Arknights

Arknights is a new mobile F2P game from Hypergryph, a studio founded in 2017 in Shanghai. There’s not a lot of info about this young studio, aside from “the founding team are from Google, Massive Black and Cygames.” I’d guess it’s about 50 people in headcount.

The reason I’m writing about this game / studio is I think it’s a good example of the new gen of Chinese developers’ capabilities. This is not a Tencent / Netease studio with massive headcount and brute-force production. The scope and production budget seem carefully managed, while still achieving a sharp impression of high quality and polish.

Game overview

So what is the game? Arknights is an original IP / anime-themed / character-based / tower defense game, with f2p gacha monetization & progression. This video covers the gameplay:

The game art and UI leaves a strong first impression:

Main menu, with the menu UI tilting to gyroscope movement (creating a pleasing effect). The UI is surprisingly clean (especially compared to most Chinese games) given how many features are actually on display
Character info screen
Character skin select (more of a placeholder for now, as most characters only have the base skin)

Chinese studios have developed a specialization in anime-based IP for a while now. To name a few brands that have struck it big in China and/or overseas: Honkai Impact 3, Azur Lane, Girls Frontline, Onmyoji. Given the ecosystem of talent, I’m not surprised that a new studio is able to execute on new IP creation here well.

Core gameplay summary

What I am pleasantly surprised by is the gameplay: this is a fairly thoughtful iteration on the tower defense genre. (Scroll up to the video to see it in action.)

To quickly summarize the gameplay ruleset:

  • Deck-building: players start each level with a deck of 12 characters, plus one optional additional character from a friend (or socially recommended)
  • Grid based, real-time combat, with goal of stopping enemy units from reaching assigned grids on the map. Energy charges up over time, and can be consumed to place units. There is a cap on number of units placed per map
  • Unit placement is based on class restrictions – generally, melee are placed in low ground (where ground enemies will pass through) while ranged are placed in high ground
  • Units can be recalled from the map. Recalled or killed units go through a revival timer, after which they can be placed again, at a higher energy cost
  • Level design elements:
    • map grids where enemies can be pushed off, or give special buffs and consumable abilities (an AOE stun)
    • Large amounts of special level rules, for example melee units only and no energy auto-generation
  • Unit classes that fulfill specialized roles, formed through the following building blocks:
    • Unit attributes: HP, attack damage (physical, magic, heal), attack range, , attack speed, attack effects (single target, AOE, slow), defense, magic resistance, number of units blocked, deploy cost, revive timer
    • Units have special abilities that charge up over time, with diverse effects ranging from basic attack steroids (attack speed buff, increased attack range, next attack hits 2 enemies etc.) to resource abilities (generate extra energy for players) and displacement abilities (pull / push enemies)
The 8 character classes, standard fare for RPGs but provides a good foundation for gameplay depth

This is not a particularly complex system but it has enough space for a lot of variety in characters, and the characters are certainly the heart and soul of the game. Players do need to invest broadly in many characters, as the classes each play specific roles and different levels will emphasize different classes.

The generic single level strategy is as follows: put down some Vanguards (melee, low cost, abilities related to energy generation) for early defense; with more energy, build up your core defense of Defenders (high HP / low attack, can block multiple units), Snipers (ranged physical) / Casters (ranged magic) and Medics (healers); recall your Vanguards to free up cap to put down situational units such as a Support that slows, or a high damage Guard to pick off a single threat. In line with the overall tower defense genre, this flow clearly has shadows of classic RTS games (build up economy, expand, adapt).

The specific level design will ask players to adapt their strategies, sometimes quite drastically: for example one of my favorite level types has no energy generation at all, which forces players to thoughtfully utilize Vanguards throughout these levels as a source of economy.

The common game loop is like this: try out a new level a couple of times to understand the level design and different unit placement strategies; if needed, make some tweaks to your deck to address the level’s specific challenges and/or invest in leveling up your characters, and repeat the level until you are able to perfectly complete it. This is where F2P business model tensions creep in (more on this later).

Macro systems

I don’t play gacha RPG games deeply, but the general systems here look similar enough.

Monetization – premium currency can be converted / funneled through various systems to advance the player’s progression. Most notably, it can be used on 1) gacha draw of characters; and 2) Recharging stamina, which is consumed when levels are played. There are also various real-money packages that can be purchased directly, which offer a bunch of progression resources (crafting mats) such as XP cards for leveling up characters.

Character progression – 4 major components:

  • “Potential” upgrade – duplicate gacha draws of the same character can be consumed to improve character attributes (e.g. reduced cost) up to 5 times
  • Character leveling – only through consuming XP cards (which can be farmed / purchased)
    • “Elite” conversion – at max level, consuming a bunch of mats to advance the character to the next stage (unlock new abilities and passives), resetting the level count. Characters have several Elite stages, which extends the leveling ceiling
  • Abilities leveling – consuming mats to level up the ability level
  • Relationship – accumulated through playing with the character (also using the character in the base building system – see below), grants bonus stats

Another significant macro-system is the base building system, which takes cues from the likes of XCOM and Fallout Shelter:

Base at a glance – certainly looks similar to XCOM
Zoomed-in view of one of the rooms in the base

The base building system primarily serve the following goals:

  • Another axis of progression, as the base is gradually expanded over time and requires mats / resources to do so
  • A reliable source of economy for players to produce mats, and also grow relationships with characters
  • A presentation of the characters
  • Light social interactions amongst players
  • A engagement habit-forming hook, as you need to check in regularly (at least once a day) to collect your outputs and manage your team

As characters are the central driver for player engagement, both in terms of IP / narrative (these are appealing characters that attract players) and progression (want to see these characters become more powerful). The daily engagement thus is fulfilling quests and replaying levels (once you’ve perfectly completed a level, it can be auto-played at 2x speed) for mats, and doing base management about once or twice a day.

A quick note on the game’s social systems. The game directly requests the player’s phone number to register, and doesn’t have any alternative logins (e.g. QQ / wechat openID login). This shows the dev / publisher’s intent to grow its own social graph, but at a notable cost. There are no group social features such as guilds; you can add friends, which gives you the benefit of borrowing your friends’ characters for levels, and also for some light co-op related to base management. As is standard with many gacha games, the game also recommends strangers (through recommending characters to borrow).

