Why PUBG is Fresh

PUBG (PlayerUnknown’s Battlegrounds) is without a doubt the breakout PC game of 2017. Even though it’s just in early access and offers only one map (and plenty of bugs / missing features), it has established itself firmly in the world of competitive online multiplayer games.

As a relatively late adopter of the game, I’ve put in 60 hours in the game in the last 3-4 weeks, and feel I’ve had enough exposure (and luckily half a dozen Chicken Dinners) to put down some rough thoughts on why the game feels so fresh and is doing so well.

I’ll start by admitting I’ve not played the earlier Battle Royale style games (the ARMA / H1Z1 mods, or titles like The Culling), so I lack insight on what PUBG does better. Having said that, the base “Battle Royale” gameplay can be seen as an addictive mix of Roguelike single game progression and a tactical PVP shooter.

The Roguelike elements:

  • Randomized flight path = a different starting game state per run
  • Randomized loot = varied progression per run
  • Punishing perma-death for a single run = high emotional intensity (even if actual gameplay is slow)
  • 100-player PVP, general expected outcome for any run is “you lost” = very high emotional spikes when you do get the chicken dinner; not a lot of grief when you lose, in addition to the desire for “one more turn”

The tactical shooter elements:

  • Map is fixed = strategy and mastery via learning the map
  • Weapons variety + huge map with varied landscape= mastery curve of different weapons in varied combat scenarios (close quarters, open fields, hills etc.)
  • 2 / 4-player squads mode + revive mechanic = teamwork / coordination mastery

I also want to talk specifically about the game’s pacing:

  • The game has strong emotional intensity (you could die at any moment in 1 sec), but given the map’s size the mid game pacing is usually very slow (if you survived any hectic early-game chaos, which is the player’s choice)
  • This slow pacing is not boring in either solo or group modes, as in solo it plays on the player’s feeling of isolation, while in group mode it creates an opportunity for players to chat. This is actually fairly key for the game’s social experience (a team looting together and swapping gear is a good bonding experience), and helps with the game’s learning curve for new players (who are most likely introduced by friends)
  • The pacing downtime is also ideal for streaming as it gives streamers plenty of moments to interact with their viewers, which is a core part of the streaming experience
  • And ultimately, this pacing is very much at the player’s discretion – the player can choose for an exciting early-game by jumping into a high traffic spot, and can be on the offensive during mid-game hunting for kills as opposed to camping. And furthermore, PUBG side-steps the entire experience of “garbage time” in an online PVP game (e.g. a one-sided stomp in LoL or Overwatch, which you still have to play out), as the game is over when you die and you can immediately jump back into the matchmaking queue

Additionally, some thoughts on 3rd person vs. 1st person perspective:

  • While I understand high-skill competitive players’ complaints about 3rd-person being unfair (campers gain information without putting themselves at risk), it also makes the game feel much more accessible to new players (as a viewer on twitch summarized, it lowers the skill-ceiling while raising the skill-floor)
  • The devs are introducing 1st-person servers, which is an “easy” experiment to try (and shows they are listening to their audience), but this could be high risk in terms of fragmenting the game’s identity. What I mean by this is PUBG in its current form is not an esports title, and it doesn’t have to be – WWE is not sports but is entertaining, popular and commercially successful. If the devs start focusing on making the game more balanced for competitive play, it may hurt some of the organic fun that makes it fresh in the first place

Thoughts on Top Eleven

As a casual player of football sims, I’ve been very impressed with the thoughtfulness of Top Eleven, and here are some thoughts to sum up what I found interesting.

(For an overview of the game – check out this review. This is a game that’s been around for 6 years and surpassed 100M registered players in early 2015.)

At a high level, Top Eleven‘s core design thesis appears to be “how do we take the incredibly addictive gameplay of Football Manager, and make it a massively multiplayer social/mobile game?”. This spills out into the major gameplay systems:

  • Leagues made of human player-managed teams, with a long and tightly regimented progression system using the real-world concept of seasons (every 28 days in real-life form a season, and cup and league matches are distributed throughout the season so that on average you play 1-2 matches per 24 hours)
  • A 2d match engine familiar to any Football Manager veteran, and the associated tactics and training systems
  • An real-time auction-house (much like Diablo 3′s auction house) that serves as the transfers market
  • Being a free-to-play game, a set of virtual currencies that restricts player actions and provide some amount of pay for power

My first impression after playing the past 3 months, is that this is a well-tuned set of systems, and the player experience is pretty satisfying even for someone who hasn’t monetized (my basic principle for playing mobile games is to not monetize and test the design for a non-paying player). In every season I’ve competed in I’ve won the League with the limited resources available to a free player, and I’ve won the Champions League (a more competitive tournament) once. The holy grail of course is the treble (winning the League, the Cup and the Champions League in one season), and that is challenging but doesn’t seem completely out of reach.

