Industry Q&A | Daniel Ahmad, aka ZhugeEX, answers your questions

[ZhugeEX]

ZhugeEX has published a news story:

Industry Q&A | Daniel Ahmad, aka ZhugeEX, answers your questions.

Hi everyone,

Congrats to Install Base on its third anniversary and thank you to the team for inviting me to do this Q&A.

I was not expecting over 50 questions! I will do my best to answer as many as i can but please understand that i may not be able to answer all the questions or provide lengthy answers.
I will also answer these questions across multiple posts, as it's difficult to answer everything in one go.

Please feel free to respond to my answers and I'll try and join the discussion...

Read the full story here...

 

[Lelouch0612]

Thanks again for the answers @ZhugeEX and looking forward to the rest

 

[ItsOKAY]

That´s awesome! Thanks for your time @ZhugeEX !!! Thanks for answering!!!

 

[Malden]

Thank you for taking time out of your day @ZhugeEX to grant us this opportunity of answering our questions.

 

[Aostia82]

Great feature for IB and great reading for us!

 

[ikaben]

Very nice of him, but not a single bad joke?
*Tsk**Tsk



It was a good read

 

[AruanaRiva]

Really nice answer. Hope this is new IB feature where we can have good convo with sales people for the future.

 

[Kaworu]

Always a pleasure to read you Daniel. Thank you for answering our questions.

 

[ZhugeEX]

Hi everyone,

Here's part 2 of my answers. I'll have part 3 ready for tomorrow.

Piggybacking off fiendcode's 2nd question here:

Has Dynasty Warriors' gradual transition to PC releases been able to reverse the trend of the series' slow sales decline since DW4, at least in Asia? Tomohiko Sho of Omega Force tweeted a few months ago that Dynasty Warriors 8 was continuing the decline from 7 and 6, but the release of the PS4 and PC ports had an especially large boost to sales in the Asian market. He also says that 8 is now the best-selling title in the series, so it's apparently been able to pass DW4's 2.2 million. Dynasty Warriors 9 is obviously a highly divisive title, but I'm curious if the PC version also managed to buoy that up game's sales more than expected.

This is a great question, and I think it’s become clear at this point that the overarching trend for all Japanese game developers is that releasing games on Steam has been a huge positive. In the case of Dynasty Warriors, a combination of increased localization options and PC releases has helped the franchise with increased sales post launch, especially in China where DW8 and DW9 did fairly well thanks to the PC release and Chinese voices.

Hello! Thanks for the Q and A!

1. For Japan we have seen the PC market begin to expand in recent years, for the PC heavy markets like China that are now getting more into consoles is the market expanding, or is it a case of console taking market share from PC?

2. How big of a risk is China's game approval process to the console market in that region?

1. While China has always been a large PC market, this has primarily been for F2P live service games. What we’ve seen happen over the past decade is a gradual increase in buyers for singleplayer PC games which culminated with the recent 15m+ sales for Wukong in the country. This is notable in a market where around 90% of player spending is on F2P games. The overturning of the console ban in 2014, access to the international version of Steam, the shift to digital distribution, increased propensity to pay for content, high quality singleplayer & multiplayer game offerings, online connection requirement (which prevents piracy), localized payment methods, and regional pricing have been key drivers of premium game adoption in China.

In short, PC has continued to grow as console has grown, with premium games becoming a notable segment on both.

2. Only 22 console games have been officially approved and issued a license (ISBN) by the Chinese government this year (2024 Jan – Sep), which is a tiny amount compared to the number of console games released globally. While this is a very low number, and means most games do not receive an official release, the majority of console software sales are via the grey market which includes imports of disc-based games that are sold online or in-store, as well as download games via a non-China based PSN / XBL / NSO account. This is certainly a limiting factor for mass console adoption, but it hasn’t stopped console growth over the past decade.

Thanks for doing this.

I want to ask about China, it accounts for something like 30-40% of the entire PC market except we rarely get any metrics like we do in other markets.

We've seen the rapid rise of Chinese gamers on Steam, China now accounts for 30-40% of Steam CCU, and many games can be successes by catering just to China. I expect revenue to be slightly smaller, perhaps 25-30% of revenue.

I estimate Steam to have a global revenue of ~10-11B, meaning $2-3B of Steam revenue comes from China.

Can't talk about China without talking about Tencent. The accounting practices of Tencent are bewildering and the FY reports aren't shedding much light either.

• How does Tencent account in Overseas revenue. It owns 49% of Epic, does that mean it accounts 49% of Epic's revenue as its own?
• Tencent also groups social network ad revenue with its VAS segment reporting. MSFT estimated that $8.5B of the $29B revenue is Social Network ads, and partial revenue accounting (i.e from Epic, Supercell etc).
• So Tencent's actual gaming revenue is $20-21B. Does the below table look right? Also would be nice to know the ballpark of Tencent's profit in gaming (not incl. social network ads). I've seen estimates of $5-6B which would make it by far the most profitable gaming company in the world (excluding Apple/Google).