Gameplay issues

Briefly discussing the game’s issues:

  • The obvious tension between gameplay and F2P. Game levels have recommended character levels, which compels players to go through the progression grind. After a few days of play the game quickly becomes primarily about the progression grind as the content pace slows down dramatically
  • To make matters worse (and also common for many gacha games), game levels have low replay value. Once the puzzle of a level is figured out, there is very little outcome risk (since there’s low execution variation). The only question then is whether your character progression meets the level’s demands. And thanks to the internet optimal level strategies are only a few clicks away, further aggravating this issue
  • Weak social play. The game feels decidedly lonely and the acceptance rate on stranger invites feel lower than other gacha games
  • Base management quickly becomes a chore

Let’s talk 996 / crunch and GaaS

This is going to be a difficult topic to write about, and one outside my usual product strategy focus. However, it is an incredibly important topic, and one that I have some frontline exposure to, thus I do want to exercise my mental muscles to put together some coherent points.

A brief recap

  • 996 refers to the often unspoken, but in some cases explicitly spelt-out work hours at many tech companies in China (9am-9pm, 6 days a week). There has been an ongoing debate in China the past few years, and recently Jack Ma and Richard Liu, founders of local tech giants Alibaba and JD, both voiced strong support of the model (Liu claimed even though he can’t work as hard as he used to, he still works 8-11-6 hours). Also, I don’t think it’s a pure coincidence that the rise in discussion of this topic is happening while the Chinese tech sector is widely predicated to face its most challenging years (and thus widespread hiring freezes or downsizing across the big names).
  • As I’ve commented before, the gaming vertical is viewed as much more strategic / integral to Chinese tech giants (it’s a core part of many Chinese tech conglomerates’ business model – gaming is seen as an obvious way to monetize traffic you’ve aggregated on your consumer-facing web properties, similar to how advertising is often the de-facto model in Silicon Valley). So the 996 conversation in China almost wholesale applies directly to the Chinese gaming industry.
  • In the west, gaming is a much more insular / isolated industry (in relation to the broader tech sector), with its own history of excessive work-hours and its own label to the issue – crunch. Crunch has always existed, thanks to the combination of scope and polish arms-race, ever-high player expectations, and fixed deadlines tied to major seasonal launch windows (and quarterly earnings pressure for the publicly listed games publishers). However, in recent years, the dramatic growth of Games-as-a-Service (GaaS) threatens to further exacerbate crunch, as GaaS fundamentally means a never-ending live development & release cycle (until the project hits end of lifecycle and is no longer financially viable), which puts sharp focus on the inability of studios to meet players’ insatiable demands for content. Fortnite and Apex Legends, two of the biggest names in GaaS currently, thus both had articles discussing the content / crunch tension.
  • Underlying GaaS economics

  • It’s worth doing some dissecting of GaaS economics. Firstly, GaaS similar to many general internet services, exhibit strong winner takes all tendencies:

    • Games, in particular those in a GaaS model, have sharp network effects (the more players you have, generally the better the experience for everyone, and conversely beneath a player-base threshold the game is unplayable)
    • Games, somewhat unique to other forms of leisure (especially physical sports, which PVP games share many other attributes with), have a much higher threshold for extended time engagement. This leads to intense competition for players’ time and significant effects of crowding out alternatives. (Competitive PVP games are often intentionally designed with extremely high skill-ceilings, which reward skill acquired through a mix of natural talent and lots of practice, which creates the need for high time investment)

    This means that in the realm of GaaS, game studios more than ever are in an arms-race – the profits windfall, if you make it to the top 1%, are a step-function compared to if you are “just average”. (To illustrate: Honor of Kings was estimated to have made over $1B in Feb – the Chinese New Year month – alone.)

    To make matters worse – the means of production in gaming, the technology, hardware and tools are constantly evolving, and there is an ongoing variable cost in adopting and adapting your development to stay current; in mobile, there is also a Herculean effort required in device compatibility that is directly proportional to the addressable install-base your game can run on, which is a critical element to unlocking network effects.

    Furthermore – as the biggest games have gone mainstream culturally (current representatives: Fortnite being the prime example in the west; PUBG Mobile in a swath of emerging markets such as India and the Middle East; and Honor of Kings in China), the content requirements are ever more diverse. When you are servicing a player-base of tens of millions (or hundreds of millions in mobile), you can’t just develop for the niche hardcore audience that your initial game thesis was founded on. You have to cater to a broad array of needs, for instance social networking, expression of individuality, vanity / showing off, and the pursuit of collecting content. You also have to work constantly to keep your game fresh, with novel product + marketing ideas such as an in-game concert or tie-ins with big brands outside of gaming.

    Globalization and the China angle

    To further complicate things, whatever fragile consensus or common language (or action, such as unionizing) studios and employees in the west can reach with regards to crunch, is almost immediately thrown out the window if we add in the Chinese studios.

    Zooming out back to the tech sector at large briefly – it is obviously with a heavy dose of self-interest that in the past 18 months prominent voices in the Silicon Valley VC community have made statements such as this or the following:

    “996” is the demanding work schedule many Chinese founders have organically adopted: 9am to 9pm, 6 days a week. To us, 996 captures the intensity, drive, and speed of Chinese internet companies, many of which are moving faster than their American counterparts.

    The raw capitalist greed on display aside, there is quite a lot of factual basis to these statements. This is the by-product of a globalized economy and the comparative advantage of nations – many of the same factors that led manufacturing jobs (across many industries) to move to China (and then to Southeast Asia) are at play here. What’s relatively new to the gaming industry, but the impact of which will almost certainly be more measurably felt in the near future, is the head-on competition from Chinese studios for a slice of the global gaming market share.

    The outputs of Chinese studios have historically been limited to emerging markets (Southeast Asia, for example) or “down-market” segments such as browser-based games. But we’ve clearly witnessed a turning point the past 12 months, with the likes of PUGB Mobile, Ring of Elysium on Steam (another Battle Royale, that got a decent 8.5 review by IGN) and Arena of Valor on the Nintendo Switch. The results are mixed, and there’s no shortage of “noob mistakes”, but it’s surely a sign of things to come. And whatever gaps there exist today between these hungry new entrants and the blue blood western studios, we could see them evaporate surprisingly quickly thanks to the “intensity, drive and speed of Chinese internet companies.”