In particular, I’d like to call out the League progression design as simple, effective and clever. It’s effectively a cohorts based design –

  • when you join you are placed in a league with players who started around the same time as you, and therefore have similar amounts of resources;
  • Every season the top 50% of the league are promoted to the next level, while the bottom 50% stay in place;
  • For each level, there are tight restrictions on the quality of player you could acquire, regardless of how much money you are willing to spend.

These measures ensure that on average the players progress through the game at a similar pace and are always in an environment where there are worthy opponents.

Similarly, the auction house design is also simple but extremely effective. There are a few additional options for player transactions, but the basic auction house is a real-time feed of player listings with deadlines, using an English auction format:

  • Players can only see and bid on listings appropriate for their level – again, carefully segregating the player population and controling the experience, and also creating a healthy economy of auctions (a higher level player’s 3-star NPC is an all-star for a lower level player);
  • The seller sets the initial floor price, and each bid increases the price by a set amount;
  • If there is only 1 bid for a listing, the bid wins when the listing expires;
  • If there are more than 1 suitor for a listing, the suitors face off in an unlimited number of short-session follow-up rounds (starting at 1 minute, and quickly reducing to 20-second rounds);
  • Each round a suitor must place at least 1 bid to be eligible for the next round, and the auction ends when there is only one bidder or none (the highest bid from previous round wins) in a round.

The catch for this system is that each bid consumes a super-rare virtual currency called a token. (An engaged, highly active player can expect to earn 30-50 tokens for free per season; in other words, a little more than 1 token per day.) This gives each action a lot of weight, and creates interesting psychological influences on players. From players’ perspective, it’s advisable to avoid a pro-longed bidding war for a single listing, but in the spur of the moment (20 seconds to make a decision), it’s easy to be trapped in a deadlock.

This design also creates room for lots of auction strategies, which creates uncertainty and fun for players. For example a basic technique is to track an empty listing and put in a bid in the last few seconds, to ensure the token is not wasted. Sometimes though, this backfires and you will see several last-second bids, which sets up a bidding war. Similarly there’s lots of mind-games in the follow-up rounds: do you wait to put in a bid in the last few seconds of a round (which puts you as the price leader for the next round, and also can surprise a rival who didn’t put in a bid); or do you bid early each round to signal that “I’ve got plenty of tokens, I’m going to win this no matter what”?

Having said all the above, Top Eleven is not without its issues. In particular, churned players’ teams pose an interesting problem. In my 3rd & 4th seasons, a vast majority of the teams in my League were clearly occupied by churned players. This meant that their neglected teams were weak and didn’t pose an interesting challenge, and in effect the lengthy League season came down to a few matches between the active players. This may be due to the inherent high churn at the beginning of the funnel (my current season seems to have the right mix of teams), but I wonder if there are better ways to solve this.


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.


Mobile Card Games

(A sort of free-flow post that goes all over the place in my attempt to get back to blogging)

For the past couple of years, app stores around the world have been invaded with a range of casual card games. I’m not referring to card games of the poker / casino variety (though that’s certainly a major category revenue-wise, especially in western markets), but rather the “collectible card game” type which has taken an interesting evolution in mobile.

One of the earlier games to hit market success in this model was probably Rage of Bahamut, which still puts on a respectable showing today (I was able to quite easily find it on App Annie’s grossing charts). But since then tons of clones have leveraged the same underlying engine, some with astonishing levels of success – Puzzle & Dragons being the flag-bearer (it has a match-3 mechanic, but the meta gameplay is the same). Various big name IPs have also been leveraged, such as Marvel (Marvel Puzzle Quest) and Star Wars (with the horrendous Force Collection mobile game). In China, “I’m MT” reached massive success with a derivative IP (it’s based on a fan-art based on WoW), and since then there’s been literally hundreds of clones, many infringing on global IP franchises such as Naruto, One Piece, and League of Legends (disclosure: which I happen to work on).

