Source: Polygon

Chinese developers are increasingly looking to make their mark on the AAA game market. This trend has been front and center over the summer’s major gaming showcases, with a new wave of titles like Black Myth: Wukong, Phantom Blade Zero, and Infinity Nikki demonstrating high production values and ambitious scope.

But what's driving this, and will these developers find success in the AAA space? More importantly, how might they reshape the global gaming landscape in the coming years?

Most readers will be familiar with Chinese gaming titans like Tencent, NetEase, and miHoYo for their prowess in the mobile and free-to-play markets. Yet this new wave of AAA projects is shining a light on a different crop of developers — on top of being mostly premium, single-player experiences made for PC and consoles.

This trend toward greater scale, ambition, and production values can arguably be traced back to two major events in fall 2020: the debut of the first Black Myth: Wukong trailer in August and the massive cross-platform launch of Genshin Impact a month later. Both events put their respective studios on the map, which had previously cut their teeth on mobile-only games. We already know how the Genshin Impact launch panned out (you can read Naavik’s prior coverage of Genshin and miHoYo here and here), but it’s also hard to overstate the hype generated by Black Myth: Wukong.

Though the Black Myth: Wukong trailer was largely intended to attract potential employees to developer Game Science, it quickly caught fire, racking up two million views on YouTube and 10 million views on Bilibili (a Chinese video-sharing site with a heavy focus on anime, comics, and gaming) in just one day. It may have worked a little too well, in fact, as the company had to ward off several unexpected visitors from its office.

As the hype built for Black Myth: Wukong, other titles would soon emerge, such as Dyson Sphere Program (January 2021), Naraka: Bladepoint (August 2021), and F.I.S.T.: Forged in Shadow Torch (September 2021), among others. Most of these games were developed by small, relatively unknown studios at the time (though Naraka was eventually published by NetEase). Many were started by former employees of Tencent, NetEase, or other major game publishers, eager to create singular, standout experiences that diverge from the typical free-to-play mobile games that had saturated the Chinese market.

Fast forward to today, and we see that even the largest Chinese incumbents are placing bets on AAA experiences. Some are seeking to repurpose existing mobile IPs for console and PC audiences, as has been the case with Tencent’s Arena Breakout: Infinite or Papergames’ Infinity Nikki. Others are leveraging their international relationships and licensing experience to attack the AAA market with huge IPs, as with NetEase’s Marvel Rivals.

Marvel Rivals
Source: Steam

How We Got Here

This surge in high-polish Chinese games has actually been in the making for several years. To understand the genesis of this trend, we must first examine the conditions of the Chinese game market.

The Chinese government’s restrictive industry oversight for the past several years has resulted in a number of meaningful strategic shifts among game publishers.

First, the overall number of games being produced for the mainland audience has been artificially capped. Publishing a game in China on any platform requires a game license from the Chinese government, issued by the National Press and Publication Administration (NPPA). The total number of approved licenses fell steadily from over 2,000 in 2018 to fewer than 500 in 2022, before popping back up to over 1,000 in 2023.

If a given publisher expects to only have a few licenses for a given year, it makes sense that it might seek to concentrate its resources into a smaller number of higher-value titles in an effort to make a bigger splash. According to Daniel Ahmad of Niko Partners, as told to Polygon, “If you are a Chinese publisher, you wanna focus on the games that are going to perform the best, as opposed to trying to publish everything.”

Games approved in China
Source: Konvoy

The government has also placed limitations on the amount of playtime that Chinese children can engage in each day. These restrictions came amid a broader wave of anti-tech crackdowns in the country, including antitrust regulations that forced large firms like Tencent to trim expenses and exit noncore businesses.

As a result of these regulatory forces, Chinese publishers were forced to look outside the country for growth. Traditionally, this sort of international expansion came through M&A, but for a variety of reasons (government intervention, geopolitical hesitancy to Chinese investment, and a desire to create new IP with Western sensibilities) that has increasingly shifted to establishing new Western studios. Both Tencent and NetEase have built up a presence in the U.S. and Canada, where they are snapping up experienced Western developers to staff ambitious new PC and console projects.

