Seemingly implausible only a few years ago, China has quickly become one of the world’s most robust markets for premium PC games.

According to Steam’s Hardware & Software Survey from April 2018, 30 percent of its users have Simplified Chinese set as their default language, second only to English at 34 percent.

China lags behind in the number of titles its users own, but more than makes up for it in active accounts (20 percent, compared to 14 percent in the United States) according to a report from Steam Spy creator Sergey Galyonkin. When it comes to creating and marketing premium-priced games for a worldwide market, China can simply no longer be ignored.

This is our first in a series of articles about premium PC games in China. We’ll be sharing our learnings about this exciting and misunderstood new market. By sharing our personal experiences, our goal is to help western developers and publishers achieve greater success in China.

This Is Only the Beginning…

PlayerUnknown’s Battlegrounds (PUBG) is of course a remarkable success story—even in China, where it prompted many to purchase their first premium game on PC (Overwatch had a similar effect two years prior). For those who have studied the Chinese market over the past decade, these are encouraging trends, but what do they mean for the long term? Who are these recent converts, and where did they come from? What were they playing before PUBG, and what finally convinced them to pay for a premium game? To answer these questions, we conducted a survey of over 3,000 Chinese participants, and combined the results with our own research to identify four key drivers:

Driver 1: Overall Changes in Consumer Spending Habits

China has of course experienced rapid financial growth over the past decade, with its GDP expected to continue growing steadily in the near future. As a result, Chinese citizens have become wealthier and are spending more on entertainment such as licensed content and games. For example, paid viewership of three major YouTube-like video platforms (Tencent Video, iQiyi, and Youku Tudou) reached 70 million in Q1 of 2017, twice that of the year before. Chinese consumers are now paying for music too, as paid online music spend increased by 59% in 2017 compared to 2016. By all indications, the increase in wealth and changing consumption habits will continue driving sales of premium PC games in China.

Driver 2: Crackdown on Piracy

The Chinese government has taken a stronger stance against piracy and counterfeits in recent years, which has helped pave the way for premium PC games in the country. By the end of 2014, the Chinese government officially released a 2014-2020 plan to combat piracy and counterfeits. Between 2013 and May 2016, 1.1 million piracy cases were processed, leading to 5,000 prosecuted cases and 78,000 violators sentenced.

Notable examples from the games industry include NetEase’s successful legal campaign against Duowan for its unlicensed distribution of Minecraft, and Japanese publisher Koei Tecmo’s victory against 3DM for pirating Romance of the Three Kingdoms 13 in China.

Driver 3: Increased Discoverability & Accessibility

Streaming and digital sales channels have not only made buying premium PC games in China more convenient for consumers, but also exposed them to other games for purchase. This is combined with the explosion of influencers in China, who introduce new games to their subscribers. Based on our survey, 25% of premium PC game purchasers learned about a new game by watching a streamer.

According to a streaming industry report by iiMedia Research, China was home to nearly 400 million streaming platform users in 2017—a number expected to reach 500 million by 2019. In 2016, Twitch-like platforms in China (Douyu, Huya, and Panda TV) grew rapidly after receiving large investments, allowing them to spend aggressively on user acquisitions and expand their viewership.

Douyu, the largest among them, has more than 20 million daily active users, and hosts streamers who garner over one million viewers every day. Earlier this year, Douyu hosted a streaming event in Wuhan that attracted 521,800 attendees, dwarfing the attendance of TwitchCon (50,000 visitors), and bigger than even Gamescom (350,000 visitors) and China Joy (342,700 visitors).

Human: Fall Flat is one of many examples of a premium PC title that has benefited from streamers in China. After adding online multiplayer support in November 2017, the game attracted streamers that played it between sessions of their main games. One notable streamer, Lan Zhan Fei, took breaks from PUBG to stream Human: Fall Flat to his one million followers on Panda TV, dramatically increasing the game’s exposure. He went on to post videos about the game on Miaopai.com, with each video racking up some four million views. Now, more than 40% of the game’s sales are from China, up from 15% when the game was first released.

The increased availability of digital distribution channels fuels the growth of premium PC games and exposure to western-developed content. More than half of premium PC gamers in China use Steam, with PUBG being a key driver for adoption. Tencent now operates two digital PC storefronts: WeGame (which currently hosts about 150 PC games, half of which are premium), and casual game portal QQ Game. These platforms accept Alipay and WeChat Pay as part of China’s trillion dollar mobile payment industry, making it easy for Chinese gamers to make purchases.