Put aside the specific puzzle mechanics in Puzzle & Dragons etc. (which I argue add some real gameplay engagement but doesn’t explain the popularity of the overall genre, especially all the games with no combat mechanic at all), the basic formula of these games is the card “level-up/evolution fusion” mechanic, the randomized card purchasing via a treasure-box, and a cheap PVE questing system.

The “level-up/evolution fusion”  mechanic is essentially a convoluted card leveling system which dramatically extends the collection depth, obfuscates the collection cost, and acts as an economy drain for in-game items that players farm up – a card can be both “leveled up” by using other cards as source material as well as “evolved” (again using various items as material) to become a different card (usually a higher-tier card of the same character). So, say you have a Tier I warrior that is level 5, he can be leveled up to a max of level 30, at which point he can be evolved to a Tier II warrior that starts at level 1 (and the cycle repeats).

The card purchasing treasure-box functions to add scarcity (and therefore collection depth) via randomization. It satisfies a psychological itch very similar to gambling (and is often called a gambling mechanic). It’s also the same primary gameplay loop that players seek out when farming items in Diablo (the chance to get some really good item “drop”).

The cheap PVE questing system is exactly that – highly repetitive, low production cost PVE engagement, with various bells and whistles on top to drive engagement (for example, some levels are only open at certain times of the day or week). Players generally farm these PVE levels to gain items that help them pursue the card level-ups and evolutions.

The fact that this basic formula has demonstrated immense market success is also revealing in other ways. For example, the fact that a large number of these games are successful without any stimulating “moment-to-moment” gameplay (e.g. Puzzle & Dragons’ match-3 combat) shows that players are engaging with them in a very low-intensity fashion (not in terms of time/money commitment, but rather attention and focus). These games are catered towards capturing the popular “fragmented time” space pursued by many mobile apps. They can be great “second screen”/multi-tasking experiences, which a high intensity game cannot satisfy.

At the same time, it’s really hard to see these games as not a fad. The formula can be extremely sticky initially but once players experience fatigue there’s very little to prevent them from churning. Some games have tried differentiating with higher production value (e.g. Million Arthur, which leveraged famous anime voice-actors) and/or IP tie-ins to create that initial draw, but I’m skeptical that players will continue to enjoy products in this space after engaging deeply with one product and breaking from it.

This brings my rather unfocused post to the other elephant in the room – Blizzard’s Hearthstone. This game has all the signs of being a massive mobile card game, despite only beta-testing on PC/Mac so far. Ironically, I get this confidence from playing the Chinese rip-off of Hearthstone which Blizzard has just taken action against. It has the right type of session length, onboarding accessibility, and gameplay depth. And it leverages a very familiar IP. (I do think there’s a lesson or two Blizzard could learn from the Chinese rip-off, especially the small client-size which I do think is a big deal on mobile.)

In short – Hearthstone may be the first massively popular “hardcore” game that is truly achieves cross-platform parity between mobile and PC/console (I’m discounting ports like XCOM because the mobile experience still has some issues). As more and more games figure this out, it may incidentally accelerate the decline of PC gaming. Once hardcore gamers form the habit of gaming on mobile, it will be harder to lure them back to PC/console experiences (demanding even higher production costs etc., which may break economics). All of this is just speculation at this point, but dramatic gaming engagement shifts may be coming.


Starcraft 2 and the e-sports eco-system, part 2

In the first post in this series, I gave a very high level summary of professional gaming. In part 2, I will cover in some more detail the Starcraft 2 pro-gaming scene.

The Game

Starcraft 2 officially launched at the end of July this year, but really, gamers have been beta playing starting February of this year. Going further back, development was officially announced in 07, but had been in stealth mode since 2003 – making it a game 7 years in the making. That’s actually quite dangerous territory in video game development, since technology follows Moore’s Law – you may easily end up in vaporware territory like Duke Nukem Forever, the granddaddy of vaporware jokes. But Blizzard is probably in a league of its own, and has always been known for pushing back release dates. And if they think the game is going to flop, they just cancel it, which is why they have a perfect track record of hits.