    When you are between a rock and a hard place

    It feels like so far I’ve been very long-winded at painting a grim picture for employees from the perspective of crunch. So are there any hope at all with this confluence of industry trends?

    First off, for the individual talents / employees – you have to follow your own life compass. Don’t let others or “the company” make the decision for you. In the big picture, and in the long run, your health and your family are generally more important than your passion and your work (and just to be clear, the games industry, perhaps more than most other industries, leeches off of your passion) – if you agree with this statement you should keep this in mind when you are making the short-term decisions at work. But aside from that point, I don’t think there are absolute rules. As a 25 year-old I worked the occasional 100-hour week as a management consultant, and while those days look comical in the rear-view mirror, I don’t regret doing them – I learnt some stuff and it was a memorable life experience. But I’d certainly have extreme reservations about doing anything similar these days.

    Secondly, for studios, I don’t think there are any silver bullets, but the following might be able to move the needle:

    • This is incredibly challenging to do, but having an honest conversation with players about scope, polish and the grueling realities of game development could help partially reset unrealistic player expectations. Make players demand for a better work/life balance on behalf of employees. For poor analogies, see “responsibly grown coffee beans” or “carbon neutral products” – basically anything where the cost of rising to a higher standard (offseting a negative externality) is passed on to the consumer in a feel-good way
    • Don’t compete in red oceans; go for blue ocean opportunities. Stop participating in the scope and polish arms-race. For example, work on something like Minecraft when the rest of the industry is working on something like Call of Duty; or invest in a distinctive lower-fidelity art style that is cheaper to make given your pipeline and tools. Obviously, easier said than done
    • As a more specific instance of the above – work on a low scope project. Supercell is the best example in my opinion of doing this repeatedly with great success, despite my critique of their challenges. Hearthstone is another famous example
    • Collaborate with Chinese studios. For one thing, from an economics perspective, think of it as similar to industry consolidation, which helps with reducing competition (and thus reducing the arms-race). But more fundamentally, there are deeply complementary assets that western and Chinese studios could cross-leverage. This is why I still think Diablo Immortal was/is absolutely a right initiative for Blizzard – Netease to pursue

    (…And with that, I’d like to wrap up this post, which has in its own way grown way out of scope. This has been one of the more difficult posts to write, and the longest time/energy I spent on one in years. I hope it sparks some thoughts.)

    Supercell’s challenge

    Supercell’s CEO Ilkka Paananen published an open letter / annual outlook that had some fantastic and honest discussions of his company and its products. I don’t know if gamers would care too much, but as a fellow game developer, I loved it, and had some points to comment.

    Before I dive in, a meta recap of Supercell – thanks to Finnish financial reporting rules, it has had to file annual reports and thus its performance has been in the public’s view. I cobbled together the below graph using a bunch of news reports over the past years:

    The narrative is pretty straightforward: after truly explosive business growth during 2012-2015, Supercell has gone into a period of decline. At the same time, the company has steadily added headcount, showing it is confident in its long-term future. (By all accounts it is still a very light-asset company, having less than 300 full-time employees. Just for comparison – Blizzard pulled in $2B in revenue in 2017 as well, and its headcount is easily 10x Supercell’s.)

    Back to the letter: the thing that struck me was in discussing the business operations, how much focus was related to China:

    One of the really big steps we took in 2018 was that we decided to start building a game studio in our Shanghai, China office. In the early days of Supercell, I thought that we would always be a single studio company – just to keep things simple. But I changed my mind when I got to know the Chinese games industry better. I admire how the best developers in China think about social game play and also how much new quality content they bring their players every month. There is definitely a lot us Western developers can learn. Our goal with this new studio is exactly the same as with our studio in Helsinki: create games for the global market, games that are played for years and remembered forever. We feel like this is a unique opportunity to bring together the best of two different worlds.

    And then later:

    One of our goals this year is to get better at creating more content for our players. This is a more interesting challenge to us than you might think. On one hand, we like our small team sizes because we believe that is one of the reasons we’ve been able to produce innovative games with fun core gameplay. On the other hand, there is only so much content a small group of people can do, no matter how talented they are or how hard they work. Anyway, we’ve concluded that this is something that we need to get better at. How do we keep the small team sizes that are so important for innovation, while getting much better at serving you, our players, with more content?

    We have now made the first few steps to improve this. One, we’ve partnered with some talented external studios who will be helping us to build more and better content. Two, we have invested more into tools & technology that will help us create content more efficiently. And three, we have slightly grown the size of the live teams (but only the live game teams) to be able to serve all of you better. What all of this means for a game like Brawl Stars, for example, is more brawlers, more skins and more environments being added more frequently.

    China wasn’t mentioned in the two paragraphs above, but IMO was an essential driver of the underlying business challenge facing Supercell. When Mr. Paananen wrote “I admire how the best developers in China think about social game play and also how much new quality content they bring their players every month,” I do believe this was not just paying lip service to his Chinese competitors, but an actual admission.

    Chinese developers work crazy hard (“996”), are not afraid to throw bodies at problems (some of the biggest mobile games in China often have dev + live teams of 300-500 people), and the industry has spawned a sophisticated production eco-system. What’s most noticeable is the clear production quality upgrade that I’ve talked about in the past, which is funded by a maturing value chain of outsourcing shops and specialized vendors. This enables Chinese games to afford to engage players with a seemingly endless stream of content at free or low price-points – gameplay modes, cosmetic items, quality upgrades to legacy content etc.

    In the face of this, Supercell’s games, despite often having superior & innovative gameplay, just look like demos; and the aggressive monetization of power ironically becomes a particular point of frustration for Chinese players. I say ironic – as Chinese players have no qualms monetizing for power, it is the transparent design, limited by content shallowness, that players complain about.

    Thus, Mr. Paananen’s comments about trying to strategically tackle content production, while maintaining the company’s small size (and the benefits that comes with being small). In my view this is not a nice-to-have initiative – if Supercell wants its games to succeed in China, which it seems to, this is a strategic imperative. Otherwise, Supercell games will be confined to a niche audience in China (and the business outlook limited), as it cannot retain the mass audience due to losing the content war to its Chinese market peers. If Supercell can achieve a breakthrough here – it will be the kind of boost it needs to reclaim growth.