	Chinese PC Revenue
Tencent	7-8B
Steam	2-3B
NetEase	2-3B
Others	1-3B

I'll try and break this down where I can.

For companies where Tencent has a controlling stake, in the case of Riot Games and Supercell, revenue and profit is consolidated within its own financial statements.

For companies where Tencent does not have a controlling stake, in the case of Epic Games, it will only recognize the value of the investment after its operating profit is calculated.

Tencent also has two separate business segments under Value Added Services. Online Games, which includes all game software and services revenue, and Social Network Services, which also includes game distribution revenue such as from Mini Games and MyApp. In 2023, we estimated this contributed an additional $5bn to the Online Games segment $25bn, taking the total to $30bn.

We also estimated that Tencent’s PC game revenue was slightly above $7bn.

Just have one:

After the huge consolidation spree in the western gaming industry (Microsoft, Sony and Embracer) that was followed by big layoffs and a hard times to find a continued growing audience, is the Asian gaming industry’s path likely to diverge from that in the near term future? Considering Asian publisher focus more an sustainable GAAS businesses models and have growing populations in their home markets and other factors?

We’ve also seen a slowdown in video game-related deals being announced and closed in Asia / MENA over the past years too. There are multiple reasons for this. 1) Growth of video game companies has slowed globally 2) Interest rates are no longer as low as they once were. 3) Investments in new technology areas related to gaming such as VR, Cloud Gaming and Web3, among others, have not yielded expected results.

These factors, among others, have contributed to a decline in the number of deals announced and deal size.

A couple of other trends worth noting: Chinese companies have started focusing on internal expansion, through the creation of new studios, rather than the buying spree approach they took prior. In India, recent regulations impacting Real Money Gaming have also spooked investors from investing in the overall gaming space.

We do continue to see diversification from Asian game companies which includes developing games for different platforms, genres, business models and geographies. But they are also continuing to cater to the large F2P audience.

Hello. Are there any emerging markets that you expect to play a bigger role in the gaming industry in the future?
Thanks for your time.

It depends how you define emerging market, but we’re currently seeing notable growth in India. The market will have more gamers than China has today in about 5 years or so, but the major concern for game developers and publishers is whether spending growth will increase at the same rate.

Thanks for doing this!

1: There has been much speculation on this reasons for the collapse of PlayStation in it's home country of Japan, and whilst this begun during the PS3 era, during the PS5 era in particular there has been large gulf between software sales and hardware sales that a rise in digital spending doesn't seem to account for. Now that Sony has raised the price of the PS5 to exceed other regions, and PS5 hardware sales have fallen dramatically in Japan, can we now say that exporting (mainly to China) was the primary reason for the discrepancy? My hypothesis is that organised exporting groups were the main culprit. There was anecdotal evidence (photographs and social media posts I found) that organised groups were recruiting locals with Japanese IDs and store cards/point cards to get around the restrictions imposed stores and perhaps giving them a small finders fee when the consoles were highly sought after during the pandemic years. I think this continued continued though to this year due to the weak yen but now is not nearly as lucrative following the price increase. What evidence (if any) have you seen that points to exporting of PS5s from Japan being a major issue?

2: Whilst we are on the subject on PS5 in Japan, have Japanese publishers/developers voiced any concerns about Sony's greatly diminished market share in the country?

1. There are numerous reasons for this. For one, I do think digital is underestimated in Japan and we’re seeing higher ratios than what is generally accepted as true on gaming enthusiast forums like this one. Secondly, we’ve seen F2P gaming increase on consoles quite significantly since the start of the PS5 gen, and gamers are sticking with titles for longer. That being said, with the growth of console gaming in China, there is demand for consoles that are region free out of the box, and Japan and Hong Kong have become notable markets that supply both hardware and software to China.

2. To some extent, but I’d say that most Japanese developers have already understood the current situation and have already adapted to create games with global appeal. Capcom being the most successful.

Happy 3rd anniversary!

1) In Southeast Asia, how big of a market has it become for the Nintendo Switch?

2) Do you believe that Square-Enix will begin making all their games day and date for Nintendo platforms in the future or will it continue on the same basis. By this I mean, FFXVII on Switch 2/3 for example alongside of KH4, Nier 3 and new IPS they make?

Thanks,

1. PlayStation is still the market leader across Southeast Asia, but the Nintendo Switch has moved into a solid #2 position, especially in Singapore where the two have pretty much equal market share.

2. This is a hard one to answer and I think the scope and audience of the game will play a larger role in determining that. That being said, it’s clear that Square Enix is looking to embrace a multi-platform strategy after FF16 and FF7R underperformed.

Hello Mr. Ahmad. Thank you for joining us!

1) We have seen some externally developed games blow up in mainland China. What other series, which haven't yet taken off, do you think have the most compelling future prospects in the country?

2) If you were counseling the console vendors (Microsoft, Nintendo, and Sony) on how to grow their business (games, hardware, services), especially in Asia, what advice would you offer that you think they could/would realistically execute on?