It’s important to note that some of the biggest PC games are operated on different platforms in China. NetEase operates Minecraft and all of Blizzard’s games, while Perfect World manages Counter Strike: Global Offensive and Dota 2. Additionally, there are a handful of smaller premium PC games platforms, including Cube Games—home to the likes of Subnautica and Brothers: A Tale of Two Sons in China—while others, such as Sankuo and 3DM, are essentially Steam key resellers. Given the increase in the PC premium games market, we expect more companies to build PC distribution platforms, further expanding the overall footprint of premium games in China.

Driver 4: College Students & Young Professionals

Using our survey results, we've grouped the respondents into eight segments. These segments can be found in the following chart; from our perspective, the “Mobile Grad” and “Big Time & Money Gamer” segments have the most growth potential:

The “Mobile Grad” group was born in the late 1990s. They witnessed the rise of PC MMOs when they were in their early teens, and were eventually swept up by mobile, free-to-play titles. Dominated by hardcore genres such as strategy and online RPGs with little variety, these gamers grew tired of playing the same types of games, sometimes complaining that even “new games” felt like repackaged older content. Amongst the 19-to-24 segment we surveyed, 40% cited “fatigue of free-to-play games” as a reason they started playing premium PC games.

Not unlike the rise of PC online shooters like Doom, Quake and Unreal Tournament in the west, college campuses in China are healthy environments for PC gaming. The majority of Chinese college students live in dorms, meaning they have connected computers, plenty of friends to play with, and a newfound abundance of free time now that they're no longer living under the watchful eye of their parents. Word-of-mouth is a powerful influencer for this segment, as about half of those surveyed cited “influence or recommendation by classmates or close friends” as a reason they started to play (and pay for) premium PC titles. As this group gets older and becomes financially independent, they'll spend more on these games and help fuel future growth.

Another important segment is the “Big Time & Money Gamer” group—25 to 34-year-olds born in the 80s or early 90s, who grew up in a time when many Chinese families bought their first PCs. With little income or even means of legitimately purchasing PC titles, these gamers turned to downloading pirated games or buying them at local mom-and-pop shops. More than 70% of respondents in this group admitted that they used to play pirated PC titles.

While the initial loss of revenue due to piracy was frustrating for game makers, IP owners, and distributors in the west, it resulted in a generation of consumers who are now well-versed in PC gaming and willing to pay for premium content. Gamers in this segment are economically independent, earn above-average salaries, and can now afford to buy games. In our survey, 79% of this group cited “financial independence and a willingness to pay for premium games” as a reason to purchase PC games. Additionally, 65% of this group indicated that they're planning to spend more on premium PC titles in the future.

Immense Untapped Potential for Premium PC Games in China

Although the number of premium PC gamers in China has grown rapidly, we believe the market will further expand due to the aforementioned drivers. Based on the data we collected, about 10% of the 500 million gamers in China are playing premium PC games (compared to around 20% of the gamers in the U.S. and U.K.)—a percentage we believe will rise, given that premium PC games are still in their infancy in the country. As of March 2018, the average Chinese Steam user owns only 12 games, compared to 43 games owned by Americans, according to Steam Spy. If the percentage of Chinese gamers who play premium PC games increases from 10% to 15% and each gamer’s spending increases by 50%, the premium PC market in China will fully double in size.

Surprising Similarities Between Chinese & Western Gamers

Big Overlap of Top Selling Games

Western developers have been taught for decades that the Asian market (and particularly Japan) is impenetrable, aside from a few successful exceptions (i.e. the Grand Theft Auto franchise). The good news is that the tastes of Chinese premium PC gamers are similar to those of Americans: Of the top 50 games on Steam in the U.S. and China, 26 of them overlap (while 22 out of 50 games overlap between the U.S and the U.K.). Even more encouraging is the fact that almost all of the games that made the top 50 in China but didn’t overlap with the U.S. top 50 were developed in the west. This is likely due to the fact that there are fewer local Chinese premium game developers, thus Chinese gamers are accustomed to playing western games, even without localization. Simply put, western games go hand-in-hand with the rise of premium games in China.

