Almost all major game manufacturers are struggling to transform, and capital, innovation and even luck all determine whether a manufacturer can successfully develop a high-quality game with a hit.

Author / Deep Sea

Produced by/New Pick Business Review

ByteDance has "moved the knife" on the game again. On May 31, ByteDance announced that the game business ushered in an adjustment, and Zhang Yunfan, the former president of Perfect World's game business, will serve as the game business, and ByteDance also summarized the goal of the next stage of the game business in an internal email, that is, the game business has entered the second stage, and it is necessary to be more patient to do a good job in product development and operation, and make fun games for users.

The latest move in ByteDance's game business just reflects the current development trend of the game industry. In the past, the horse racing mechanism of launching multiple games a year was no longer recognized, and today's game companies have begun to believe in winning by quality, shouting the slogan of "high-quality".

This is best reflected in the fact that companies such as Bilibili and Tencent are cutting some projects. For example, in 2021, Bilibili Games will build six self-developed studios, but by the end of 2023, only Echosaisi Game Studio and Time Sands Game Studio will be left in Bilibili's self-developed game studios.

Tencent CEO Pony Ma's previous criticism played a role, and Tencent made a series of moves in order to implement the strategy of "focusing on high-quality products", including extending the development cycle of some games by 6-18 months, and TiMi Studio Group cutting the underperforming J2 studio.

In terms of "competing products", all major game companies have a common goal, that is, to come up with a second "Genshin Impact". In order to achieve this goal, everyone is exploring the route that suits them, some companies have played a good card, some companies have not yet touched the door, and some companies have withdrawn from the competition.

First, ByteDance re-"volume" quality

In terms of game business, ByteDance and Tencent are almost the reconciliation of the century. When the media revealed that ByteDance sold two projects to Tencent, the live broadcast rights of Tencent's popular mobile game "Honor of Kings" were also fully licensed to Douyin. And in 2019, Douyin was ruled by the court to ban the live broadcast of "Honor of Kings".

Earlier, a number of Tencent's games have resumed streaming on Douyin. In particular, Tencent's hope for the mobile game "Yuan Dream Star", nearly 40% of the advertising materials in the first month of its launch were invested in Byte's advertising platform "Pangolin", and only 12% went to Tencent's own "Youlianghui".

Tencent's various behaviors show that it needs bytes of traffic very much. Companies such as NetEase and miHoYo will also actively buy volume on Douyin when launching new games. But in an era where content is king, bytes of traffic are just icing on the cake for other companies and even for themselves.

In the past two years, companies in the industry have begun to roll up the quality of content, and Tencent CEO Ma Huateng mentioned at the 2023 annual meeting that the new generation of game companies is emerging in an endless stream, and the transformation from gameplay to content has made Tencent at a loss for a while, and proposed that the influence of content products exceeds that of channels. This has also become a reason for ByteDance to subtract from the game business.

According to incomplete statistics, from 2019 to 2022, Byte invested in more than 22 cases in the game field, involving 19 companies with an investment amount of about 30 billion yuan. After absorbing the talents and products of these companies, the company has expanded to 3,000 people, and has launched and developed games covering almost all game genres. The ones with more users include "One Piece Blood Route", "All-Star Fight", "Ragnarok RO: The Birth of a New Generation", "Dart Man", "Naruto: Peak Showdown", "End Battlefield", "Legend of the Spirit Cat", "Flower and Mountain Heart Moon" and so on.

Among them, there are many small hits with good reputation and flowing water, but they all open high and go low.

For example, "Crystal Nucleus", which will be launched in July 2023, is estimated to be a masterpiece that has poured a lot of resources into SensorTower and other platforms, and the turnover of "Crystal Nucleus" in the first month is as high as 770 million yuan, but it is about 1.25 billion yuan in the first three months, with an obvious downward trend.

Monitoring data from Apple's App Store also shows: In its first month of launch, Crystal Nucleus was in the top 10 best-selling games on the App Store, but by the beginning of January this year, its ranking had dropped to outside the top 30.

Tencent and Byte have a similar situation. Compared with Bytes, Tencent has stronger production capabilities in games, and its game business covers almost the entire game industry, but it has not come up with a big hit in recent years. On the contrary, miHoYo has greatly shined at home and abroad because of the high-quality works such as "Genshin Impact" and "Honkai: Star Dome Railway".

Despite the fact that the product has been sold high and low, and there have been many rumors of selling the game business, Byte does not seem to have completely abandoned the game business.

Zhang Yunfan, who took over the No. 1 position in the game business this time, has the experience of serving as an executive in Perfect World (COO, president of the game business, CEO of the literary business), and also has entrepreneurial experience (founded Duo Game Network and 178 Game Network, etc.), so he can be said to be a polygon warrior who is proficient in games. Let Zhang Yunfan take over the game business, it is enough to see that Byte has high hopes for the game business.

At the same time, Byte has also sorted out a new direction for the game business, that is, to be more "down-to-earth", starting from the laws of the industry, and making fun games. Although Byte and Zhang Yunfan did not say anything about this point, we can find a clue from the internal letter. Byte Games employees, when talking about good games, once asked Zhang Yunfan such a question: Then do you still watch DAU? Do you still look at profits? Zhang Yunfan's answer is that if you want to see it, you may also be anxious about it, but you should not be distorted by anxiety, "fun games" are fundamental, and there will be no way out.