2. Honestly, and this is a bit of a simple answer, but start adapting software and services for the region using a market specific strategy. Every market in Asia is unique in its own way and it requires platform holders to adopt regional pricing, local payment methods, localized content and official distribution channels. As these platform holders expand their strategy beyond console, I believe we’ll see a greater market specific approach from all 3.

Hello, thanks for doing this Q&A.

1. Often times mainstream western games don't have the recognition, much less their popularity, within the Japanese game market. What in your opinion, do you think makes popular western games unattractive or otherwise unpopular to the Japanese market?

2. Japan's PS5 software have been quite anemic throughout it's lifespan barring a few titles, and PS4 versions of games often sell at a similar rate to their respective PS5 versions. What do you think is the cause for this poor transition in player base from the PS4 to the PS5? Is it simply too expensive? Unappealing software?

2. I somewhat answered this above, but I’ll add that we’ve certainly seen a slower transition from PS4 to PS5 than we’ve seen from PS3 to PS4. One of the major reasons for this is that live service games continue to be supported on PS4 and most new games continue to release on PS4. Cost and the reasons I've mentioned in a prior answer also play a role.

 

[Lelouch0612]

To add to this, the importance of market specialization and Western games struggles in Japan are tied.

We saw how much of an impact a change of publisher and/or a closure of a local branch can have a direct impact on sales.

The problem is that companies are often caught in a vicious circle. Dwindling local demand leads to less investment in the region, which don't allow them to ride the wave once the overall context turns better.

This should be seen as a long-term investment, but most of publishers are focused on short-term prospects, which is less and less compatible with the time games tend to take these years to be made.

 

[Damage2]

So, we are underastimating the digital ratio for a lot of Playstation games in Japan.

That was great, thanks Zhuge

 

[Adventureracing]

So, we are underastimating the digital ratio for a lot of Playstation games in Japan.

That was great, thanks Zhuge

Ehh he said he thinks forums like this are underestimating digital ratios for PS games in Japan. Thats far from a confirmation and without data to back that up I don’t think that comment really changes our current thinking much.

Not that it should be dismissed either btw.

 

[Joseki]

So, we are underastimating the digital ratio for a lot of Playstation games in Japan.

That was great, thanks Zhuge

Eh I'd say the physical sales are so low that if it's 50%-55% instead of 30%-40% it doesn't practically change much, in the overall market share. Different discussions if it's 80%-90% digital, but if it was the case I imagine we would know by now.
Especially because I think we know Switch digital share is also raising quite a bit (look at Nintendo shipments vs Famitsu/Media Create annual figures for example) and Steam is also growing massively.

The elephant in the room is people still playing on PS4 and not transitioning to PS5, as we have seen with FFXVI and FF7R2.
Of course SIE making the PS5 as expensive as a month of rent isn't helping the transition process either.

 

[AruanaRiva]

Hi everyone,

Here's part 2 of my answers. I'll have part 3 ready for tomorrow.



This is a great question, and I think it’s become clear at this point that the overarching trend for all Japanese game developers is that releasing games on Steam has been a huge positive. In the case of Dynasty Warriors, a combination of increased localization options and PC releases has helped the franchise with increased sales post launch, especially in China where DW8 and DW9 did fairly well thanks to the PC release and Chinese voices.



1. While China has always been a large PC market, this has primarily been for F2P live service games. What we’ve seen happen over the past decade is a gradual increase in buyers for singleplayer PC games which culminated with the recent 15m+ sales for Wukong in the country. This is notable in a market where around 90% of player spending is on F2P games. The overturning of the console ban in 2014, access to the international version of Steam, the shift to digital distribution, increased propensity to pay for content, high quality singleplayer & multiplayer game offerings, online connection requirement (which prevents piracy), localized payment methods, and regional pricing have been key drivers of premium game adoption in China.

In short, PC has continued to grow as console has grown, with premium games becoming a notable segment on both.

2. Only 22 console games have been officially approved and issued a license (ISBN) by the Chinese government this year (2024 Jan – Sep), which is a tiny amount compared to the number of console games released globally. While this is a very low number, and means most games do not receive an official release, the majority of console software sales are via the grey market which includes imports of disc-based games that are sold online or in-store, as well as download games via a non-China based PSN / XBL / NSO account. This is certainly a limiting factor for mass console adoption, but it hasn’t stopped console growth over the past decade.



I'll try and break this down where I can.

For companies where Tencent has a controlling stake, in the case of Riot Games and Supercell, revenue and profit is consolidated within its own financial statements.

For companies where Tencent does not have a controlling stake, in the case of Epic Games, it will only recognize the value of the investment after its operating profit is calculated.

Tencent also has two separate business segments under Value Added Services. Online Games, which includes all game software and services revenue, and Social Network Services, which also includes game distribution revenue such as from Mini Games and MyApp. In 2023, we estimated this contributed an additional $5bn to the Online Games segment $25bn, taking the total to $30bn.