Anyhow, the most interesting thing about Starcraft 2, from a content perspective, is in terms of the learning curve. For any Starcraft: Brood War veteran, the sequel is immediately approachable. I would say roughly speaking about 50% of the game is the same as before, in terms of buildings, units and spells, and even the hotkeys have not changed that much. So a Starcraft veteran can start playing instantly and feel very comfortable. But that’s deceptive, because the other 50% of the game which is new completely throws off the competitive play. Few battle-tested Brood War tactics still work in the sequel, and a lot more thinking has gone into the dynamics among units – which units counter which, which work well together. It feels familiar but it really is a new game – very well designed learning curve.

In terms of sales, Blizzard announced 3 million copies sold in the first month, which is a cool ~$200MM in terms of retail value. However, Starcraft 2 is not going to be beating video game sales (except for its own RTS category), since its tied to the PC platform (PC+Mac), whereas the mega box office hits (like Call of Duty Modern Warfare) are really cross platform on the Xbox 360 and PS3 consoles. Back in the day, RTS games have been ported to consoles, but they never really work out well in user experience – perhaps you really do need a mouse sometimes. It will be interesting to see how the new generation of input devices (Kinect etc.) inspires game development – can we see an RTS using a Minority Report type of input any day soon?

The Korean Pro Scene, and Blizzard vs. KeSPA

As said before, the biggest pro gaming scene is to be found in Korea, especially for RTS games. Interestingly, Blizzard used Starcraft 2 as an opportunity to regain control of the Starcraft “platform”. What had happened previously was that KeSPA (the Korean eSPorts Association) had been a driving force in pushing the commercialization of Starcraft in Korea, e.g. establishing the pro-leagues and handing out the TV distribution rights. Meanwhile Blizzard seemed to had taken a passive stance (it didn’t co-invest, but it didn’t charge licensing fees / royalties – it allowed KeSPA to use the game for commercial purposes, including TV broadcasting).

The growth of the sport in Korea probably surprised / delighted Blizzard, except for one thing – they weren’t getting any direct revenue from it. KeSPA had established such a strong control, to the point that pro-gamers needed licenses from KeSPA to compete in KeSPA competitions, and these licenses included some very restrictive terms (e.g.what types of commercial activities and matches the players could participate in, see this recent controversy over an exhibition match in Germany) – essentially, KeSPA was monopolizing the talent and therefore the entire market.

Blizzard saw Starcraft 2 as a chance to negotiate with KeSPA over royalties / licensing. Apparently the talks fell apart, and Starcraft 2 at one point got a “mature – 18+” rating in Korea by authorities (which people speculate as a retaliation move from KeSPA). Blizzard eventually struck a deal with GomTV, which seems to have had clashes with KeSPA before (the enemy of my enemy is my friend). One big implication, though, is that the best Brood War players will probably stick with KeSPA for a while, since that’s where the real money still is – although we have seen legendary players such as “Boxer” and “Nada” join the Starcraft 2 scene.

GomTV launched Season 1 of the GSL (Global SC2 League) in late August, and Season 2 is currently in full swing. Each season has a series of pre-season qualifiers, while the main season is a straight 64-player tournament. The total prize money for the 3 seasons planned this year is about $500,000. As expected, the tournament is dominated by Koreans, with non-Korean players collectively referred to as “Foreigners” – in Season 2, I think a total of 3 “Foreigners” qualified for the main tournament.

The Pro-Scene Outside of Korea

There are many semi-pro competitions organized via Battle.net globally, and players compete in the comfort of their own homes. The pro-scene has and probably always will be about big offline events (however Blizzard hampered that with the decision to remove LAN gaming from the game, which means even “offline” events are now actually battle.net gaming). In the US, the MLG (Major League Gaming) promotes a range of games (e.g. Halo3, Tekken 6) and has incorporated Starcraft 2 as of their Raleigh event in late August. In the recent MLG DC event, the top Starcraft 2 player walked away with $2,500, which indeed is exponentially lower than prize money of the Korean scene (and anyone can register, for $60, so not really a strong pro-scene). In Europe, ESL (Electronic Sports League) has incorporated Starcraft 2 into the Intel Extreme Masters competition.

To be continued…

In the next post, I’ll (finally) talk about the community and the social media related to Starcraft 2. Stay tuned!


Starcraft 2 and the e-sports eco-system, part I

I have been playing a lot of Starcraft 2 recently. A LOT. So not really a surprise I haven’t blogged at all the past 2 months (the game launched end of July). But I thought I should put on my MBA hat (on top of the nerdy gamer hat), and analyze a bit the gaming eco-system, especially since a lot of it is related to social media.

