Cross-Border Collaborations and Launches Accelerate

I think cross-border collaborations and the distribution of games (in dollar terms, not number of games) between China and the world will grow significantly in 2021. 

One important topic in China’s video game industry over the past few years has been the implementation of the ISBN and its vast implications. For the uninitiated, the ISBN is the formal government license games need to get in order to be approved for sale on app stores. Domestically a lot of smaller studios weren’t able to survive the winter, foreign games got locked out of the market, and even Tencent felt the negative ripple effects. Needless to say, the ISBN regulation shook industry players both domestically and globally, especially when Apple’s App Store took down around 48,000 games without the ISBN at the very end of 2020.

Over the past few years, Chinese studios had to change rapidly. One of the second-order effects of the ISBN on Chinese studios is that it forced them to focus their efforts on higher quality productions and global markets (often both simultaneously). After all, there is now lower incentive to produce low quality knockoffs with poor retention given the extra resources needed for the ISBN. And it is now easier and quicker to launch globally, while waiting for ISBN approval within China.

The result? Currently ~20% of the US’s top 100 grossing titles are from China. I think Chinese studios with their new found confidence in the global markets will continue this trend in 2021, and by end of the year probably ~30% of the US’s top 100 grossing will be Chinese. There will be games that innovate (like Genshin Impact, Archero), PC-to-mobile ports (like PUBG, Call of Duty: Mobile), and high-quality copycats (you know who you are). There will also be more collaborations on IP, development, and distribution. Two key examples are Diablo Immortal (developed by NetEase/Blizzard) and Call of Duty: Mobile (developed by Tencent, publishing regions split between Tencent, Garena, and Activision).

As for international companies looking to distribute games in China, it became clear that they needed to get serious about applying for the ISBN back in June when Apple first removed 15,000 games from its App Store. The previous default was to publish on Apple’s App Store while giving up Android. Assuming that it takes a minimum of 1 year to apply for a foreign ISBN (which is the consensus view), we’ll see quite a few international top grossing titles receive their ISBNs soon and start competing in China. For example, Roblox, Candy Crush, Dead Cells, Legend of Tomb Raider, Marvel Super War, Seekers Notes, Elders Scrolls just got their ISBNs in Dec 2020 and will be ready to rock 2021.