We also estimated that Tencent’s PC game revenue was slightly above $7bn.



We’ve also seen a slowdown in video game-related deals being announced and closed in Asia / MENA over the past years too. There are multiple reasons for this. 1) Growth of video game companies has slowed globally 2) Interest rates are no longer as low as they once were. 3) Investments in new technology areas related to gaming such as VR, Cloud Gaming and Web3, among others, have not yielded expected results.

These factors, among others, have contributed to a decline in the number of deals announced and deal size.

A couple of other trends worth noting: Chinese companies have started focusing on internal expansion, through the creation of new studios, rather than the buying spree approach they took prior. In India, recent regulations impacting Real Money Gaming have also spooked investors from investing in the overall gaming space.

We do continue to see diversification from Asian game companies which includes developing games for different platforms, genres, business models and geographies. But they are also continuing to cater to the large F2P audience.



It depends how you define emerging market, but we’re currently seeing notable growth in India. The market will have more gamers than China has today in about 5 years or so, but the major concern for game developers and publishers is whether spending growth will increase at the same rate.



1. There are numerous reasons for this. For one, I do think digital is underestimated in Japan and we’re seeing higher ratios than what is generally accepted as true on gaming enthusiast forums like this one. Secondly, we’ve seen F2P gaming increase on consoles quite significantly since the start of the PS5 gen, and gamers are sticking with titles for longer. That being said, with the growth of console gaming in China, there is demand for consoles that are region free out of the box, and Japan and Hong Kong have become notable markets that supply both hardware and software to China.

2. To some extent, but I’d say that most Japanese developers have already understood the current situation and have already adapted to create games with global appeal. Capcom being the most successful.



1. PlayStation is still the market leader across Southeast Asia, but the Nintendo Switch has moved into a solid #2 position, especially in Singapore where the two have pretty much equal market share.

2. This is a hard one to answer and I think the scope and audience of the game will play a larger role in determining that. That being said, it’s clear that Square Enix is looking to embrace a multi-platform strategy after FF16 and FF7R underperformed.



2. Honestly, and this is a bit of a simple answer, but start adapting software and services for the region using a market specific strategy. Every market in Asia is unique in its own way and it requires platform holders to adopt regional pricing, local payment methods, localized content and official distribution channels. As these platform holders expand their strategy beyond console, I believe we’ll see a greater market specific approach from all 3.



2. I somewhat answered this above, but I’ll add that we’ve certainly seen a slower transition from PS4 to PS5 than we’ve seen from PS3 to PS4. One of the major reasons for this is that live service games continue to be supported on PS4 and most new games continue to release on PS4. Cost and the reasons I've mentioned in a prior answer also play a role.

I am more interested on how the software of third party split has been going on South East Asia here.

Because based on online shop data that we have here in Indonesia, switch version has always been leading in terms of sales and the price hold has also been stronger for switch version unless PS ver stock is very limited.

Also, it seems indonesia gov does not collab with Niko partner for 2023 indonesia gaming scene industry book kek. I miss when we get the data from indonesian communication ministry here.

 

[RaymondBryce]

1. PlayStation is still the market leader across Southeast Asia, but the Nintendo Switch has moved into a solid #2 position, especially in Singapore where the two have pretty much equal market share.

Are you able to share how market share is being defined here?

Is it " total number of PS4s + PS5s sold vs. number of Switches sold", "amount of revenue generated by PlayStation vs. Nintendo in 2023" or something else?

Thank you

 

[ZhugeEX]

So, we are underastimating the digital ratio for a lot of Playstation games in Japan.

That was great, thanks Zhuge

Yes. But it's more so that conventional thinking has always been that the digital ratio is significantly lower in Japan than in the West. While the digital ratio is indeed lower in Japan on average, we are at a point where plenty of games have an over 50% ratio.
Granted that doesn't necessarily increase the total amount sold by much. But the overall point is that digital is on the rise in Japan.

 

[Damage2]

Yes. But it's more so that conventional thinking has always been that the digital ratio is significantly lower in Japan than in the West. While the digital ratio is indeed lower in Japan on average, we are at a point where plenty of games have an over 50% ratio.
Granted that doesn't necessarily increase the total amount sold by much. But the overall point is that digital is on the rise in Japan.

Yeah, we saw when Elden Ring shipped 1M in Japan when it was less that 400k in retail, probably reaching a big digital ratio at that time.

I imagine something like Final Fantasy XVI its another one with bigger that estimated digital ratio.

 

[RaymondBryce]

Yeah, we saw when Elden Ring shipped 1M in Japan when it was less that 400k in retail, probably reaching a big digital ratio at that time.

I imagine something like Final Fantasy XVI its another one with bigger that estimated digital ratio.

The growth of PC would be a noticeable factor in increasing digital I imagine. So I wouldn’t be surprised if FFXVI has a lower digital ratio in Japan than Elden Ring (it was under 50% in Europe during its launch month).

For PS5 games I'd expect the JRPGs to be on the lower end of the scale in terms of digital, while other genres like sports games are on the higher end).