    2018 year in review

    This post is unfashionably late by a week, but anyhow, here are a few major themes for 2018 in my view.

    Chinese apps conquer the world

    Hard to resist the hyperbole, but 2018 saw some incredible progress for Chinese apps’ global ambitions. To be sure, the biggest successes were predictably from emerging markets (very notably, India), but apps like Tik Tok, PUBG Mobile, and Knives Out have taken formidable positions (and sizable revenue) in developed markets such as US and Japan.

    To pontificate on this, I believe the following factors play a role in this outcome and ongoing trend:

    • Relative lack of investment from American competitors in these emerging markets, due to perceived lack of infrastructure and low consumer spend. There’s also the question of business model fit, where Silicon Valley’s dependence on ads performs poorly in emerging markets
    • Chinese devs’ openness to hustle as needed and over-invest (willing to be inefficient but highly effective). The Chinese playbook is to try everything and see what sticks – but do it in lightning speed, which requires a high upfront investment1. This is also against a backdrop of a tightening home market (and for games, a regulatory freeze that signaled the arrival of winter), where “going overseas” is more than ever a strategic imperative for more and more businesses
    • A potential mindset advantage – unlike American companies which (stereo-typically) prefer a “one-size fits all” approach to global opportunities (and which often really means, built for the North American market, and hoping it is compatible with other markets), Chinese devs have seen how this did not work (for US products) in China. 2 They also likely more deeply understand the value of empowering the local team to make big decisions3

    The beginning of the end, of the PC (x86) platform

    Another hyperbole, it may seem (or a massive understatement, depending on which sectors/markets you look at), but consider the following that happened in 2018:

    • Intel’s significant ongoing woes with its 10nm manufacturing processes, in contrast with TSMC’s 7nm process that has already seen mass commercialization (e.g. Apple’s A12 Bionic chip)
    • Windows on ARM is now a thing, and Mac on ARM is on the horizon too with project Marzipan

    Both of these are symptoms of the gravitational pull of the mobile ecosystem. Specifically for the PC gaming sector, I’d say these are alarming long-term signals –

    • There is a non-trivial likelihood that x86 stops being a consumer computing platform, wholly replaced by ARM in a convergence form factor like the Surface
    • x86 gaming may survive as a standalone high-end market, but will face hostile underlying hardware economics (not unlike, say, DSLRs)
    • PC gaming could possibly survive the demise of the x86 platform, but it likely will be a massive blow to legacy content: many games from the past few decades may become unplayable (cloud gaming could be a solution there, but cloud gaming has its own critical dependencies)

    At this point we have to pause and say, what are we even talking about when we say “PC gaming”? It’s not up for much debate that the underlying Wintel platform has been disrupted, but if keyboard+mouse lives on as an input paradigm, is that all that’s needed for “PC games” to live on?

    It of course is not as simple as that – the migration away from x86 will be painful at the execution level for developers and end-users. Add to this mix tremors in the distribution (Discord and Epic becoming publishing platforms, and initiating a race to the bottom in rev-share), and the next few years look quite turbulent and interesting.

    Predictable mobile clones, and unpredictable market adoption

    For the last theme, I want to go back to the world of Chinese mobile games. 2018 was a year that continued themes I wrote about previously, where every genre conceivable had an earnest mobile clone effort. The thesis is simple: Chinese players prefer the mobile platform, so every game globally that has a fresh idea on PC/console was ripe to be taken to mobile.

    What was dramatically unpredictable, was just how strong the appetite was. Going back a year, even with the benefit of having played Netease’s first stabs at mobile battle royale, I would have said this genre has severe adoption constraints on mobile, mostly centered around the input. Oh how wrong I was. Also the sheer audacity of Tencent’s playbook – to launch 2 competing licensed PUBG mobile games simultaneously – surely invited many a raised eye-brow. Now all of that feels like ancient history – more players globally play the battle royale genre on mobile than on all other platforms combined, and it’s probably not even close.

    But if this were just about PUBG Mobile, which I feel I have talked about ad nauseam, it wouldn’t be a theme. There is more – Identity V, and LifeAfter (both by Netease) took concepts from relatively niche games Dead by Daylight and Rust, and successfully launched them to a wide Chinese mobile audience. The market performance of these games, despite clear technical drawbacks (in particular for LifeAfter), shows a huge appetite for “fresh gameplay”.

    The other side of this coin also bears a mention: Chinese game devs, in particular the large in-house studios of Tencent and Netease, now have well-rehearsed processes to quickly assemble and deploy large-sized teams (100s of devs) against opportunities deemed strategic. This means that any game that does not have a mobile strategy, regardless of how irrelevant the original devs believe mobile to be for them, will quickly (3-6 months) have a mobile clone if they stumble across success. (In this regard, single-player AAA games, especially those strongly narrative driven, remain relatively safe from clones.

    This is why, despite western gamers’ loud protests, Blizzard et al must march towards mobile – it’s not just about profit-seeking; in many ways it’s about long-term business viability.

    1. One gaming example is King of Glory‘s Battle Royale mode, which if I were to guess took 100 devs a few months of work; it did not gain market traction, but I don’t doubt that the studio would make the same bet again.
    2. Example: PUBG Mobile has not only different store-fronts for North America vs Japan, but also different content.
    3. For more on this point, Kai-Fu Lee expands on it at length in his book AI Superpowers.

    2017 year in review

    Going to try to talk about the 3 most interesting themes I felt, reflecting on the past year. As always, these themes take a heavy China perspective.

    The rise of PUBG and the even bigger rise of mobile PUBG-likes

    Globally in gaming, PUBG was the biggest breakout success of 2017, coming out of left-field (what are chances of a modder partnering with a Korean studio to successfully launch a global title?), and achieving impossible heights. If you said at the beginning of a year that a Korean PC game would break 3M PCU on Steam (and easily dethrone Dota2 as king of that platform), everyone (and especially all the industry insiders / experts) would have laughed. And yet this is exactly the appeal of the industry – what seems like ludicrous ideas can completely transform the landscape in a brief amount of time.