Thinking of the characteristics of Byte's business like to "vigorously produce miracles", it is not difficult to see what the overtone of these words is, which is not only a phased summary of Byte's game business in the past few years, but also its future development direction.

Second, all-round development? Focus on two-dimensional?

Big factories have their own ways of playing

Tencent and NetEase are looking to walk on multiple legs. Both companies have publicly mentioned the need to diversify their product portfolios, while emphasizing innovation.

At the beginning of this year, Tencent Games announced the launch of the "Spring Bamboo Shoot Plan", increasing R&D investment in new opportunities, new ways to play and vertical games, mobilizing internal projects to establish medium-sized products, and supporting corresponding incentives at the business group and group levels. On the day the plan was announced, Tencent also said that it would actively explore new tracks on the premise of keeping the fundamentals.

Naturally, this new track includes party games that are hot right now.

In terms of game development, Tencent loves to chase hot spots. After miHoYo's two-dimensional game Genshin Impact and NetEase's party game Egg Boy Party successfully harvested a group of game enthusiasts, Tencent quickly followed suit.

In addition to investing in a large number of related game companies during the initial launch of "Genshin Impact", not long ago, Tencent incorporated two two-dimensional projects of ByteDance. In the party game track, "Yuan Dream Star" was launched to compete for the market. But like the two-dimensional game, Tencent's "Yuan Dream Star" performed averagely, and even opened high and went low.

After spending 1.4 billion yuan for a hot start, "Yuanmeng Star" gained a group of users in a short period of time, but after the crazy buying, the game began to cool down.

Qimai data shows that since its launch more than a month ago, core data such as the number of downloads and estimated revenue of "Yuanmeng Star" have fallen off a cliff after a short peak. In the ranking of the best-selling iOS games, the game's ranking once slipped to outside the 30th, while the ranking of "Egg Boy Party" remained stable at around 10th, and it has long occupied the top of the best-selling list of family party games.

In the past two years, Tencent's Chen Pin R&D capabilities seem to be not as good as before. At the beginning of this year, Tencent CEO Ma Huateng bluntly said at his company's annual meeting that Tencent's game business "has no achievements" and seems to be lying on the credit book and counting money. Although it launched a new product like a friend, the effect did not meet expectations.

Although during this period, Tencent also launched games with good DAU data such as "Breakthrough in the War Zone" and "Battle of the Golden Shovel", but in the past year, Tencent has not come up with enough works to succeed games such as "Glory of Kings" and "Peace Elite".

In contrast, NetEase, which also focuses on product diversification, fared better. In addition to "Journey to the West" and "Fantasy Journey to the West", which have been in operation for more than ten years, NetEase has also been launching games with good feedback in recent years. For example, "Onmyoji" in 2015, "The Fifth Personality" in 2018, "Egg Boy Party" in 2022, etc.

Among them, the cumulative number of registered users of "Egg Boy Party" has reached 500 million since its launch in 2022, and other games launched last year have also performed well.

In 2023, among the 9 new games released by NetEase, 5 of them will be launched in China, including "Extraordinary Pioneer", "Peak Speed", "Three Kingdoms Punishment", "Against the Cold" mobile game and "All-Star Streetball Queuing". Three of them, "Peak Speed", "All-Star Street Ball Queue" and "Against the Cold" mobile games, have become the top hits in the vertical track.

This year, NetEase's game business revenue reached 81.6 billion yuan, net income increased by 9.6% year-on-year, and gross profit margin increased to 69.5%.

However, not all companies want to take the comprehensive route, such as Station B. Chen Rui, CEO of Bilibili, once mentioned in the financial report meeting that whether it is agency business or self-development, Bilibili will focus on the areas it is best at at this stage, such as two-dimensional cards.

In the past, Bilibili did make a lot of money through two-dimensional games. In 2016, the revenue of station B was only 500 million yuan, and the loss was as high as 900 million. After the launch of "FGO", the game revenue of Station B instantly increased to 2 billion, and the operating activities showed positive cash flow for the first time. Its payment rate was as high as 8% at one point, and a large number of similar legendary mobile games hovered around 0.1% during the same period.

But now, the competition in two-dimensional games can be called "miserable", and there are strong competitors like miHoYo in the industry. The "Genshin Impact" and "Honkai" series developed by it continue to raise the threshold of the second dimension and even the entire game industry. Although station B has its own two-dimensional gene, until now, station B has not been able to come up with works of the same level, even if Chen Rui is down.

At the end of 2022, in order to implement the strategy of "self-developed high-quality products and global distribution", Chen Rui was personally in charge of the game business, listening to the reports of the game publishing department, the game cooperation department, the game innovation product department and a number of self-developed studios.