 

[ZhugeEX]

Hi everyone,

Here is part 3. This is the final part but do feel free to comment or ask clarifying questions and I'll respond when I can.

Thanks Daniel again, so here's my two questions:

1. We currently see a lot of decisions taken in order to bolster the margins (higher prices, PC ports...) to fight the current headwinds (higher dev costs, challenging market for premium games, saturated GaaS market). Do you think these puts the console market at risk, by reducing its reach and USPs?
2. We saw Phil Spencer commenting on Xbox's progress in Asia this generation. Which were the markets that saw the biggest growth and on which devices ? (Series X or S, Cloud, PC Game Pass...)

1. To some extent. One of the larger concerns for Sony and Nintendo right now is that they’re not reaching a younger demographic with PS5 / Xbox Series X as most of this cohort are fine playing on smartphones and PC. That being said, Sony is seeing geographic expansion in Asia and MENA (Excl. Japan) this generation and there is demand for HD games that these platform holders offer. It’s ultimately why we continue to see both of these platform holders embrace a beyond console strategy.

2. Primarily in developed markets such as Japan, South Korea, Singapore, China etc…

It’s also worth noting that this is thanks to growth across all vectors, including users still on last gen consoles. We’ve also seen increased adoption of Game Pass in markets where Microsoft has introduced region specific pricing for non-console plans (PC / Cloud).

Although I will say that Xbox still has a long way to go in Asia as a whole.

Hi Daniel! Thanks for doing this Q&A!

1. How does Capcom look at the Japanese market for PlayStation 5 now that Monster Hunter Wilds is coming out in less than 6 months? They can’t be happy if the game sells less than half of what World did?

2. Many Japanese devs are still somewhat ignoring Switch when they make games for PS5, PS4 and Xbox. If Switch 2 isn’t a breakout hit like Switch was, will that reinforce the stand?

1. Capcom’s strategy is to strengthen its IP both globally and across multiple platforms / formats. Asia excl. Japan has become a larger market than Japan for the company over the past year, while regions such as South America and MENA have also seen significant growth. We also know that PC sales are much higher in Japan than they were a decade ago. So yes, the game will most likely sell less on PS5 in Japan, but Capcom are looking to offset that with increased PC sales in Japan and higher global sales.

Thanks Zhuge
1: In terms of public weekly/monthly console game and hardware sales data, there is a lot coming from Japan, Europe, and NA, but not a lot seemingly coming from rest of Asia and MENA, besides the more infrequency MC’s reporting on Korea and Taiwan. Do you see that changing in the future as consoles penetrate those markets and what kinda of challenges do you see there being to the kinda of reporting?
2: What is your favorite game that wasn’t a sales success?

1. This is an interesting question, especially when you look at sales data more broadly. Asia & MENA are always going to be mobile first, and while Sensor Tower and the like do a great job tracking these markets, more developers are choosing to monetize outside of traditional app stores which means it’s difficult to know just how successful some mobile games are. Likewise, Asia also has a large client-based PC game market which means it can be difficult to track a games success beyond Steam. For console, there is a greater shift towards digital sales which means you need to have publishers who are willing to share those figures. It’s not to say there aren’t other ways to measure a games success, but I do think we’re seeing a lot more challenges emerge when it comes to tracking various metrics.

2. I don’t know if this answers your question exactly, but I’m one of those people who plays niche simulator games like Train Sim World. I guess they must sell well enough for the devs to keep making them, but at the same time they’re not exactly hits.

1. Where does the name Zhuge come from?
2. Who's your favorite Pokemon?

1. I created this username at the end of 2010. I first discovered the Dynasty Warriors video game franchise when I was around 8 years old in 2002. I also started consuming a lot of Romance of the Three Kingdoms media including the books as I grew up and Zhuge Liang emerged as my favorite figure from the historical period. 2010 was also when Dynasty Warriors 7 was announced and it introduced the concept of “EX Attacks” which is essentially a special attack for each character. So I just combined Zhuge and EX.

2. Charizard

1. What is your favorite game ?
2. What are the most popular video games genre in ME and Asia (outside Japan).

1. Dynasty Warriors will always have a special place in my heart.

2. It depends what platforms you’re talking about. But the battle royale genre is extremely popular in Asia and MENA, with games like PUBG Mobile doing extremely well. RPGs do extremely well in South Korea, MOBA does very well in Southeast Asia, sports and racing games are very popular in MENA.

Hi Zhuge,
1) Many developers have been trying to expand their reach in the Chinese market in recent years, with some being more successful than others. What's something that outside developers tend to forget/should take into account more when trying to be successful in this market?
2) If you couldn't do the job that you do, what would you want to do instead?

1. With an increase in localized games available in China, gamers in the country have higher expectations today than they did a few years ago. One example I’m going to point to is the recent release of God of War Ragnarok on Steam, which Chinese users can access.

