What Games to Make in the Future?

The Rises and Falls of China’s Game Industry

Wang Yahui

Posts amp; Telecom Press

September 2022

199.80 （CNY）

This book is a popular book that systematically sorts out the development of China’s video game industry. The book introduces the development history of China’s early game market， single-player games， online games， web games， mobile games， and China’s e-sports industry in chronological order， depicting the evolutionary trend and development path of China’s game industry.

The competition in China’s game market is brutal， in addition to Tencent and NetEase. The remaining share is also being watched closely by many listed companies. According to TalkingData， the number of domestic mobile game providers reached 34，000 in the first half of 2017， with the growth rate slowing down to 0.2% but still growing， which means that competition is intensifying year after year. In this situation， the easiest members to drop dead in the game market are companies that lack differentiation， and it so happens that Chinese game companies can easily fall into the trap of homogenization.

In 2015， NetEase’s “Immortal Conquest，” a strategy mobile game， was a rarity in a market dominated by card games at the time. The game had a long lifecycle， remaining at the top of the charts until 2020. For mobile games that generally have a short life cycle， this could be considered a miracle.

At the end of 2017， “Mr. Love： Queen’s Choice” was launched， and its monthly revenue broke 300 million yuan two months later; a “card + text-based stimulation” type of game， the game style is a unique hodgepodge. Before that， most game developers didn’t think much of text-based games， believing there was no market for such games in China. At about the same time， a Japanese game called “Traveling Frog” （旅かえる） suddenly hit the Chinese Internet market， and people started to “raise a child” in the game -- albeit it was a frog. Almost all the content of the game was random， so it was also jokingly called a “zenful” game. One month later， the number of downloads of “Traveling Frog” exceeded 100 million， and it even reached the number one position on the Apple AppStore.

In 2019， a startup company named HyperGryph launched its mobile game “Arknights.” This game adopts the ACGN graphic style， and the combat mode is inclined to tower defense. The innovative combination and the extremely high quality of the game made it explode rapidly. The revenue in the first month exceeded 200 million yuan， followed by several consecutive months with monthly revenue of over 300 million yuan. As a startup company， it is a very encouraging achievement.

These phenomenal games illustrate a point to Chinese game companies： players are tired of the existing games， and the mobile game industry needs new game types and content. In a similar vein， the markets for browser games and desktop games have largely stagnated， and the main reason behind this stagnation is not that players don’t play games anymore but that they feel there is nothing new for them and that the homogenization of games is too much. In this situation， for large companies， the cost of trial and error is low， so investing money and teams in new areas may not necessarily make money， but there may be new opportunities. As for small companies， it is difficult to compete head-on in areas already occupied by large companies， so there may be very good opportunities to choose some byways to do games. Sometimes， the unpopular areas are just not discovered by players， which does not mean that no one will play in the future.

Technological revolution： VR and AR markets

In his work Tactile Media， Japanese scholar Nakajima Seiichi summarized the different stages of media： the earliest media were visual media such as newspapers， books and magazines; after that， there was auditory media such as radio， telephone and records; on this basis， there emerged audiovisual media such as TV， movies and videos. The form of games is called tactile media， which is a media that transmits information in three dimensions： visual， auditory and tactile， which means that games are a comparatively more advanced form of media.

There has always been an interactive revolution of “tactile” within the gaming industry. Whoever has mastered this revolution may become the leader of that era or at least make a lot of money. Some of the more well-known revolutions in the history of gaming are： Magnavox Odyssey connected the handles to the TV with a box; Nintendo made a morphing controller on the Famicom -- the light gun; Konami’s Dance Dance Revolution and instrument interaction simulation for “Taiko no Tatsujin” and “Guitar Hero.” The most recent revolution of game interaction， often overlooked， is the promotion of the Wii and Kinect for home somatic game consoles， allowing gamers to “rise up” from now on. What is the next revolution？ It shall be VR or AR.

VR is short for Virtual Reality， and AR is short for Augmented Reality. In a nutshell， VR is something purely virtual that users see-through glasses， while AR is something that users see through glasses with virtual elements added to reality.

