Games as services, video games

The new Asian tigers: demystifying the Asian games market

March 2006

The perceived wisdom in the west is that the rise of new Asian games markets will ultimately threaten the western development market. Doom-mongers point to Asia’s weak protection of intellectual property, impermeable protectionism that locks out western games, low-cost outsourcing providers undercutting western developers and, most frightening of all, more competition for western developers.

To adopt that attitude is to misread the impact of globalisation on the games industry and ignore the opportunities for established companies to strike partnerships with Asian companies. Here’s why:

Globalisation is now fundamentally affecting our industry. As games budgets soar, new production locations promise to lower games development costs through use of outsourcing or local subsidiaries. In turn this distributed production model necessitates new production methodologies to manage multi-country teams, a model which Ubisoft and a few others have embraced for several years. Globalisation is redirecting production skill-sets away from hands-on content creation towards managing distributed teams, both outsourced content creation as well as local specialists delivering short-term, pin-point services for our ever-more-complex technology. The days of the full-service, all-under-one-roof production studio are surely numbered.

In turn, companies are re-evaluating their skill-sets and structures. The real value of a games company is in its intellectual capital. While intellectual property is a well-established battleground, this value also resides in company know-how, in what management gurus call ‘human capital’. This is the company’s ability to distribute learning and harvest staff creativity, its knowledge of processes or infrastructure, its networks and its understanding of customers. These assets are difficult to replicate and, crucially, do not dissipate with globalisation.

So how much of a threat are these Asian tigers really? It takes a long time for a country to get good at producing games. Torrents of games degree graduates and money chucked at a nascent industry do not produce globally successful games. The creative primordial soup from which world-beating games sprang takes time to cook. Most of this cooking involves intangible stuff like understanding gameplay, learning production methodology, richness of technology innovation, and a greater appetite for risk.

While new domestic markets have produced successful companies in Asia, few of their games have succeeded globally. Besides, these domestic markets are changing. The Korean market, almost entirely PC-based, has plateaued, despite being highly profitable and producing some lucrative, innovative mass-market games. The Chinese market has also slowed and financial markets have punished former stellar performers like Shanda for lower growth and poor cost efficiency. Although Chinese studios have begun to produce their own games, rather than simply licensing Korean products, the result has been large-scale replication rather than real innovation. Even in Japan, the market has declined for seven straight years and many leading companies have consolidated in defensive mergers. Publishers there are increasingly unable to rely upon domestic sales for growth as Western tastes have shifted towards games content in which Japanese developers have little experience (crime, realism, war).

The result is a broadening global outlook amongst Asian companies. They have opened offices in the west, commissioned new IP from local talent and in some cases acquired Western developers. One example of collaboration is that of Webzen and Real Time Worlds. Webzen is one of the Korean Tigers, a cash-rich player with a big portfolio of games but few that have sold well in the west. Real Time Worlds is a large Scottish developer creating a substantial MMOG called APB for Webzen. A classic example of the knowledge economy, the partnership matches the creativity of British veterans of GTA, SCEE and NoA with the technology / network expertise and financial muscle of the Koreans to co-produce new IP with more global appeal.

Asian publishers like Webzen, NCsoft and Sega are competing with their more risk-averse western peers for the best new IP. This not only results in greater competition for western publishers largely addicted to tired sequels and out-dated production methodology but also significant opportunities for developers.

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