While only 20% of the reviews are written in Chinese, 65% of them are negative. The price has been criticized due to Sony's lack of regional pricing implementation. The game costs RMB 398 ($57) in China, compared to Black Myth Wukong which was priced at RMB 268 alongside other AAA games. Players noticed that the game had audio dubbing for 13 languages, with Chinese not being included. Finally, some of the comments revolved around the requirement for a PSN account to play the game, which limits new players.

The general takeaway here being that developers and publishers need to ensure that if they’re releasing a game in China that they are following best practices for localization and publishing like they would in any other country.

2. Good question. I haven’t really thought about it that much, and to be honest I do enjoy the current job I do. In terms of my dream job it’d probably be something that involves research and policy planning to improve public transport systems.

thank you for doing the Q&A

1- Chinese companies recently have been pushing more more and more focus on global markets, specifically netease, tencent hoyoverse. for now its mostly investment in outside companies or production of new f2p games that are being pushed globally (for example netease with project mugen and marvel rivals) while wukong was very succesful it still only sold a minority of its copies WW. in regards to f2p games, investments in outside comapnies as well as a potential future in publishing in house AAA P2P after games how much have their current actions had an effect on devs in other countires in terms of how they are planning and market their games and thier expectations for the future of both the chinese market and chinese game devs entering the global market in a big way recently , or has their even been any effect at all?

2- I'd like to hear your thoughts on some of the future of the industry. specifically post pandemic boost the industry has been overly inflated, a lot of games are coming out, they're expensive to make, and expensive to buy and our time isnt infinite, competition is getting steeper and standards higher, on top of that with layoffs left and right and coming off a bout of aquisitons the industry has become more fly or fall than ever, gigantic disasters and massive success's seem more commonplace than ever, all the while PC grows and traditional consoles shrink .

at this point it feels like we're at the edge of a precicpe for the console industry. the next generation for sony and xbox will be paramount to the future of the industry more so than any generation before , or at least thats what I think.
signs have poitned to dissapointing results all over with hints of things that work. do you think the next gen systems will recover from this generation and its lack of graphical ehnacment, 1st party games, troubled development and bad perception or will they continue to fall victim to those and suffer in sales for it, or do you think that they will remain flat. this question is pretty open ended I guess.

1. I think one thing that’s become clear is that Chinese studios are ready to compete directly with established Western and Japanese developers on a global level in both the F2P space and premium AAA space. But at the same time, global game developers have become much more aware of the opportunity that exists in China for their own games. This doesn’t always translate to direct competition though, there have been plenty of cases where global game developers have worked with Chinese devs to utilize their IP for F2P games, whereas on the other hand plenty of Chinese devs have worked with global companies to enhance their premium offerings. One thing that is true across the board is that competition has increased and everyone is competing for time.

2. One trend I’ve observed is that there was a lot of hype around technological expansion a few years ago that has died down. For example, a lot of bets were placed on Web3, VR/AR and the concept of the metaverse taking off. While generative AI has emerged as the latest concept, primarily being used for game development so far, a lot of companies have gone back to more traditional methods of expansion including geographic and platform.

We recently published reports on the East Asia and Southeast Asia markets and found a sharp increase in multi-platform gamers in the former and a rebound in time played in the latter. While there are certainly global trends that play out everywhere, each region and market is unique and present plenty of opportunities. Publishers that understand this and can execute on it will succeed.

Thanks for answering our questions

I would just like to ask if you have any insights to the Hong Kong market? Nintendo has been quite proactive in their marketing in HK compared to Sony, so I am wondering if the HK console market share in recent years also reflect this trend?

1. I don’t have direct insights into the market there. But one thing I will say is that everyone in mainland China has a Hong Kong PSN / XBL account (that supports Alipay) and it’s also the main grey market channel for physical console hardware and software.

Thank you for your time!
1.- Do you have any insight on the sales numbers of consoles like the iQue DS?
2.- I believe Switch is the best selling console ever in China, does this also apply with the full Asian continent minus Japan?

1. I'd have to look it up. But last I remember the iQue handheld series shipped over 500k there.
2. It's the best selling console in China. I'm not sure about the entirety of Asia, I'd have to look into it more.

Thanks! I have only one question.

1. Have you ever had problems at work or had to explain yourself because of a tweet? We know how quickly things can escalate at X sometimes.

Only once. But generally people understand I’m posting harmless jokes that poke fun at a situation.

 

[Danny]

Yeah, we saw when Elden Ring shipped 1M in Japan when it was less that 400k in retail, probably reaching a big digital ratio at that time.

I imagine something like Final Fantasy XVI its another one with bigger that estimated digital ratio.

I don't think so, JRPG games these days have an older fanbase, a fanbase more committed to physical games. Meaning XVI should have a lower digital ratio.

 

[Necu]

1.Many developers have been trying to expand their reach in the Chinese market in recent years, with some being more successful than others. What's something that outside developers tend to forget/should take into account more when trying to be successful in this market?

For this question, IMO the best answer is not to touch sensitive things there, especially those related to current affairs and politics. Any small mistake in this field may destroy the future of the game company in CN.