I plan to cover this in a series of posts. This first post will give a quick overview of “esports“.


Gamers have played competitively since the inception video games (the wiki article linked above gives a historical perspective). Commercialization began in the late 90s, thanks to the popularity of First-Person-Shooters (FPS) such as Quake (which I think gave birth to a lot of the gamer vocabulary today – such as pwnage). But where commercialized gaming really took off, as most people probably knows, is South Korea. The common catalysts quoted are that Korea had great broadband infrastructure, and during the Asian Crisis of 97-98 many people took on Starcraft as a way to kill time (though this second one sounds more unlikely). Anyhow – Starcraft, the Real-Time-Strategy (RTS) from Blizzard, really took off in Korea, and starting from around 2000, Korea has had professional Starcraft gaming, involving professional teams, full-time players, television broadcasting, and around the year tournaments.

Globally, various organizations have attempted to create major global tournaments (the Olympics or World Cup of gaming). Two competitions that I believe have had good longevity are the World Cyber Games (WCG) and the Electronic Sports World Cup (ESWC). Total prize money for WCG has steadily risen to around $500,000 from $200,000 a decade ago, split over 10 or so games. This is by no means a huge jackpot (for majority of pro-gamers it’s not a sustainable career), but the growth has driven up the popularity of e-sports.

Major Game Genres

Judging by the prize money involved (check out the above links for WCG / ESWC, for prize money per type of game), FPS and RTS are by far the dominant genres, though there are a few up-and-comers such as MMORPG (World of Warcraft) and DotA (a custom map on Warcraft III, which really doesn’t fall under any major genre). Other popular genres including guitar hero, fighting, racing and sports simulation (football etc.).

Interestingly, by and large most of the competitive genres are solo play (one-on-one). While most games, such as Starcraft, support team-based play, the major competitive format has been solo gaming. This has given rise to a series of individual stars over the years, most of which only enjoying celebrity status within the community, but a few who have actually made legitimate money and fame (again, mostly Koreans – look up the Wiki entries on “Nada” Lee Yun-Yeol and “Boxer” Lim Yo-Hwan, probably the two most famous professional Starcraft players ever).

In contrast, the only major team-based genre is FPS, and especially the hit game Counter-Strike. Counter-Strike popularized the 5v5 format, which has been adopted into DotA. Of course, many FPS games are competed in solo, such as Quake.

Major Countries

In terms of where most pro-players are, this is heavily biased by game genre. Korea by and large “owns” RTS, especially Starcraft and now Starcraft 2. The Korean pro-leagues offer the highest prize money (the recent first Starcraft 2 pro-league, GSL Season 1, featured a ~$90,000 cash top prize) and attracts the best players globally, however most of the top players are Korean.

Warcraft III, another popular RTS, is slightly more diversified, with good European and Chinese players alongside the usual Korean suspects. My personal opinion is this is due to Starcraft’s overwhelming popularity in Korea, which has kept many great players away from Warcraft III.

In FPS, the scene is very different, heavily dominated by North American and European teams and players.

Business model of professional teams

Again probably pioneered by the Koreans, the professional team setup involves a manager (who also acts as the agent for his players) and anything from a handful to dozens of players. Players earn salary and are often provided accommodation and food; any prize money won is split between the player and team (I’m not sure of typical ratios).

Teams get income from competition winnings and sponsorships / advertising. Typical sponsors are major IT manufacturers (Intel, Samsung etc.) as well as specialized gaming equipment makers (e.g. Razer, which offers professional gaming grade mice / keyboards). Teams may be based out of a Internet cafe (which sponsors the team), which offers an environment to train in.

Growth Issues

There are several major issues with e-sports / pro-gaming that have hindered commercialization efforts. First of all, outside of Korea, where Starcraft is a national past-time, core gaming remains a subculture in society, mainly followed by adolescent males – the demographics base makes a big media play (such as a dedicated gaming channel on cable) very difficult. Furthermore, this base of core gamers are further segmented by the types of games and the specific games they play (again in contrast to Korea, where most of the commercialization revolves around Blizzard RTS games, such as Starcraft, Warcraft III, and now Starcraft 2). This limits the total advertising dollars and overall market size.

