Korean game companies are making a push to enter the Chinese market, a lucrative destination with a large player base.
China’s Game Approval Process: A Shift in Strategy
China grants foreign game companies “foreign publishing licenses” to allow them to operate after a review process. In a move signaling a change of heart, the Chinese government, which previously blocked licenses for new Korean game IPs, is now allowing major Korean game companies to release their titles in China. There have already been successful cases of Korean games launched in China during the first quarter of this year.
K-Games Target China’s Lucrative Mobile Market
The mobile game sector is a strength for Korean game companies, and China is the world’s largest single-country market in this area. This makes it a “cash cow” market that game companies hungry for immediate profits can’t easily ignore. However, some industry experts argue that due to the specific regulations of the Chinese market, where entry is only possible through publishing deals with local companies, the actual profits may not be as high as the effort invested, unless the game achieves massive success. There are also concerns that even if Korean games are successful in China, Chinese game companies distributing them will reap more benefits if the structure is simply to sell the IP to the Chinese companies.
Recent Developments: Korean Game Companies Secure Licenses
According to industry sources, on the 5th of this month, the Chinese National Press and Publication Administration (NPPA) issued foreign publishing licenses for 15 foreign games, including Pearl Abyss’s popular title “Black Desert.” Pearl Abyss signed a publishing contract with Tencent China and is preparing to launch the game in China. NCSoft received a license for “Blade and Soul 2” last December and is working on localization with local publisher Tencent with the goal of releasing it by the end of the year. Wemade also received a license for “Mir M,” one of the company’s major IPs, last year.
Korean Games Top Charts in China, But Challenges Persist
Netmarble previously selected Tencent as its local distributor and released the game “Second Country: Crossworld” in China last February. Nexon released “Dungeon & Fighter Mobile” in China on the 21st of last month. The game has been ranked No. 1 in sales in the Chinese App Store since its release and has maintained the top spot ever since.
As Korean game companies’ entry into China accelerates, there is analysis that the influence of Chinese game companies (distributors) such as Tencent could grow even further. To obtain a license in China, it’s necessary to acquire an “Internet Cultural Business License” and an “Internet Publication License,” among others. However, these licenses cannot be obtained by foreign companies alone. Foreign companies cannot distribute games alone and must cooperate with publishers in China.
Navigating the Complexities of the Chinese Market
In addition to the license, an ICP license is required to provide online game services in China. The ICP license reportedly requires a foreign investor’s shareholding ratio of less than 50% and the acquisition process is very complicated.
As a result, there is a growing trend of Korean game companies simply selling their IP to Chinese game companies. The industry is aware that the typical distribution ratio between publishers and developers is 7:3. The developer’s share may increase depending on the IP’s influence, but the structure is such that the local distributor takes at least half. The more successful a K-game is, the more profits the Chinese game company that services it makes. Chinese game giants are reinvesting these profits in game development and manpower acquisition, and are achieving significant results in the global market. According to Sensor Tower, Chinese games swept the top three spots in global mobile game revenue last year.
Shifting Tides: China Resumes Issuing Licenses
The Chinese government had virtually stopped issuing licenses for major Korean games in the aftermath of the THAAD incident, but has resumed issuing licenses actively since 2022. Since the suspension of license issuance for Korean games due to the THAAD issue was prolonged, the game industry has been demanding increased government support.
Hope for Further Market Opening
There is also anticipation that the expansion of China’s market opening, including the expansion of game license issuance, may be seen as Korea and China agreed to resume negotiations on a free trade agreement (FTA) last month. The argument that Korean game companies should also open up a way to service games in China in the medium to long term is gaining momentum.
Conclusion: A Balancing Act for Korean Game Companies
Overall, the Korean game industry is facing both opportunities and challenges in the Chinese market. While the market is large and potentially lucrative, there are also significant regulatory hurdles and competition from local companies. Korean game companies will need to carefully consider these factors as they develop their strategies for entering and succeeding in the Chinese market.