 

[Joseki]

The growth of PC would be a noticeable factor in increasing digital I imagine. So I wouldn’t be surprised if FFXVI has a lower digital ratio in Japan than Elden Ring (it was under 50% in Europe during its launch month).

For PS5 games I'd expect the JRPGs to be on the lower end of the scale in terms of digital, while other genres like sports games are on the higher end).

EDF6 was a bit over 50% digital in Japan, and ER was high too.
As you said FF16 was probably lower due to being an underperfoming JRPG, but looking at public data there is an argument for a relatively higher digital ratio in Japan over the past 1-2 years:

Nintendo Switch Media Create CY 2023 - 18.9m
Nintendo Switch shipment CY 2023 - 40.1m

There is physical shipment unsold in the Nintendo shipment for sure, but it's evidently clear that the digital ratio on Switch is close or above 50%. We don't have other platforms data, but @ZhugeEX's insight would suggest PlayStation is pretty much in the same ballpark and we already know Xbox and Steam sales are practically all digital.

An interesting point of discussion would be what is driving the increasingly higher digital adoption, because we are seeing from publishers like Capcom and voucher games on Nintendo that eShop/PlayStation network deep discounts are a major sale driver.
If I remember correctly in Japan retailers cannot return unsold stock and pay upfront for their shipments, so heavily cutting a game's price is a last resort to empty stock of poorly performing games.

 

[enpleinjour]

Yeah, we saw when Elden Ring shipped 1M in Japan when it was less that 400k in retail, probably reaching a big digital ratio at that time.

I imagine something like Final Fantasy XVI its another one with bigger that estimated digital ratio.

The growth of PC would be a noticeable factor in increasing digital I imagine. So I wouldn’t be surprised if FFXVI has a lower digital ratio in Japan than Elden Ring (it was under 50% in Europe during its launch month).

For PS5 games I'd expect the JRPGs to be on the lower end of the scale in terms of digital, while other genres like sports games are on the higher end).

Another issues is many keep confusing launch digital with total digital. Launch week digital like many other Western countries could be 40-50%, however like many of those countries total digital ratios of all software sold becomes 70-80%.

How? Because all those huge catalogue sales are happening on digital. We already know this as every major JP third party reports their total units sold in Japan, and it is massively off to what Media Create's physical totals are, suggesting a big digital component.

I'll make another graph for 2023, but here's 2022 data:

Financial Results  Thread 'Game unit sales digital ratio for Japanese publishers in Japan ranges from 63%-92% end of CY 2022'

Nov 5, 2023

With the recent AC6 sales thread, and Elden Ring thread, digital sales in Japan have been noticed to get quite increasingly high.
Thought it would be useful to show just how high digital unit sales can get in Japan per the fiscal reports of third parties.

One must note that digital sales are not static, across time, across the lifecycle of a single piece of software or installbase of a platform. There are 3 commonly reported digital stats:

• Digital ratio at launch
• Digital ratio after some time of a title, eg. through some milestone (W3/Ghost of Tsushima reaching 1M sold in JP)...

• enpleinjour
• Replies: 30
• Forum: The Market

• 

 

[RaymondBryce]

EDF6 was a bit over 50% digital in Japan, and ER was high too.
As you said FF16 was probably lower due to being an underperfoming JRPG, but looking at public data there is an argument for a relatively higher digital ratio in Japan over the past 1-2 years:

Nintendo Switch Media Create CY 2023 - 18.9m
Nintendo Switch shipment CY 2023 - 40.1m

There is physical shipment unsold in the Nintendo shipment for sure, but it's evidently clear that the digital ratio on Switch is close or above 50%. We don't have other platforms data, but @ZhugeEX's insight would suggest PlayStation is pretty much in the same ballpark and we already know Xbox and Steam sales are practically all digital.

An interesting point of discussion would be what is driving the increasingly higher digital adoption, because we are seeing from publishers like Capcom and voucher games on Nintendo that eShop/PlayStation network deep discounts are a major sale driver.
If I remember correctly in Japan retailers cannot return unsold stock and pay upfront for their shipments, so heavily cutting a game's price is a last resort to empty stock of poorly performing games.

Ghost of Tsushima was around 50% too.

I'm not saying that there aren't games with over 50% digital. I'm saying we shouldn't take digital ratios for games on PC and apply that to games that are console only.

Another issues is many keep confusing launch digital with total digital. Launch week digital like many other Western countries could be 40-50%, however like many of those countries total digital ratios of all software sold becomes 70-80%.

How? Because all those huge catalogue sales are happening on digital. We already know this as every major JP third party reports their total units sold in Japan, and it is massively off to what Media Create's physical totals are, suggesting a big digital component.

I'll make another graph for 2023, but here's 2022 data:

Financial Results  Thread 'Game unit sales digital ratio for Japanese publishers in Japan ranges from 63%-92% end of CY 2022'

Nov 5, 2023

With the recent AC6 sales thread, and Elden Ring thread, digital sales in Japan have been noticed to get quite increasingly high.
Thought it would be useful to show just how high digital unit sales can get in Japan per the fiscal reports of third parties.