We've spoken to a number of western developers who have enjoyed success in China, despite not directing much attention towards the market. Whenever possible, we recommend that studios add elements that cater to the Chinese audience. For example, Behavior Digital actively solicited ideas from Chinese players when creating its Spark of Madness DLC for Dead by Daylight. This resulted in a new character named “The Doctor,” based on controversial clinical psychiatrist Yongxin Yang. This DLC received 98% positive reviews among Chinese gamers. Overwatch—the first-ever premium PC game that broke five million sales in China—recently launched a Chinese New Year event, with a new mode and cosmetic items. Moving forward, expect to see more developers creating content that caters to Chinese gamers.

Games with Online Competitive or Cooperative Modes are More Likely to Gain Traction in China

Among the top 50 titles on Steam, games with online PvP or co-op modes account for 87% of the sales in China, and 71% in the U.S. Even if we exclude PUBG, the number is still 65% in China compared to 55% in the US. This is in line with our survey results, as 42% of respondents chose “social” as one of the reasons they play premium PC games (only 6% of respondents said they play single-player games exclusively). Some games have seen sales spikes in China after adding online PvP or co-op modes. Don’t Starve Together, for instance, is more successful than Don’t Starve in China, with 16% compared to 12% of its sales coming from China.

Popular Steam Tags are Similar

We've compared Steam’s user-defined tags between top games in China and top games in the U.S., and found more similarities than differences. Popular tags such as “Open World”, “Multiplayer”, “Sandbox” and “Fantasy” are common among top games in both regions. In terms of differences, some examples include “Female Protagonist” and “Anime” performing better in China than in the U.S., whereas the “Single Player Only” tag performs worse in China.

Chinese Gamers Use Streaming Platforms and Social Networks — But Only Domestic Ones

Similar to the west, Chinese gamers use streaming, video platforms, and social networks as a means to find and engage with PC premium games. However, given that platforms such as YouTube, Twitch, and Facebook are inaccessible in China, gamers there engage with streaming platforms such as Douyu, Huya, and Panda. Because of the stiff competition, platforms are willing to pay a high price to sign top streamers to their platform exclusively. For example, streamer “Miss” signed a three-year contract with Huya for RMB100M (about $15M).

An Exciting Time for Premium Western Games in China

Like so many recent trends in China, the fervent rise of premium PC games was thought to be impossible only a few years ago. Now, not only are Chinese gamers now regularly purchasing PC games, there is virtually no stigma against western-developed games unlike their neighbors in Korea and Japan. Furthermore, given their interest in third-person action games, historical fiction, and indie games, Chinese gamers have comparatively more eclectic tastes. In the future, expect to see Chinese gamers embrace even more diverse content, and for developers in China to incorporate those learnings (yes, at times, by copying).

For every nimble indie developer that has found success in China, there are dozens more who have failed. Many western developers with games that require minimal localization, marketing, and community management have found China to be their first (or second) strongest market, while others continue to find the region perplexing and low-performing. Some developers we spoke to lament the fact that they've received an influx of negative reviews from Chinese gamers demanding a localized version, while others who have gone through the effort (and expense) of localizing their game for China have seen only small bumps in sales.

Next month we will release a follow-up article that digs deeper into the common issues faced by western developers bringing their games to China, and offer some suggestions on how to find success.

About the Authors

Samuel Lee – COO of Kowloon Nights, a project-based fund for independent developers of premium PC and console games.

Richie Zhu – Investment Associate at Makers Fund, a venture capital group dedicated to interactive entertainment.

About Makers Fund

A new equity fund focused on the impending golden age of interactive entertainment.

About the Survey

The survey was conducted in Q3 2017. We collected 2,312 samples of gamers who have bought at least one premium PC game and 1,098 samples of gamers who have never bought premium PC games. The sample set includes a variety of demographics of gamers, both genders, ages 12 to 50+, located in both metropolitan cities and rural areas in China. 45 questions were asked to understand how they learn about premium games, how they decide what to buy, and what their preferences are when playing premium titles.

For the customer segments mentioned in the article, we used the survey results to run a k-means clustering analysis to categorize the respondents, which resulted in eight segments that are different enough between the segments, and similar enough within each segment.

Special Thanks

Ryan Payton – Founder of Camouflaj, Director of République VR, Advisor at Makers Fund & Kowloon Nights.