As I write this, Google's announcement that they will exit the Chinese market, absent the Chinese government allowing them to operate an unfiltered search service (a concession no one expects to happen) is reverberating across the web of technology news sites. The reason, as reported, is almost too incredible to believe - an attack by hackers backed by the Chinese government on source code repositories owned by Google and other prominent high-tech firms.
Reading this story, while taking time away from my day job as part of NCsoft's security team, which of late consists to a great degree of dealing with attacks from Chinese IP addresses and proxy servers used by Chinese companies, it seemed worthwhile to devote a column to looking at how China affects the MMO market - globally and domestically. I've touched before on China's role in the real money trading (RMT ) industry, but China's influence on the MMO market outside of cybercrime and sweatshops, to date, hasn't really matched its size. Many Chinese MMOs, such as Perfect World, have been localized for the Western market, but they haven't done well, usually released in the West as free-to-play titles that don't get a lot of publicity out of banner ads featuring scantily-clad women. To date, the most popular free-to-play titles are British (Runescape), Korean (Maple Story, Atlantica) and Taiwanese (Runes of Magic). And the tale of Western MMOs trying to break into China is a soap opera in and of itself.
China's MMO market itself is huge. This is fairly obvious - China itself is huge, China's economy is huge, China's number of internet users is huge, everything China-based is huge. And in the past couple of decades, as China's economy went into hyperactive overdrive, it was almost a bad joke that every company wanted to get a foothold in China, because with so many Chinese, you didn't have to sell THAT many of anything to be successful! Right?
Well, to date, Western companies have been most effective in using China less as a market and more as a resource. One typical example is in working with Chinese art studios, or in the case of larger companies, opening their own remote art studios to create art assets for a fraction of what it would cost elsewhere - outsourcing a more expensive part of game development.
Otherwise, attempts to break into China's market haven't gone well. China's MMO market, as I said, is huge - $3 billion yearly, or a quarter of the global MMO market. This is even more impressive when you realize that most Chinese MMO players use Internet cafes and pay for their gaming by the minute, generally paying far lower fees than users in other MMO markets.
The Chinese market may be huge, but it's effectively blocked to foreign companies for the most part. Ironically for an economy that thrives on cheap exports, China's policies toward foreign-owned companies can be very protectionist indeed. This can be seen with the attempts by MMO companies to enter the massive Chinese market as well.
Part of the problem is a very Chinese concept - that of guanxi, which literally means "relationships" but more accurately is translated as "connections". Personal connections are of course a key part of doing business everywhere, but in China it is an art form that foreigners aren't expected to understand - and even resented if they do -- an interlocking set of social networks and owed favors that drive how businesses interact with one another. In such an environment, it's literally inconceivable for a foreign-owned company to gain a foothold. They simply don't have the connections - the guanxi - to function at all. Thus this is why virtually every investment in China is operated as a joint venture - because someone locally has to open the doors.
But not all of the troubles with entering the Chinese MMO market are due to a lack of guanxi. China's government, through the years has cast a dim eye on foreign-run MMOs. Part of this is obvious - there's a lot of money in China being spent on MMOs, and local operators spend guanxi with friends in regulatory agencies to make sure it goes their way. And part of it is due to a general resentment of foreign influence on "culture" in China in general. Online games especially are seen, in China generally, as somewhat unsavory, with tales of addicted users wasting away in Internet cafes after forgetting to eat. (Which, to be fair, isn't really very different from mass media coverage of gaming in the West.) Thus, foreign contributions to this are examined very closely indeed.
The most public example of this has been the troubles Blizzard has had with World of Warcraft. World of Warcraft is phenomenally popular in China - even more so than here in the West. It's also one of the few foreign-designed MMOs that has a significant share of the Chinese market. And in the past year, Chinese officials have pushed back against that - hard.
Blizzard initially made many of the right moves with World of Warcraft. It launched with a strong local distributor, The9 (local distributors, remember, being essential for the guanxi they can bring to the table when dealing with the Byzantine Chinese bureaucracy) and retooled much of the game to be attractive to Chinese gamers, such as a business model friendly to Internet cafes. World of Warcraft was the one true success story for breaking into the Chinese MMO market. Then the Lich King came.
The "Wrath of the Lich King" expansion was no less anticipated in China then it was in the West. The9 had traditionally lagged a few months in releasing expansions (after all, translating all the text accurately and well in an MMO is no small feat), so when "Lich King" launched in the West in November of 2008, Chinese players expected to be playing a bit later. But not too much later. After all, the Taiwanese version was launching only a week later than the Western version - a fully translated Chinese version of the game.
Yet, the Chinese players had a longer wait. It seemed that the Chinese regulators had some problems with the expansion. Such as, well, everything in it.
The Death Knight class, for example. It was ruled as morally unsuitable, being dependent on death and the undead, which in China is taboo - at least if you don't have the guanxi to flout that regulation like every domestically produced fantasy MMO. Oh, and the raid on the Undercity. And um, that Northrend area. Can't have that. It became obvious, very quickly, that China was simply not going to permit "Wrath of the Lich King" to launch. Blizzard then in June switched distributors, from The9 to NetEase, in large part out of hopes that NetEase would have an easier time negotiating China's maze of regulatory guanxi.
The response from China's regulatory agency was swift - not only would Wrath of the Lich King not be released, due to "unhealthy content", but, hey, you know what, since you asked? Joint ventures between Western and Chinese MMO companies were now illegal. Well, that solved that. World of Warcraft went offline in China, and both The9 and NetEase's stock prices fell into the floor.
Except that another ministry in China said that the first ministry didn't know what they were talking about. At which point... no one knew what the heck was going on any more. As I write this, the latest word is that the two dueling government agencies agree that NetEase is allowed to pay a hefty fine and then maybe, perhaps, they can launch "Wrath of the Lich King". Well over a year, and hundreds of millions of dollars in lost revenue, after it launched in neighboring Taiwan. And perhaps, sometime before the next expansion launches everywhere else.