Pascal Clarysse is CMO at One Zero Digital.
Between 2011 and 2014, China was pretty much the country Western hit publishers turned to for extra growth right after conquering home turf.
The Digital Dragon was rising fast and furious, everyone was flocking to it. The pipeline for local game software production was still lagging behind, so a lot of so-called distributors built their entire business model around bringing proven foreign games to China.
To name just one example, iDreamSky took Angry Birds (prior to the opening of Rovio Shanghai), Fruit Ninja, Jetpack Joyride, Subway Surfers, Rayman and many other hot occidental IP to their local market, driving hundreds of millions of installs for them and building an IPO-worthy business out of it.
Back in the hay day, if you looked at the top charts on Qihoo 360, Baidu, 91, Wandoujia and such stores, you saw a lot of foreign titles published by distributors like iDreamSky, Yodo1 or ChuKong.
The distributors were doing a lot of work for the titles they signed. Working on the source codes to make the games more China-market friendly (lots of technical discrepancies over there), culturalisation, game economy adjustments, deployment to over 200 Android channels, live ops and a whole lot of marketing.
They were doing all that for a hefty revenue share, for a whole lot of titles, despite the fact they were turning down more than they accepted.
It came to a point in 2014 to 2015 where the competition between big leading distributors heated up to paroxysm, to the advantage of foreign publishers. A hit game with proven KPIs and hundreds of millions of installs in other territories would be chased hard and be offered a substantial minimum guarantee (MG) as an advance on future royalty revenue, as well as numbered marketing commitments in the agreement.
Those days are gone. The paradigm has shifted.
The end of the gold rush
Late in 2016, China central government extended the PC gaming rules to mobile, making it mandatory to obtain a government license to operate a game on any platform in China.
And in recent months, clamping down efforts about this rule have stepped up drastically. China gaming veterans will remember that the same thing happened to the PC market and the browser games market in the past.
Over the last 12 months, foreign games released in China only make up for a single digit percentage of the total domestic market.
In recent weeks, as everyone was gearing up for ChinaJoy, a radical change of trend has been palpable, as a direct consequence of the new rules, but also of the China bubble burst that took place between late 2015 and the whole of 2016.
As a matter of fact, over the last 12 months, foreign games released in China only make up for a single digit percentage of the total domestic market, in stark contrast with the snapshot of just a few years ago.
Besides the legal changes, local software production has also ramped up big time and the space has become hyper-competitive. To the point China doesn’t really need foreign games anymore.
This begins to be felt in the offers being passed by the distributors to foreign hit publishers. It is becoming increasingly harder and rarer to obtain a significant MG and License fees and you better have the right negotiators on your side if you want to get a deal at all.
While recently working on the distribution agreements for Digixart with Locojoy, but also for Proxy42 (Father.io), One Zero Digital clearly noticed that the negotiations were more protracted than they used to be, and it took several months to reach closure and yielded smaller MG payments than they would have just a couple of years ago.
The context has changed massively compared to the golden years, which have ended while we were sneezing.
Western publishers now need Chinese distributors more than China needs their hit Western games.