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What are Chinese games why technology giants are attracted to video game studios?

China’s tech giants are snapping up video game studios as the country’s gaming market starts to rival even that of the US.

A busy food court in central Shanghai and a trio of teenagers sit around a dining table, eyes locked on their smartphones. At first glance, it could be any scene from any modern city but what sets this group apart is the language they speak: Mandarin, Cantonese, and English. These teens hail from across Asia – Hong Kong, Singapore, and Malaysia – and communicate regularly online because of one shared passion: video games. They play them daily, swapping tips over We Chat – China’s equivalent of WhatsApp – and often meet face-to-face at weekly gatherings. For many gamers like these three friends, China has become a breeding ground for gaming. Gaming culture is deeply ingrained in the country’s internet industry, which has been quick to adapt to a growing youth market that prizes online leisure activities. In December last year, Ten cent Holdings’ Honor of Kings – an addictive multiplayer title based on Chinese historical characters and ancient mythology – raked in US$1 billion (S$1.3 billion) over the course of a month.

That success helped push parent company Ten cent’s shares up 7 percent since its November debut on the Hong Kong bourse, giving it a valuation of more than HK$1 trillion (S$180.7 billion). This year alone, China’s tech giants have made several purchases in the industry including Alabama Group Holding affiliate Ant Financials US$8.6 billion acquisition of domestic mobile game distributor and developer You Interactive.

You operate the popular online multiplayer game King of Glory, which has its own legion of fans, known as King Glory Kings. The buying spree goes beyond the mainland to Hong Kong, where Ten cents is snapping up local talent with a US$400 million investment in interactive entertainment studio Fifth Journey. But it’s not just about gaming. This year also saw e-commerce giant Alabama make its first video game purchase by leading an undisclosed amount of funding into U.S. firm Kebab Inc, best known for Marvel Contest Of Champions – another title with Chinese mythological ties that boasts more than 100 million players globally. Alibaba declined to comment on the size of the investment, but according to media reports, it was in excess of US$120 million.

China’s love affair with gaming has been long-standing. Since the early 2000s when online games boomed, gamers have flocked to multiplayer titles that offer rewards for collaborative play. This led to heavy losses at gaming companies as marketing expenses ballooned in an attempt to attract new players and retain existing ones. As a result, many firms were forced to launch IPOs on global exchanges where they received funding from overseas investors.

Enter China, which offered discounted labor costs and helped businesses recover their financial footing through gauche – a lottery system using randomized virtual item prizes that is popular in Japan. The market quickly became one of the largest outside of Japan and South Korea, where the gaming industry was born. In China, video games are bigger than Hollywood, according to Hong Kong-based Synopsys analyst Ross MacMillan. According to a recent survey by report publisher New zoo, 1.9 billion gamers from China’s 1.4 billion population will help drive global revenues to US$137.9 billion this year – an 11 percent increase over 2016 and one that makes up about 38 percent of all sports earnings globally. The bulk of those earnings come from players in Asia-Pacific who make up nearly half the total regional count at 28 percent (excluding Japan), while North Americans account for 21 percent and Europeans 16 percent.

One particular product that has taken Asia-Pacific by storm is Honor of Kings, which has frequently achieved the top ranking for revenue on China’s iOS App Store. The title also holds a respectable third position on Apple’s global phone revenue chart and recently launched globally under the name Arena of Valor. The honor of Kings’ runaway success led to Ten cent holding talks with Walt Disney Pictures and Universal Pictures for an adaptation based on the multiplayer role-playing game (RPG) in 2016, although no details have been made public since then. Earlier this year, Ten cents added Chinese actor Jet Li as Honor of Kings’ creative director, leading discussions at its mainstream We Chat messaging app about how to promote sports among celebrities. Sports are so much more than just playing games now, said MacMillan. Gaming companies, publishers, and brands are looking at a lot of different ways to monetize games – including content creation, live events, merchandising, and sponsorship. It’s a huge opportunity for any company.

While big-name Western companies have already entered China’s video game market – many via the country’s Shanghai free trade zone – it has been mostly on their own terms or through joint ventures with local partners. In 2015, Ubisoft announced plans to create a dedicated studio in Shanghai named Tina Ying to work on online titles such as Might & Magic: Duel of Champions. Meanwhile Activision Blizzard partnered with Net Ease to launch overwatch in China last year by offering gamers limited editions of the first-person shooter designed specifically for the region. It was a move that paid instant dividends, with the game reaching 20 million global users within nine months, according to Synopsys’ MacMillan.

Sports are so much more than just playing games now. Gaming companies, publishers, and brands are looking at a lot of different ways to monetize games – including content creation, live events, merchandising, and sponsorship. It’s a huge opportunity for any company.

As such examples suggest, Chinese sports could offer attractive opportunities for local firms seeking to develop their own IPs in the market without having to navigate additional layers of legal protection. As well as recognizing this potential in Western markets like China, South Korea and Japan where mobile gaming has taken off, Alibaba set its sights

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