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Business trends

Chinese developers elbow into Japan's mobile game market

As Beijing clamps down, blockbusters gain fans abroad

Chinese developer NetEase's "Knives Out" was one of Japan's top-selling mobile games in 2018. (Photo by Yoshino Sakurai)

TOKYO -- Chinese developers are capturing more of the lucrative Japanese market for mobile games, capitalizing on rising costs at their counterparts here to expand abroad as Beijing cracks down on video games.

NetEase's "Knives Out," a battle royale where 100 players enter and only one leaves victorious, boasts more than 200 million downloads worldwide. With "No Rules. Just Fight!" as the basic concept, the game's popularity stems from its real-time play and unique battlefields on eccentric deserted islands.

NetEase ranked second among mobile game vendors by sales last year, according to U.S. research company App Annie.

Encouraged by its global success, NetEase has sought to expand its fan base in Japan. "Knives Out" recorded 40.4 billion yen ($365 million) in Japanese sales last year, according to Famitsu game magazine publisher Gzbrain. That places it fourth in a Japanese mobile game market usually dominated by domestic companies.

NetEase's desire can be seen its marketing campaign. It was Japan's top ad placer for smartphones by volume in the half ended September, surpassing Japanese companies, according to Tokyo-based Video Research Interactive.

The foray abroad comes as the Chinese government clamps down on the industry over the Communist Party's concerns that games harm young people. Authorities suspended the approval of new titles last March, sending the stocks of Tencent Holdings and others into a tailspin. Although approvals resumed in December, the process remains backlogged.

"Azur Lane," published by Chinese streaming service bilibili, has also been well-received. The game, where players collect and deploy female anthropomorphic battleships, was released in 2017 and surpassed 6 million users in Japan last June. It was developed based on Chinese players' preference for Japanese games, even using Japanese voice actors for the Chinese version.

The global market for game content expanded roughly 20% in 2017 to about $98.5 billion, according to Gzbrain. The Japanese market alone roughly equals $14.2 billion, nearly 70% of which is mobile games. Players here spend more per person on smartphone games than anywhere else.

Japanese companies have made strong profits at home but are starting to hit a plateau. Their most popular games are aging -- titles like Mixi's "Monster Strike" from and GungHo Online Entertainment's "Puzzle & Dragons" are now more than five years old -- as new hits become more difficult to create.

Higher development and promotional expenses are straining Japanese creators. A game that would have only cost hundreds of thousands of dollars a few years ago may now take millions of dollars as graphics advance and development times lengthen. The difficulty of producing a hit has made collecting a return on investment difficult, causing developers' profitability to deteriorate.

Chinese competitors, meanwhile, are using their plentiful capital to establish thoughtful development systems. Many improve games based on user feedback and ideas as part of their marketing strategies.

"The games are well-made, and they understand how to integrate the players," said Fumio Kurokawa, a media content researcher familiar with the industry.

Some Japanese companies are taking advantage of their Chinese counterparts' momentum.

Marvelous has secured the rights to distribute new games from China's Seasun Games and will stream them in Japan first this summer. Seasun will translate titles originally for the Japanese audience, with Marvelous in charge of operations and marketing. The goal is to improve the chances of making a hit while limiting development costs as new titles become harder to develop.

On May 8, Japan's DeNA started streaming a new game from NetEase. DeNA launched the Japanese version of Tencent's "Arena of Valor" in November as well. Japanese game maker Gree also partnered with bilibili on streaming titles in October.

Chinese developers are expected to increase their advance into Japan, Southeast Asia, Europe and North America.

"Chinese game makers may send programmers from the mainland overseas as they localize operations to strengthen their organizations," Kurokawa said.

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