Internet giant Tencent Holdings probably has a video game to suit the taste of each of the more than 500 million gamers in China today.
But it is no accident that Asia's most valuable company, which operates the world's largest video games business by revenue, has been making one hit game after another for many years, according to gaming industry veteran Steve Gray, who for about eight years until January 2017 served as the executive-in-charge of production at Tencent Interactive Entertainment Group – a business unit that oversees the Shenzhen-based company's activities in online games, comics, online literature and films.
"People have become much more sophisticated in the way they consume entertainment, and they seem to want to participate in how it gets made," Gray, now the chief executive at US-based Asteri Networks, said in an interview during the Credit Suisse Asian Investment Conference in Hong Kong.
That process starts from the top as both Pony Ma Huateng, Tencent's chairman and chief executive, and president Martin Lau Chi-ping hammer home the importance of customer satisfaction at every meeting in the company, according to Gray.
Instead of conducting expensive and tedious internal tests with hundreds of players, Tencent has made use of the extensive broadband and mobile network coverage across mainland China to engage directly with its customers, he said.
What sets Tencent apart from other major Chinese games operators, such as NetEase and Perfect World, are its platforms for interacting with gamers and other consumers – QQ and WeChat, which also serve as distribution channels for games.
Established in 1999 as an instant-messaging software service, QQ has evolved to also provide social games, music, video, comics, microblogging, online shopping and mobile payments. There were 783 million monthly active users on QQ at the end of December last year.
"There are companies making a lot of games without knowing if people will like them or not. There's really no audience engaged during production," he said.
"Except for Tencent. That was the big innovation at Tencent – working with the audience and making things that they like."
WeChat, known as Weixin on the mainland, started as a mobile messaging app in 2011. It has since become a multi-purpose service used as social network, mobile payments platform, digital marketing vehicle, business communications, news feed and search site, games provider and local services that include booking transport and paying utilities. It crossed 1 billion monthly active users last month.
"We would interact on new releases with new content and instrumentation every two weeks," Gray said. "That helped build audience as well user engagement."
Interact in that context means collecting information about usage patterns, as well as monitor forums and other online discussion groups, he said. Instrumentation means data reporting from inside the games on usage patterns.
For Crystal Du, who works in the online advertising industry in southern coastal city of Guangzhou, spending two hours playing Honour of Kings with her friends was the perfect end to end a busy day at work.
"I love teaming up with my friends playing Honour of Kings. I usually don't play on my own," said the 26-year-old Du who said she has spent 3,000 yuan on skins – the virtual personalised costumes for the characters in the fantasy role-playing game.
Du, who first played that game in 2016, said what entices her to keep playing Honour of Kings "is not the game itself, but the other players".
The same attitude applies with the single-player games she plays. "Even for an elimination game like the Craz3 Match, if I see my WeChat friends barely ahead of me on the ranking, I could possibly spend the whole day trying to top them," she said.
Tencent also takes pains to adapt newly acquired games or titles licensed from overseas publishers to the preferences in the domestic market.
"Games from outside have to be pretty much rewritten to work in the Chinese market," Gray said. "Even games from Korea, where there is a focus on free-to-play similar to China, have to go through some sort of metamorphosis that is driven by users."
Tencent, online search provider Baidu, and e-commerce firm Alibaba Group Holding, which owns the South China Morning Post, are each building up their portfolio of intellectual property as they compete in developing various products for China's vast entertainment and media industry, including in streaming video and music, digital advertising, film and games.
Total revenue of the entertainment and media industry in China is forecast to reach US$264.3 billion in 2020, up from an estimated US$228.1 billion this year, according to PwC.
Tencent has been stepping up its efforts to develop its war chest of valuable entertainment content, especially for mobile games in the world's largest smartphone market. The company already owns significant stakes in US-based developers Riot Games, Epic Games, Glu Mobile and Activision Blizzard, as well as South Korean firm CJ Games and Japanese company Aiming.
It spent US$8.6 billion to take over Finnish mobile game developer Supercell in 2016, and is part of an investor group that is buying media giant Vivendi's stake in French games publisher Ubisoft for US$2.45 billion.
"We believe that the number of mobile gamers in China is still increasing as the smartphone installed base expands, and as the quality of smartphones and the quality of the games themselves improves," said James Mitchell, Tencent's chief strategy officer, about the opportunities on the mainland at a press conference on Wednesday.
We believe that the number of mobile gamers in China is still increasing as the smartphone installed base expands, and as the quality of smartphones and the quality of the games themselves improves.
Research firm Newzoo estimated China's games market, which includes those played on desktop personal computers and smartphones, was worth US$32.5 billion last year, which made up more than a quarter of the US$116 billion global games market.
Tencent currently has a portfolio of 147 mobile games, including blockbuster Honour of Kings with more than 200 million players. Its WeChat Mini Program, meanwhile, has seen rapid adoption, with simple platform-jumping mobile game Tiao yi tiao generating about 100 million users.
While Tencent has become an industry benchmark for creating games that its audience wants, it also has to deal with the growing concern over gaming addiction among the country's youth.
A member of the country's top political advisory body has proposed a classification system for video games, calling them the new "opium" because an obsession with them was enfeebling the younger generation.
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Tencent's Ma had to publicly defend the company's policy on this matter for at least the second time this month at the press conference on Wednesday.
"In the past two years, we have done a lot of study and investments into anti-game addiction," Ma said. "The Chinese government has no specific rules, so we initiated a series of measures the past year."
Tencent plans to introduce so-called digital contracts that would allow parents and children to negotiate time limits for playing its hit smartphone game Honour of Kings. The terms in the contracts can be written to link playing time to tasks such as completing housework and studies, encouraging positive behaviour from children by rewarding them, Ma said earlier this month.
"In the future, we will develop guidelines for game content production and operation," Ma said on Wednesday. An example he cited was "a checklist of 100 types of content that are impropriate for teenagers".
Tencent's approach of having closer engagement with the gamer community is a trend that is expected to sweep the rest of the video games industry.
"You will absolutely see this trend, especially in the west where the audience is looking to have a voice in how games get made," Gray said. "Companies like Microsoft and even Sony have to adapt."