In 1968， Harvard professor and Turing Award winner Ivan Sutherland made a head-mounted display device called the “Sword of Damocles.” The device’s display equipment was placed on the ceiling above the user’s head and connected to the user’s headset through a connecting rod; the user could adjust the headset to control the direction of the content displayed. These two products are now the prototype of most VR and AR devices. In the decades that followed， VR technology evolved slowly.

On July 21， 1995， Nintendo launched a VR product called VirtualBoy （VB）， with 700，000 hosts prepared for the first release， priced at 15，000 yen each. This was Nintendo’s first attempt at a VR product， but the results were pretty poor， crashing after only four weeks of release， with a large number of dealers selling at a discount and refusing to place new orders. Nintendo could not do anything about this situation. The final sales of this embarrassment product were 140，000 units in Japan and 630，000 units in North America， while the pre-launch expectation was to sell 3 million units of the console and 14 million sets of games in the first year. This proved that the use of new technology is never an easy task.

In August 2012， 19-year-old Palmer Luckey put OculusRift on the crowdfunding platform Kickstarter for fundraising， and one month later received the support of 9，522 consumers， gaining $2.43 million in funds， and this product was successfully developed. In August 2013， John Carmack announced that he was joining Oculus as CTO in a part-time capacity， and later even left idSoftware， which he founded 22 years earlier， to officially become a member of the Oculus team. Two years later， Oculus was acquired by Facebook for $2 billion， which gave hope to a lot of people. With this event as a dividing line， a large number of entrepreneurs and investment companies began to enter the VR field thereafter.

Compared with VR， AR technology didn’t seem to get as much attention， but AR breakout products came much faster. In July 2016， Pokémon GO was officially launched. Within one month， it was downloaded 130 million times and earned more than $100 million， and three months later， it grossed more than $600 million， making it a super hit in the whole gaming industry in 2016. Pokémon GO allows players to see “Pokémon” in the real world and capture them， but the game also proves that without an attractive game mode， relying simply on IP and gimmicks is not a long-term solution， as Pokémon GO lost 90% of its players after one year. From the technical point of view， Pokémon GO’s AR effect is not too difficult， and no mainstream game has tried this display mode afterward.

From 2014 to 2016， because of the explosion of VR and AR concepts， a number of startups emerged in both China and the US， and a number of companies specialized in investing in such projects also appeared. However， by 2017， both the number of companies and the amount of investment decreased abruptly， mainly because the whole VR and AR industry lacks successful cases that can “tell a story，” and there was no platform-level company that emerged in this field during these years， which made investors lose confidence. Though the main problem was the limitation of technology and cost， such as VR， where the cost is too high on either the display screen or the gyroscope. These technical and cost issues have not currently been solved by any of the startups.

According to the “China Game Industry Development Report 2019，” the marketing revenue of VR games was 2.67 billion yuan， up by 49.3% year-on-year， and the user scale was 8.3 million people， up by 22% year-on-year; the marketing revenue of AR games was 0.7 billion yuan， up by 64.3% year-on-year， with a faster growth rate， and the user scale was about 1.4 million people， with a year-on-year growth of nearly 15%， but the user base was still relatively small. At the end of 2017， the VR versions of well-known IP games such as “DOOM VFR，” “Fallout 4 VR，” “The Elder Scrolls V： Skyrim VR，” “L.A. Noire： The VR Case Files，” “The Talos Principle VR，” etc. were released one after another， and in 2020， “Half-Life： Alyx” came out， which more or less stimulated players’ desire to buy associated equipment.

VR and AR technologies are still immature and lack success stories in the Chinese market， but neither prevents these two technologies from providing enough room for the imagination of Chinese game hardware providers and game developers. One day， I believe there will be local VR and AR game companies in China that will develop games with clear Chinese cultural symbols.

Wang Yahui

As an independent game developer， Wang Yahui has been a core gamer for 20 years. His crossover experience as a game developer， gamer， and entrepreneur in the animation industry has enabled him to form a unique observation perspective on the game industry in China. After returning to his game development career， he tries to compile his notes and thoughts accumulated over the years to provide an informative reference for China’s game industry.