The $28.4b Industry in China You May Know Nothing About

One of the fastest growing industries in China is mobile games. A combination of factors have led to this phenomenon, most importantly accessibility. Most Chinese have a cell phone with an estimated 1.49 billion mobile subscribers in April 2018. (Statista) The amount of Chinese that have played games on their phones is now the size of PC gamers and consoles combined. Tencent projects that by the year 2020 esports will have over 350 million users generating $1.5 billion annually. The current market cap for Chinese Esports is around 8 billion backed by estimates that 1/5 of Chinese have played esports.

Mobile Gaming Breaks Ceilings

This was led by a massive growth in two types of games playable on a phone, MOBA and Battle Royale. Games like League of Legends and Starcraft used to control the market in China, but now games like Players Unknown BattleGround (PUBG) have taken a hold of young gamers in China.With just a cell phone you have access to over one hundred thousand games. Some claim that this is the appeal of mobile esports. The fixed costs involved are relatively low as cheap gaming PCs or gaming consoles can run $600 while everybody in China already has a mobile phone. With a mobile phone fans have the ability to watch their favorite streamer and then immediately open the app to try to emulate them.Some of the most popular are Clash Royale, PUBG, and Arena of Valor. Each of these games have created competition in their games with the best of the best advancing to the their world championship. These championships can have large sums of money involved such as Clash Royale which is allowing 7,000 players to compete for a chance to win one million dollars.Since Clash Royale left this open to the public over 25 million players signed up with hopes of making it to the end.Arena of Valor hosted a tournament in 2017 wherein the winners took home $440,000. If that seems excessive, PUBG spent a whopping $2 million on the prize pool for its Global Invitational Event over the weekend.

Lines of Revenue

What makes part of this industry so lucrative is all that happens outside of the game. Millions of fans watch the livestreams of the events, or watch their favorite player practice on stream. There, they have the chance to make donations which the streamer sees and responds to in addition to their chat room where thousands with common interests can meet and form a community. There are also physical locations where people meet in China to play. Infrastructure for Esports is beginning to come outside of the form of the traditional internet cafes. There are now esports arenas complete with stadiums that can seat over 5,000 people and incubators for gaming companies.“The government isn’t stupid – they might criticize [gaming], but the industry’s track record speaks for itself,” says Ren Li, president and CEO of Pengta Network Technology, a Shanghai-based startup that runs Amazing Center, a chain of esports centers in China.“One center used to cost [US$1.6 million] to open – now it costs half that,” he says. “In some cases, the government pays us to open a center.”One such arena is located in Zhongxian at the cost of $211.6 million. When finished, the complex will include a 6,000-capacity stadium and an incubator for gaming start-ups – and this in a town that lacks an airport or railway station.China makes up 57 per cent of the global e-sports audience – with about 3.5 billion hours of e-sports videos viewed and 11.1 billion e-sports streams delivered to the country last year, according to an IHS Markit research report. (Reuters)

1. In-Game Currencies: The game uses a fake in-game currency that players can redeem. Games use these exchanges to hide the real value of what players may purchase and to make more substantial quantities seem like the “better deal.”
2. Random Chance Purchases: These may be known as loot crates or bags, packs in different games. Players don’t know what’s in the box but are tempted to unlock something special.  Games may also offer “deals” that make these packs appear to be at a discount.
3. In-Game Items: These in-game purchases allow purchasers to have an advantage in the game. For example, World of Warcraft offers in-game purchases like pets and mounts.
4. Expiration: Similar to arcade games that had a time limit, expiration is used to encourage you to purchase to continue playing.It used to be that once you paid for a game you had access to everything within. Games for consoles or PC retailed for $50-60 and included everything while apps would be $1-10. This changed with the release of “freemium games” which were free to play but offered consumers a chance to get ahead by paying.

One of the first and most successful mobile games was Clash of Clans which generated $2.3 billion in revenue during 2016.

Freemium

There are even gaming companies with patents on micro transactions, such as the one granted to Activision in October of 2017.“Activision’s patent suggests a model that utilizes matchmaking to encourage players to make in-game purchases. One example which was detailed in the patent is the possibility for each player to have a specific profile assigned to them, storing stats such as their playstyle and most commonly used weapons. The matchmaking system can then use this to ensure that each player is sorted into a game on a map that suits their playstyle, encouraging them to further develop this style and invest into weapons or upgrades, purchasable through real-world money, that can enhance their ability.” (GameSkinny)Possibly the most unethical of mobile companies are those who market towards children. Some games market to children below the age of 15 and offer in game purchases up to $100. They know that the children will most likely be playing games on their parents’ devices which have their credit cards already linked up to the App Store. The App Store has parental controls, but they must be turned on.Roy Dobson, a father from the UK learned this the hard way when his 11-year-old son Alfie spent over $7400 on an app over the course of two weekends. His transaction history showed that Alfie had spent over $1200 in just a half hour. (TechSpot) Other parents argue that the Random Chance Purchases encourage child gambling. The product does not guarantee what the consumer wants but rather a chance to acquire it through the purchase. Parents argue that this style of purchase resembles a casino slot machine.