Secondly, the inherent short product life-cycle of video games goes against the needs to build stable spectator sports. New games, even sequels such as Starcraft 2, need to innovate on the gaming mechanics to sell; this however makes following the games harder (imagine if football or any other sport had major changes to its rules and therefore strategies every 2-3 years).

Thirdly, the steep learning curve for a spectator who has not played the games also blocks market growth. Most of these core games are incredibly complex, for example any RTS would feature 30 or more different types of units, each with unique attributes and mechanics. Also, the mechanics of certain games makes spectating boring at times (in Counter-Strike, there is usually pro-longed periods of stalemate with short bursts of intense action).


GAPP Approves World of Warcraft: The Burning Crusade

The following is my latest post on Digital East Asia.

Last Friday, a day before Chinese New Year’s Eve, China’s General Administration of Press and Publication (GAPP) finally approved (via QQ Tech – link in Chinese) Activision Blizzard Inc.’s (NASDAQ: ATVI) massively multiplayer online role playing game (MMORPG), World of Warcraft: The  Burning Crusade. This is good news for the 4 million Mainland Chinese subscribers who since mid-last year have been torn with uncertainty over the future of their beloved game.

GAPP issued a very simple statement, stating that since Netease.com, Inc. ((ADR) NASDAQ: NTES) “has taken necessary corrective measures” to address issues highlighted before by GAPP, it now has been given the license to operate the game in Mainland China.

Incidentally, one of the biggest Internet memes in China over the last month has been a fan-made film about the World of Warcraft approval fiasco, with a shocking parody of all the major players involved – Netease, The9 Limited ((ADR) NASDAQ: NCTY), GAPP and the Ministry of Culture. Veteran expat twitterer / blogger @niubi has a nice summary post of the video. (Part 1 of the video on Youtube, with English subtitles, is here.)


Tencent Continues Run as Best-Performing Stock in HK This Year with Q3 Results

The following is my latest post on Digital East Asia.

Tencent Holdings Limited (HKG: 0700(ADR) PINK: TCEHY) announced impressive Q3 results on Nov. 11th (WSJ articleTencent PR). Quarterly revenues were USD 493.3 MM, 17% QoQ growth and 66% YoY growth; profit growth was even more impressive at USD 209.9 MM (42% net margin), 19% QoQ growth and 92% growth YoY. And as a Bloomberg articlenotes, Tencent has been the best performing stock in the Hang Seng Index this year.

Not all segments were growing though. While Internet VAS (QQ Zone, QQ Games) grew 22% QoQ and represents 78% of total revenue, Mobile VAS dropped 5% QoQ and accounted for 13% of revenue, and the outlook continues to be uncertain despite 3G networks being rolled out. Online advertising grew 20% QoQ and accounted for 9% of revenue, however, outlook for the next quarter seemed poor:

“Sustainability of the recovery in the advertising market is still uncertain… We also expect our search-based advertising revenues to reduce substantially due to amendments to service contract with our partner and the gradual transition into our self-developed search engine.”
– Mr. Ma Huateng, Chairman and CEO of Tencent Holdings Limited.

The ad recession issue aside, Tencent’s fundamentals look great. Active users of QQ increased to 485MM (in comparison, Facebook has >300 MM); peak concurrent users were 75MM (in comparison, Skype has around 20MM peak concurrent users). In terms of monetizing its massive user-base, Internet VAS paying subscribers reached 48MM, a 20% QoQ growth – this is one of the drivers of that impressive top-line growth.

The other driver is of course online games, which generated 58% of Internet VAS revenue (45% of total revenue) and grew 23% QoQ, though Tencent management noted that it was driven by strong summer holiday seasonality. Management also notes that they were facing strong competition from SNS casual games. As an interesting side-story to this, last month rumors surfaced (and then denied) that Tencent had acquired the developers of Happy Farm, the ridiculously addictive casual game that inspired Zynga’s FarmVille. Some people estimate that Tencent was grossing USD 8MM a month on Happy Farm, which would be strong reason to acquire the company while it was still small. (Tencent’s M&A head was actually at Berkeley Haas last week for recruiting, though he was very secretive about their deals, only commenting that they have been very active.)


Showdown in China: GAPP Rejects Netease’s WoW Application – MoC Rejects GAPP Authority

The following is my latest post on Digital East Asia.