    I wrote about what I thought made PUBG such an appealing experience; the follow-up to this success story is even more noteworthy though. In the brief span of a couple of months, a horde of Chinese mobile PUBG-likes were launched, and a couple of them, Rules of Survival and Knives Out (both from Netease) also hastily released global versions. These games have performed surprisingly strongly in key markets globally – Knives Out has over 100M registered users and 20M DAU (majority of which is from China, of course), while Rules of Survival has some 50+M registered users (and performed better than Knives Out in the US).

    If you had a chance to try any of these games, you will see that they defy all common (western) notions of what a mobile game is. They are janky and hardcore, and are almost literal ports of the PC PUBG experience. It’s easy and (to a large extent, fair) to deride/dismiss these games as copy-cats; but that doesn’t answer the question of why they are so successful (e.g. who’s playing these games? Lots of people across a far broader demographic than PC gamers, it turns out), and what PUBG should do.1

    Chinese mobile games’ huge production quality upgrade

    The production quality upgrade of top Chinese mobile games is something that has been a steady evolution, but it has hit me in the head recently just how big the improvement has been, even compared to a couple of years ago.

    Some notable games that illustrate this:

    • Netease’s Onmyoji, launched at the end of 2016 and which is currently in closed beta for North America, is a game that screams “look at my shiny anime art style and impressive VO featuring top Japanese voice talents!”
    • Honor of Kings’ (Arena of Valor in the west) 60fps update, which launched in January 2017, completely changed the game’s experience. It’s as impressive a visual update as, say, Apple’s rollout of Retina displays IMO
    • Honkai Impact 3: anime-style ARPG, from a Shanghai-based studio

    What these games represent is the coming of age of Chinese studios: these teams have mature dev and art pipelines, and have established processes that support large scale development on mobile. By large scale, I mean 200+ headcount projects (such as the Tencent mobile PUBG games in development), which I dare say I can’t think of one western dev at this scale on mobile.

    And furthermore – these large teams all have launched numerous projects, so they have gone through trial by fire. So I think Chinese studios have a firm lead here just by virtue of accumulated experience.

    The success of the Switch and what it means for mobile

    In more general gaming, the Nintendo Switch also heavily outperformed versus expectations, largely driven by strong first-party titles such as The Legend of Zelda: Breath of the Wild.

    What I personally found amusing, was the player raves around the mobile benefits of the Switch – e.g. Mario Kart parties during lunch-break at the office. Not to take anything away from Nintendo building a great experience – but this is exactly the type of thing that Chinese gamers have enjoyed for years on mobile, with core multiplayer games such as Honor of Kings.

    If you were to compare the Switch with an iPhone (or top of the line Android), the only real advantages (from developers’ perspective) the Switch enjoys are 1) physical controller 2) Nintendo first-party games 3) premium pricing for games which players have accepted. For 2 & 3, it’s hard to see that change given app store dynamics and Nintendo’s interests, but 1) is an area where I could see some material changes.

    I know in some ways this sounds backwards, but I believe firmly that controller peripherals offer a major opportunity to elevate core gaming on mobile. This is a classic multi-sided chicken & egg problem: without strong adoption of controllers, games have little interest to support/demand them; without great games, controllers can’t sell. I wouldn’t be surprised to see some shift arising from China – there are already some interesting controller plays at small scale, such as this brand of controllers with dedicated software optimizations for playing Honor of Kings / Rules of Survival.2

    1. PUBG’s China publisher, Tencent, is not sitting around to find out – it has not 1 but 2 PUBG-licensed mobile games in production.
    2. So far this is still janky, as these hardware players don’t have official support and have to operate in a grey-market fashion in terms of how they integrate with the games – a bit like the jailbreak app days on iOS.

    Revisiting mobile platform advantage

    This post, which is mostly a rehash of ideas I’ve written about previously, is inspired by the following two gaming industry stories:

    These two stories are very interesting when looked at side by side. On the one-hand, Overwatch is certainly one of the best new-game launches ever (for console/PC platforms), and has great potential to engage millions of players for years to come (in the clichéd games-as-a-service model). On the other hand, its impact (whether monetary or number of players or player-hours served) is completely overshadowed by Honor of Kings, and we are not talking about a small gap – it’s probably a 2-5x difference today and could grow to an order of magnitude difference (10x).

    In one sense, a hardcore game having fewer players than a more accessible/casual game is nothing new (top Facebook games easily had tens of millions of players). However, compared to other popular mobile games (e.g. Pokemon Go), Honor of Kings is a much more hardcore game and it certainly serves plenty of hardcore gamers.

    It is from this lens – viewing Honor of Kings as a game that’s closer in spirit and purpose to League of Legends/Overwatch as opposed to Candy Crush/Farmville – that the expert opinion in the 2nd link above is even more interesting. I have a lot of respect for the opinions voiced from the 4 industry peers interviewed – they made many reasonable points, such as concern over the average session length as a blocker for attracting players. However, I also think these opinions are founded on some assumptions about what mobile games are / aren’t which may not actually hold.

    The biggest shift in perspective required is not viewing mobile as an inferior platform versus console/PC for gaming, but rather a superior platform. Mobile does have some severe constraints (such as the lack of physical feedback for input, and input often taking up valuable screen real-estate), but many commonly-cited constraints are artificial. Take average session length – Honor of Kings has easily proved that almost 200 million players in China 1 have no problem regularly spending chunks of 20 minutes for one match, which is certainly mind-boggling for anyone used to thinking of single game length of under 5 minutes as a golden rule for mobile. If you are able to suspend belief and imagine players spending hours a day gaming on their phone (which they do in China), your perspective of what games are possible on mobile changes. Another common constraint I see is somehow phone-screens “are not large enough for complex gaming”, and devs end up optimizing for tablets2.

    Put another way, I see a self-reinforcing cycle – if devs don’t believe in the potential of mobile and blindly accept conventional-wisdom constraints, then they can only make games that operate under these constraints3.

    I’m often reminded of phone industry experts reactions to the iPhone when it was first announced 10 years ago. A lot of very smart people made some terrible predictions, when in hindsight the conclusion was so obvious. I feel more and more that mobile gaming will continue to grow and grow, and eventually force devs that prioritize console/PC to make some very painful transitions.