In the more than a year since Chen Rui took over the business, Station B has successively launched a number of two-dimensional self-developed games such as "Shaking Light: Princess of the Troubled Times", "Slude", "Ilushir: Xingxiao", etc., but most of them have performed mediocre and have been outside the top 100 on the iOS best-selling list for a long time. Due to the decrease in the number of new game launches and the decrease in the turnover of certain games, the performance of Bilibili in 2023 is not satisfactory. The annual revenue of mobile game business was 4 billion yuan, a year-on-year decrease of 20%.

3. Difficult transformation,

The road to high-quality money burning

Since everyone wants to make a second "Genshin Impact", then we might as well use miHoYo as a teaching material to see how everyone's high-quality strategy is doing.

As one of the classic business models of the Internet, the primary criterion for measuring the results of games is the ability to make money, and through a series of high-quality games, miHoYo has demonstrated an enviable ability to make money.

According to the "2023 Annual Inventory of Chinese Mobile Games Going Overseas" released by the application intelligence platform Sensor Tower, miHoYo continues to rank first in the overseas revenue list of Chinese mobile game publishers in 2023, and Genshin Impact is still the highest-grossing mobile game under miHoYo. At the same time, miHoYo will launch "Honkai: Star Dome Railway" in 2023, contributing nearly 40% of miHoYo's total overseas revenue, and becoming the mobile game with the highest revenue growth in 2023, which is another global hit after "Genshin Impact".

The phenomenon that miHoYo has firmly ranked as the top mobile game publisher in terms of revenue with two high-quality games has made other game companies realize that having more children is not necessarily easy to fight. In the past two years, major manufacturers such as Bilibili, Tencent, and NetEase have all given up the stacking tactics, indicating that they are making efforts in self-developed products that can operate for a long time.

However, it's not easy to make a boutique game. It can be seen from the information previously revealed by Liu Wei, co-founder of miHoYo, the development company of Genshin Impact, that it takes more money and energy to develop high-quality games than other games.

miHoYo said that the R&D team of "Genshin Impact" has expanded from more than 100 people as originally expected to more than 400 people in the end, far exceeding the industry average of 30 to 150 people, and NetEase's R&D team of "Against the Cold" mobile game is also as high as 700 people. At the same time, the nearly four-year development cycle of Genshin Impact also far exceeded the industry's average of 18 months.

Bilibili also mentioned that the next batch of self-developed games will not be launched until at least 2025, and it is easy to have a "new product shortage" during this period.

Burning money is also a problem. "Genshin Impact" was established in 2017, and the first phase of research and development cost reached 100 million US dollars. Not only that, miHoYo CEO Cai Haoyu said in a speech that after the launch of "Genshin Impact", it will spend another $200 million per year to continue R&D and operation. The pre-R&D cost of the mobile game is about 800 million yuan.

This means that large manufacturers need to bear high costs and long R&D cycles to develop high-quality products, and it is unknown whether they can finally make a second "Genshin Impact".

Chen Rui once said that the current game market has entered the stage of standard stock competition, and new products can only have a chance to win if they do their best or make obvious differentiation. When NetEase promoted new games such as "Codename: Infinity", "Condor Shooting" and "Sixteen Voices of Yanyun", they all emphasized the differences with games of the same type.

Despite the difficulties, ambitious companies want to fight for it.

Not long ago, Bilibili announced the establishment of a new first-level department-self-developed game publishing department, and the person in charge is Chen Tongpeng, who has served as the head of the national server product operation of miHoYo's "Honkai Impact 3" and the head of the global product operation of "Genshin Impact". Regarding the establishment of the self-developed game publishing department, Bilibili said that "it aims to provide support for the company's game development team, promote the organizational work mode of 'integration of research and operation', and promote the development of the game self-development business".

However, compared with NetEase and Tencent, Station B does not have strong funds. In order to firmly implement the company's game business strategy of 'self-developed and global distribution' proposed by the company, Bilibili can only "tear down the east wall and make up the west wall". In terms of self-development, some projects have been cut and resources have been concentrated on projects that are more competitive in the market.

Companies that are not bad for money have already made a move. In March last year, Tencent's studio Splash Damage officially announced that it would cooperate with two foreign game content creators to develop a triple-A open-world survival game called "Project Astrid". NetEase also completed the PC test of its new work "Sixteen Voices of Yanyun" last year.

On the other hand, in order to find new increments, NetEase, Tencent, Bilibili and miHoYo are all actively expanding overseas markets.

Tencent said in the second quarter of 2022 earnings call that it will be launched from three aspects: first, existing investment companies will release new works; the second is to launch games developed by domestic game studios to overseas markets; The third is to actively acquire new game studios. NetEase has also set up studios overseas.

However, overseas markets are not as easy as they used to be.

According to the Open Source Securities Research Report, in 2021, the actual sales revenue of China's self-developed games in overseas markets exceeded 18 billion US dollars, which has exceeded half of the actual sales revenue of the local game market. However, from 2022 to 2023, the actual sales revenue of China's self-developed games in overseas markets will also show a decline, with amounts of US$17.346 billion and US$16.366 billion, respectively, a year-on-year increase of -3.70% and -5.65%.

Chen Rui said before that only high-quality games can become long-term games and provide better ROI. But the winning rate of high-quality games is not large, and it is still unknown who will make the next "Genshin Impact".

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