There has been a ton of new development in the ongoing saga of the General Administration of Press and Publication (GAPP), the Ministry of Culture (MoC), NetEase.com, Inc. ((ADR) NASDAQ: NTES) and its troubled World of Warcraft (WoW) operations in mainland China.

On November 2nd, GAPP put out a notice on its website (link in Chinese) that it has formally rejected Netease’s license application for WoW. (Below quotes my translation)

Today GAPP announced that it has terminated the approval process for World of Warcraft (The Burning Legion), and has rejected the application for World of Warcraft.

During the approval process, GAPP took into consideration the amount of data being transferred during the changing of the operators, and to protect consumers’ interests, allowed EaseNet [the Netease affiliate operating the game] to operate the game in private beta since July 30th while working on removing the inappropriate content within the game, with the focus on restoring consumers’ data. It was clearly stated that EaseNet could not charge users or open the game for new user registration during this period, which EaseNet acknowledged and fully accepted.

However, EaseNet has opened user registration and charging for use since Sep 19th, without approval from GAPP, which is in effect publicly operating the game, and which has seriously violated state regulations that online games and foreign games must receive approval from GAPP prior to launch. Therefore, GAPP has terminated the approval process and has rejected the application.

…EaseNet must cease its illegal operations immediately, and stop user registration and fee collection. Based on the conduct of EaseNet, GAPP will determine the appropriate disciplinary action, including terminating EaseNet’s ISP rights.

The night of the 2nd, Netease announced a “scheduled update downtime” and WoW China servers went offline for 12 hours. They were back in operation as of the afternoon of Nov 3rd.

Also on Nov. 3rd, during its regular press update on illegal online games, Li Xiong, the chief of the Department of Cultural Markets at MoC, went on record stating (link in Chinese):

“…Both GAPP and MoC should closely follow State Council’s prior regulations…GAPP’s action to reject the WoW application is a clear violation of its jurisdiction… the MoC approved WoW on July 21st, therefore the game is operating legally… We will report our work upwards to the State Council, per usual communication channels…”
– Li Xiong, Chief of the Department of Cultural Markets, Ministry of Culture

The last sentence hints that a final resolution will probably only come via a verdict by the State Council. This ongoing drama of course not only affects Netease; indeed all online gaming operators in China are closely watching to see how the mess untangles, and therefore who they need to lobby to in future.


Rumors Abound On China’s Web That Wrath of the Lich King Will Be Released “Soon”

The following is my latest post on Digital East Asia.

Phoenix TV and various other Chinese media, as well as lots of Internet forums, are picking up on rumors that the long-awaited World of Warcraft (W0W) expansion Wrath of the Lich King (WLK) is close to release.

The rumor is interesting considering the issues that NetEase.com, Inc.((ADR) NASDAQ: NTES) has had surrounding the operations of the massively multiplayer online game in China. The fact that it’s caught between an apparent power struggle between General Administration of Press and Publication (GAPP) and Ministry of Culture (MoC) has made the future of the game extremely unclear. Indeed, an article on People.com.cn (the state owned paper) claims that many retailers of point cards are not selling WoW cards and waiting for the situation to clear, which means that even if fans wanted to play (and pay), they are currently having a hard time getting access. In addition, Netease has put a hold (from official Chinese WoW website, link in Chinese) on registering new characters in certain servers. This could be purely due to technical reasons, but one could also speculate that it’s due to uncertainty regarding the game.

While it’s probably not good practice to over-analyze Internet forum rumors, Phoenix TV is generally a well-respected source. According to their article, “informed sources” claim that Netease CEO William Ding has resolved the company entity issue regarding the JV between Netease and Activision Blizzard Inc. (NASDAQ: ATVI) which operates WoW in China. According to Chinese regulations, foreign companies are not allowed to operate online games in China; sources claim that William Ding and the Netease team has purchased shares of the JV to overcome the regulatory hurdle.

At the same time, Netease and Blizzard has finished most changes to the WLK game content as required by Chinese regulators (including major changes to the “Death Knight” character). Phoenix TV’s sources claim that WLK could be online for testing in as soon as 2 weeks, while other publications have pointed out that the game still needs to go through the approval process by the MoC, which could last as long as 60 days.

Regardless, it seems that William Ding has the support of the MoC. Now the question is how GAPP will respond to these new rumors, especially if any of them materializes.