    1. Based on analyst estimates in this Bloomberg article.
    2. e.g. Vainglory was clearly seen as a game intended to be played on tablets, as evidenced by its marketing videos
    3. i.e. the casual arcade / casino and async strategy games that dominate the US app store rankings

    The China Dilemma

    In the past few weeks, there’s been a flurry of updates with regards to the regulatory approval of mobile games in China. First, SAPPRFT (the agency formerly known as SARFT… the lengthened acronym reflects its growth in scope) mandated that from July 1 all mobile games must be pre-approvedRumored details of the approval process (link in Chinese) quickly conjured farcical images of everything wrong with bureaucracy: developers were supposedly required to mail in 2 smartphones (with activated numbers and data-plans) and 5 DVD copies of the game package…

    More recently, another agency with growing clout (CAC, which has a say in all things Internet related, and whose former head whom Mark Zuckerberg famously hosted at Facebook HQ a couple of years ago) issued a broad set of requirements on mobile apps with regards to user data.

    Collectively, these new developments fit the macro trend of regulatory tightening in China during the past few years. For domestic developers, they represent an ever-growing cost of doing business at home, and there are already predictions that the pre-approval rule will wipe out a large swath of indie and mid-sized developers. For international developers, they represent the closing of the app store loophole in China: while in theory all games published in China have always required government approval in addition to a domestic publisher, Apple’s App Store ecosystem famously were operating outside this rule. This has enabled western developers like Supercell to effectively tap the China market without conceding publishing rights. Now it seems this is finally being reined in.1

    Taking a step back, and coming to the main topic of this post: China has become one of the most important and hardest strategy questions for any game company, thanks to the juxtaposition of the biggest market globally and an increasingly challenging business & regulatory environment. Hence, the dilemma.

    There are useful parallels to be drawn between games and other industries. Hollywood, for example, has been grappling with the same question, with even harsher regulatory restrictions (a strict quota of the number of foreign films that can be shown in Chinese cinemas per year, and seasonal blackouts where the box office is reserved for domestic films). Faced with a stagnating US box office in contrast to the tremendous growth in China, Hollywood has resorted to a mix of co-production and content pandering to get around the quotas and SAPPRFT.2 For film-goers, some of these pandering efforts definitely leave a sour taste (and often a WTF reaction), but in terms of strategy there are clearly no ambiguities in Hollywood’s direction and execution.

    Back to video-games: in contrast, foreign developers / publishers (the EAs / Activisions / Nintendos of the world) have had the luxury of ignoring China (despite its growing market size), partly because of the complete lack of presence of the console market, and heavy pirating on the PC side. For traditional AAA boxed titles, this has meant that pragmatically China was often not worth the hassle, and one could argue it was better for IP holders that Chinese fans played the pirated original version rather than a version contorted to pass local censors. With the double whammy of the rise of “games as a service” (which has always been the China market’s bread and butter) and mobile gaming, however, these foreign developers are having to have a serious thought on their China strategy.

    Without trying to be overly prescriptive – and there are no easy answers – I think the following would be a rough thought process for a developer to navigate the problem:

    1. Reflect deeply on the values of the company and the kind of games you are passionate about creating, and assess if it’s compatible at all with the censors. You would not be in a happy place if regulatory compliance requires challenging your core values, halfway through the process – decide if you are “in” or “out” upfront. For example, if you are all about freely exploring mature themes (and that is the brand you are known for), then it’s highly possible you will never get past the censors, and thus you shouldn’t worry about the market (until a change in the regulatory climate). Many Rockstar games, for example, would probably never pass this test; similarly, many war simulation games (especially those set in World War II) may also have issues with historical sensitivities.
    2. If you do think censors won’t be a big problem (and the big question is what you do in the gray area, such as a game like Diablo 3), consider next how well your business model and platform fits in China. From a market perspective, there is very little space outside of PC/mobile free-to-play, which makes things simple in a way. This doesn’t mean traditional AAA upfront purchase can’t work – Overwatch being a good recent example – but it would be a tougher sell. Offering a try-before-you-buy would probably be a good idea (e.g. Diablo 3 in China, you can play the first 4 Acts for free, the purchase decision happens when you want to play the Reaper of Souls content).
    3. You’ll notice I haven’t mentioned tweaking gameplay (except for the censorship point) – in general I would strongly advise against tailoring gameplay to any particular market. What is fun is fun. Tinkering with game design for a specific market more often than not can lead to strong player backlash, because the hardcore players are savvy and passionate, and there is ample exchange of information between players of different markets.3
    4. Identify a Chinese publisher that you can have the best alignment with, since by law you are required to have a local partner, and this is a marriage you will have to put up with. There are sharp differences in how the major Chinese publishers work and what they are good at. At work, I’ve interviewed lots of people in various Chinese publishers and their western developer counter-parts. While there are some common themes (“The developer doesn’t understand China!” “The publisher’s requests make no sense!”), it is fascinating how different the dev – publisher setup can be, down to the minute details (e.g. is it the developers’ engineers or the publishers’ engineers that maintains/updates the servers) that could make a huge difference in what the player experiences. The publishing negotiations are going to be tough, but be really deliberate here, since it’s a decision you will live with for a long time.
    5. If you are “in”, act like you are all in. Your Chinese publisher is going to offer a ton of suggestions and requests, half of which are nonsense and half of which can take your game to the next level in China. You need to have the team that can thoughtfully assess the input (and distinguish the bullshit from the diamonds in the rough), and the development prioritization in place to actually address them. An easy way to see if you are doing well or not – is China your #1 or #2 market?
    1. Which brings up the question – when will Steam get the axe and be blocked by the GFW…? Since there’s a vast amount of games in Steam that the Chinese government have strong opinions against, especially some of the best-selling ones such as GTAV… To be clear this is not something I wish for as a gamer, just that I think it’s almost inevitable given recent trends.
    2. Plus, Chinese entities are straight-up buying into Hollywood.
    3. Indeed, it’s a popular type of content on Reddit and in the corresponding Chinese / Korean forums to cross-post opinions from the other language forum. Players want to know what other players think.

