Chinese market? What products are going to be there? Any significant changes, or is it going to continue in the gradual upward trend that we’re seeing?

[00:30:47] Kalle: Yes. When it comes to Chinese publishers, I mentioned this already, but they most likely will try to gain even more foothold in the West because the Chinese domestic market is– Of course, all the markets are highly competitive, but the Chinese market is fiercely so. The Western markets are very, very attractive for Chinese companies. We mentioned the acquisitions that they’ve made and stuff like that. I see them as an active player in the West in the future as well. I already mentioned that I think the next big moves are going to happen in the casual space.
One interesting example of that is Micro Fun. I mentioned this already as well. They operate the game Gossip Harbor, but they have several other merge games as well. Some of them merge three games, and some of them Merge Two games, but they have a clear portfolio strategy where they cross-promote inside one app the other app so that you get rewards in the app that you’re playing if you download the other app and do certain tasks there. They’re definitely trying to move their players across their portfolio games and then increase the overall value of their portfolio that way, which apparently is not–Let’s put it this way. I’m not sure if it’s 100% something that you actually are allowed to do in a sense in the West, but yes, that’s something that Micro Fun is doing. I think that strategies like this will be something that the Chinese publishers will definitely consider. Then, just regarding M&A, I think that in the future, they will most likely be challenged by Saudi money. We’re already seeing some big moves from, for example, Savvy bought Scopely and stuff like that.
In the future, with the M&A things going on, I think they’re going to get more expensive for Chinese companies to engage in just because of the fact that the competition of the investments is also getting higher. Of course, on a macro level, now the overall M&A market has cooled down a little bit, but in the longer term, I do think that it’s not going to be so easy for them for various kinds of reasons to engage in that strategy as well.

[00:33:37] Jon: Yes.

[00:33:38] Inka: I would also add that I think that because there’s a lot of these Chinese games that have been published in the Western market, they’re exactly the same, and sometimes it doesn’t work because it’s maybe a bit more Chinese in taste. I guess that they will get better at localizing them to the Western market in the future because younger people may understand better how to do that localization. I believe that they will get better at that.

[00:34:10] Jon: It’s almost the reverse of what you’re saying, Kalle, where, to begin with, Western developers were putting just their normal game into the Chinese markets and then hoping it did well. Maybe for the last few years, Chinese developers have been putting their Chinese game into Western markets and hoping it does well, but actually, they’ll realize, “The game we have for China it’s a good game, but we need to just–” Maybe some subtle differences or maybe some more substantial differences over time is a way to optimize that for different markets. Certainly, the taste of Western gamers is still quite different from Chinese and Asian gamers. Maybe it’ll be the reverse trend that they’ll be learning from that way. Cool. Good. Thank you very much to Kalle and Inka. I hope you enjoyed that. Every episode, now we’ll be episode 51 next, wow, we’ll be talking about what’s going on in the mobile gaming world. There’s just an awful lot going on, very dynamic. Very big markets and these big companies coming in, and it’s always changing. I hope you subscribe via your podcast channel of choice or by the video. Now, I am doing a video. Thanks for watching and listening, and come back next time. See you then. Goodbye.