There is also an increasing appetite among smaller Chinese developers to move up the value chain. After paying their dues as work-for-hire shops or third-party developers for Western publishers, Chinese teams are increasingly taking on larger challenges, hiring more experienced teams, and targeting broader and more affluent markets overseas. They are also increasingly creating their own IP and aiming for higher profit margins (a far more achievable goal when staffing a team in China rather than in the West, where salaries and benefits can be costlier). The Black Myth: Wukong Collector’s Edition is a perfect example of this, retailing for a whopping $400.

These developers are also benefiting from the eagerness of console platforms to establish new partnerships. Both Microsoft and Sony have funded initiatives to support and incubate Chinese developers in the hopes of uncovering new hit IP and potentially establishing exclusivity deals to bolster content lineups. Sony’s China Hero Project has been especially successful in this regard, boasting at least six games brought to market and another 11 currently in production, according to its website.

Source: PlayStation

On the demand side, there is a growing appetite for console games in mainland China. Adoption has grown meaningfully since 2014, when the country’s ban on game consoles was lifted; Sony, Microsoft, and Nintendo have all released their current generation of consoles in China.

Though the console market still pales in comparison to the country’s mobile audience, it has grown large enough to support this burgeoning ecosystem of aspiring AAA teams. Niko Partners estimates the combined hardware and software market for consoles in China will reach $2.48B in 2027. There is also a meaningful demand from Chinese consumers, fueled in part by increasing disposable income.

What to Expect

At time of writing, Black Myth: Wukong is the most wishlisted game on Steam, with Arena Breakout: Infinite and Marvel Rivals both also cracking the top 20. How these games actually perform when they hit the market will go a long way toward measuring Western appetites for future attempts from Chinese developers.

While Tencent and NetEase are somewhat known among Western gaming audiences, many of these smaller, up-and-coming AAA developers are not, and don’t have the same sort of PR baggage that existing publishers do. As the saying goes, you only get one chance at making a first impression. Will these games wow Western audiences? Or will they land as duds?

I expect a mix of both, but given the relative volume of new releases coming down the pipe, at least one or two developers will establish themselves as known quantities internationally. 

Given the time required to develop titles of this magnitude, we can also assume there are several more that have yet to be unveiled. It seems safe to project that the overall quantity of Chinese AAA releases will continue to increase, barring any major geopolitical disruptions.

International relations is clearly not our forte at Naavik, but it’s still a caveat worth discussing briefly. Geopolitics can change business dynamics unexpectedly, particularly in the aftermath of an election year. We’ve already seen examples of this with India banning several Chinese-made games. If the U.S. government can restrict ByteDance and Huawei, there’s no reason they can’t do the same to Tencent or NetEase.

A more optimistic outcome from this trend is an increased understanding and appreciation for Chinese culture, history, and perspectives. Several of these titles draw inspiration from Chinese lore ("Journey to the West," a 16th century novel), genres (wuxia, xianxia), or history (such as the Three Kingdoms period), and may find audiences hungry for something new. At the very least, gamers will be exposed to fresh IPs, novel gaming experiences, and the work of talented Chinese creatives.

Western AAA incumbents should take careful notice of this surge, as there is a real possibility that, collectively, Chinese developers could cut into their PC and console market share. According to a 2023 report from Niko Partners, Chinese game companies already account for 39% of PC game revenue worldwide. Because the country’s domestic console market is still relatively small, it seems likely that the current international push will steal revenue from incumbents faster than it will spur additional market expansion in China. Even if the Chinese console market does expand materially, Western companies will have little recourse either way, as the number of international games approved in China each year pales in comparison to the domestic tally.

If Chinese AAA games make a splash in the West, it will be interesting to see what competitive response, if any, it provokes from the rest of the industry.

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