    2015 Games in China – the year in review

    Partly inspired by this Game Informer piece I read over the weekend, I wanted to do a quick write-up of some of the big themes I felt specific to the games industry in China this year.

    Rise of the mobile core

    For me the biggest thing (and I was certainly late in recognizing this, though I think it’s still not talked about enough in English gaming circles) is the rapid adoption of core PC genres by Chinese players. I only wrote about this recently (when the numbers became too obvious to ignore), but the Chinese dev/publisher efforts have been underway for at least the last few years.

    To toss around some hyperbole:

    • The most played and highest revenue MMO across any platform this year may well be Netease’s Fantasy Westward Journey 1;
    • Tencent’s Crossfire Mobile only launched in December, but may already have more active players than CS:GO on Steam 2;
    • and Tencent’s Kings of Glory MOBA has already bested Dota2 in terms of PCU barely a month after launch as well 3

    Obviously all 3 data-points above enjoy the benefits of China’s huge market size / population numbers, but they are certainly still very relevant comparisons. Chinese devs have brute-force migrated their core PC genres to mobile and players have largely embraced them. The thing to look out for in 2016 is will these player-bases sustain – if so they will pose some real hard questions (innovator’s dilemma) for the respective PC titles 4.

    Esports/streaming bubble continue to inflate

    Somewhat similar to global investor trends, in 2015 China also saw continued investment interest in esports, both on the execution front (hot money flowing to teams / tournaments / related ecosystem players like streaming sites) but also on the “story-telling for the stock market” front in a roller-coaster year for the markets.

    Wang Sicong’s esports / entertainment empire building continued with the rollout of his own streaming platform panda.tv, and the formation of Banana Culture which will be the operator of the 2016 LPL, amongst other things. He also recently signed a high profile sports announcer from CCTV, a number of Korean pop acts; and the PC cafe chain he owns a stake in is building esports-themed venues nationally.

    He’s certainly not the only one; for example I’ve lost track of the number of .tv streaming platforms, and there’s been intense drama this year on the talent competition front (disputes over high profile streamers “breaking contract” to join competing platforms). Similarly, the rumored contracts/transfer fees of pro players continue to raise eye-brows, despite fairly lackluster results this year in various world championships.

    On the “selling stories to stock market” front, start-ups / VCs / public companies seem to be eating up the esports concept and are ruthless in packaging it for boosting the valuations of whatever they are trying to sell. Companies with <$100MM annual revenue are getting multi-billion dollar public market valuations based on some esports related concept, despite having probably very little visibility with players or product control. (Better yet, make it “mobile esports”, which is all the rage currently.)

    Now the hype cycle may still continue well into 2016, especially since the esports concept seems to be just getting started in the west, with the likes of celebrity investors such as Mark Cuban getting involved. But given the real-economy uncertainties in China I think there could be some quick boom / busts locally…

    (If I sound frustrated or cynical about some of these developments – not really, this is really just business as usual in the “Wild East”. The games industry is not isolated from the macro-climate and a lot of this is just indicative of the broader economy.)

    Console’s humble beginnings

    China only recently removed the console ban, and Sony and Microsoft have been diligently seeding the market (I wrote about consoles a month ago).

    In terms of competition, the early results indicate a landslide victory in favor of the PS4, with media reports of 410k units sold vs. XboxOne’s 90k units as of Dec 2015. However these numbers are certainly tiny compared to the player-base.

    The big question, same as what I wrote previously, is about content. My working analogy is consoles in China is like Hollywood films a decade ago – there’s some promise, but the difficulties of operating are high (censorship / approval / quotas etc.). This will continue to be a push-pull relationship: some “questionable” content may be able to get past the reviews with enough government relationship building, and some content will be built in mind with the Chinese audience 5.

    Additionally, there’s quite a number of local studios trying in earnest to fill the void – creating local console titles that can pass the government review – but the learning curve of building good console content may be high. On the flip side though, there are a pool of console devs in China, thanks to the local dev offices of big global developers such as 2K.

    From the gamers’ perspective, a small but hardcore group of players will continue to be hungry for AAA console content, and with the popularity of social media / streaming some of these console franchises are starting to develop a small brand. So in sum, the trend is positive, but it’s really early days yet.

    Steam’s (small) splash

    In a somewhat similar vein, Steam has had a pretty good year in China, with the expansion of local pricing / payment support in November. (Even before then, China sales of some locally priced content like GTA5 were starting to show up in data analyses.) And within the local hardcore gamer community, it’s no longer a foreign concept to participate in Steam sales. In sum, they’ve had some good growth this year and some of the local prices generated excitement with players.

    My personal understanding is that Steam is currently flying under the radar – they don’t have a on-shore presence, and certainly the vast majority (if not all) of their catalog of games have not gone through Chinese government approval. This means a generally degraded player-experience in terms of download speeds, but also the potential risk that they would be targeted by the government (e.g. if there’s a big PR scandal over some game on Steam, say angry parents complaining GTA5 was corrupting their kids). As a gamer, I would certainly not want that to happen, since Chinese players deserve to enjoy the same AAA experiences as players elsewhere.

    1. Chinese media recently reported 60MM cumulative registered players and PCU of 2.04MM in the 9 months since launch; my previous post quoted analyst estimates of $158MM monthly revenue in Nov 2015
    2. CS:GO PCU was around 800k; CF mobile announced 1MM PCU after 3 days of launch, and is rumored to have 10MM DAU
    3. Kings of Glory announced 1MM PCU and 7.5MM DAU recently, while Dota2 PCU on Steam is 1MM
    4. Disclaimer: including League of Legends, which I work on
    5. just like the current Hollywood blockbusters that are bending over backwards to meet Chinese tastes, now that they see the size of the market

    China’s unique core mobile games

    This is clearly old news, but Chinese publishers and developers have been hyper-focused on the mobile market the past couple of years, and it has come to a point where at a macro level the Chinese mobile games market is looking significantly different from the western markets.

    To present some simple data – according to a local analyst report from CNG, the top grossing mobile games of November in China were:

    (The revenue unit is 100MM RMB, so for example 10.22 is 1,022MM RMB or $158MM – that’s a crazy monthly run-rate!)

    A few immediate observations from this chart:

    • Very high revenue estimate numbers. $158MM is a crazy monthly run-rate, and even if this was over-estimated by a factor of 5 it is still really impressive
    • Heavily represented by core game genres taken from PC gaming. #1/2/3/4 are fairly typical MMOs for Chinese players (#1 & 2 are two different MMOs based on the Journey to the West lore, published by Netease); #5 is a card combat game leveraging the Kings of Fighters franchise; #6 is a mobile MOBA (that if I may say so looks quite like League of Legends…); #7 is an arcade shooter; #8/9 are the only western games on the chart, and are the typical western mobile strategy games; #10 is a casual puzzle game
    • This is in stark contrast to what’s popular in the west – take the US for example, the top-grossing games still heavily skew towards casual games like Candy Crush and core PC genres like MMO / FPS / MOBA are not highly visible

    Another way to look at the data above is to say, the biggest MMO globally in terms of revenue (and possibly player-base too) is likely a mobile MMO only available in China.

    As a separate data point, last week Tencent also launched the mobile version of Crossfire, its top FPS on PC (and a regular $1B/year game for Tencent), to some strong initial traction (they announced 10MM downloads and 1MM PCU after 3 days). The Wall Street Journal also reported last week about Tencent’s ambitions to launch its other mobile FPS WeFire in the US after some success in the Korean market.

    I think western developers have generally seen these core PC genres as extremely challenging to “port” to mobile. There have been attempts in earnest (e.g. studios like Gameloft have probably tried every PC genre on mobile), but certainly no runaway success like the Netease MMOs or the Tencent FPSes. A fundamental question that would be asked is “why would gamers want to play these games on mobile?”, and while the answer to that question generally applies to both western and Chinese gamers, there are some environmental factors that have made Chinese gamers early adopters here.

    In a sense, these games start from the same low-end disruption thesis: they offer an inferior core gameplay experience (in terms of visual and input fidelity, etc.), but excels on accessibility (anywhere, anyone – everyone has a smartphone, any time – since gameplay loops have been optimized to be short sessions).

    The diverging environmental factors that may contribute to the observed market difference are as follows:

    • Chinese gamers are generally much less sophisticated and have fewer gaming choices. The Chinese gaming market is heavily skewed towards online games – for example, none of the GOTY nominees at the recent Game Awards have been officially published in China. There seems to be a strong desire to stick to the genres they are comfortable with
    • More generally, Chinese gamers have fewer entertainment options, and gaming is the affordable entertainment option for everyone. So from a “jobs to be done” perspective, gaming in China fulfills a stronger role of connecting people socially, and gamers are used to this type of behavior (playing a MMO to be part of a community / make friends etc.)
    • The broader market context of mobile adoption and mobile tech leap-frogging PC in China. Chinese consumers have been trained to be more mobile savvy (e.g. using mobile payments) in part because the legacy infrastructure was not well-developed (and therefore no switching cost, just adopting cost). Spending more time playing more hardcore games on mobile conforms with this macro-trend

    To wrap up – I think it’s possible that China’s mobile games market today is where the western markets will head to in the future. Having played some of these chart-topping games I can say that they have found some core fun that should be universally appealing – the question is who will successfully replicate these formulas for western gamers.

    Consoles in China

    Recently the Chinese game site Gamecores did a couple of podcast interviews with the respective China heads of Xbox & Playstation. These podcasts are well worth a listen (if you speak Mandarin) not only because of the topic (how are the console platforms doing in China?), but also because of the insight into the people driving these businesses.

    First, the two podcasts (btw, I thought this site is really well made):

    After listening to both of these talks, I think the bull case for consoles in China can be summarized as follows:

    • The analogy that consoles in China are like the domestic films market 10 years ago. Back then it was plagued by piracy and entry barriers – now the China film market is rapidly becoming a close rival to the US film market, and Hollywood has found many ways to achieve success in China
    • The government stance towards consoles have shifted (and more importantly) been clarified, clearing the way for some amount of free enterprise in China by foreign console platform owners
    • Both Microsoft & Sony have deep roots in the China market, they are committed to the opportunity, and they are throwing respectable talent at the console problem. Having not really looked at this space before, I gained a lot of respect for both companies and I think their China console heads are decently speaking the gamer language 1

    Meanwhile, the bear case for consoles in China, as usual, is focused on content:

    • A substantial amount of the top tier AAA games will not get through the regulatory process to publish in China. Just this year, it’s hard for me to see The Witcher 3Bloodborne or Metal Gear Solid V come through for either ideological or sex/violence reasons, and these are the 3 best games of the year so far IMO
    • The “chicken & egg” problem of Chinese gamers’ willingness to pay upfront for gaming content. Soeda touched on this in his interview – to get high quality localization done, there needs to be confidence in sales; if sales are weak there will be fewer quality localized titles, which leads to lower supply and certainly lower sales
    • Chinese family acceptance of gaming in the living-room. For years Chinese kids convinced their parents to buy them PCs, in the excuse of studying and learning the computer. There’s no such pretense with the console (although I remember Xbox tried to build a case for that with some of its demo videos at Chinajoy last year?)

    Personally I’m rather bullish on consoles’ prospects in China. I think console gaming still represents an integral part of the core gamers’ experience and there will probably continue to be a fair amount of console exclusives that really define AAA single-player experiences (think The Last of Us). And with the advent of streaming platforms there is going to be higher awareness with the non-console gamers in China of the type of experiences that they are missing out on. 2

    Lastly, I’m also reminded not only of the China film analogy, but also Apple in China. Going back 6 years, I lamented at the time that Apple’s app services are woefully inadequately localized and I mocked them for not “getting China”. Fast-forward to now and they’ve certainly solved many of the implementation problems. I see quite some similarities in the types of challenges that Microsoft / Sony faces compared to Apple, and thus I think those are solvable problems that just need time and consistent drive.

    1. Comparing the two interviewees, surprisingly it’s the Japanese representative Takehito Soeda who comes across as more native, with a fluent Beijinger accent, whereas the Microsoft veteran Xie Weien sounds a bit like an ABC with the amount of English he’s slipping in. The Sony veteran also won the popularity vote from the comments section of the podcasts it seemed.
    2. For example, GTAV is now a staple on Chinese streaming sites, despite never officially launching in China.