One must note that digital sales are not static, across time, across the lifecycle of a single piece of software or installbase of a platform. There are 3 commonly reported digital stats:

• Digital ratio at launch
• Digital ratio after some time of a title, eg. through some milestone (W3/Ghost of Tsushima reaching 1M sold in JP)...

• enpleinjour
• Replies: 30
• Forum: The Market

• 

This is true, but again we shouldn't forget the PC factor where a lot of these catalogue sales occur.

 

[enpleinjour]

Ghost of Tsushima was around 50% too.

I'm not saying that there aren't games with over 50% digital. I'm saying we shouldn't take digital ratios for games on PC and apply that to games that are console only.

This is true, but again we shouldn't forget the PC factor where a lot of these catalogue sales occur.

PC adds to it, but from everything we have seen, the bulk of those digital sales is Playstation.

 

[Danny]

Digital ratio depends on genre, age of the fanbase among other stuff. We know that Final Fantasy games skew to over 30 year olds, meaning bigger physical ratio of sales.

 

[RaymondBryce]

PC adds to it, but from everything we have seen, the bulk of those digital sales is Playstation.

Yes I would say that's likely to be true in prior years, but might not be true in the future.

 

[enpleinjour]

Yes I would say that's likely to be true in prior years, but might not be true in the future.

I will just say even 2024 few games data in JP shows the bulk of sales being on PS and PC being a much smaller part

 

[RaymondBryce]

I will just say even 2024 few games data in JP shows the bulk of sales being on PS and PC being a much smaller part

What data do we have for this in 2024 so far?

 

[Welfare]

Thanks for taking the time to do this @ZhugeEX !

 

[Insolourdo]

Brand new member here, but thanks for the insights @ZhugeEX .

 

[ZhugeEX]

Are you able to share how market share is being defined here?

Is it " total number of PS4s + PS5s sold vs. number of Switches sold", "amount of revenue generated by PlayStation vs. Nintendo in 2023" or something else?

Thank you

Defined as active users in this case.

 

[Lelouch0612]

With all that Zhuge shared, I am very excited to look into Dynasty Warriors Origins Steam sales now, especially those coming from China.

It seems like the sensible path to success for the franchise and a lot is aligned favorably.

I don't think the Chinese regional price has been made public yet?

 

[allan-bh]

PS5 physical software sales in Japan are so ugly that even a super high digital share would still mean bad overall software sales on the system.

 

[enpleinjour]

PS5 physical software sales in Japan are so ugly that even a super high digital share would still mean bad overall software sales on the system.

Not true.
PS5 CY 2023 - 3M
PS4 CY 2023 - 1.6M

Remember this is LTD digital not launch digital, so even lowballing a LTD digital of 50% for PS5, 20% for PS4, you get 8M for PS5/4 which is in line with the range of PS4 phy software sales at its peak years (8-12M).

 

[RaymondBryce]

Defined as active users in this case.

Thank you. So basically the number of people playing a PS5 or PS4 in Singapore is roughly the same as the number of people playing a Switch there.

 

[allan-bh]

Not true.
PS5 CY 2023 - 3M
PS4 CY 2023 - 1.6M

Remember this is LTD digital not launch digital, so even lowballing a LTD digital of 50% for PS5, 20% for PS4, you get 8M for PS5/4 which is in line with the range of PS4 phy software sales at its peak years (8-12M).

The fact that you needed to mix PS5 with 4 reinforced my point.

 

[Lelouch0612]

Hello everyone, while digital shares are always an interesting (and tricky!) topic, let's not make it the main discussion point to emerge from the very thorough answers from Zhuge on so many topics that are not often covered around here.

As for digital shares, we are discussing a way to work on a dedicated thread that would help newcommers and veterans alike to get a better reading on digital shares, per game and market.

 

[saicho]

Does Niko Partners have access to digital numbers in Japan?

 

[Terrell]

Thanks for taking the time, Daniel.

2. I would agree with this assessment. NetEase has traditionally excelled when it comes to PC MMO games and mobile game development, which has helped them become the #2 games publisher in China. As growth has slowed in China, many domestic companies have turned to the overseas market. Initial overseas expansion was on mobile, given their expertise on this platform, but more recently on PC and console. Chinese game developers are very aware that PC and console are very large platforms overseas and they’ve moved to support console game development through acquiring overseas console game devs and improving internal development capabilities.

NGL, I find this very exciting. Where Winds Meet has such a distinctly Chinese feel to it that I love and from the initial look at it, seems like it's gonna be great, so I'm considering that game to be Netease's opening shot across all the other publishers' port bows. And I honestly feel like they need a wake-up call in this regard, because while it's not exactly an oligopoly, the big publishers all found a way to coexist in ways that don't threaten each others' bottom lines all that much (any of the value they lose nowadays seems to almost always just be own-goals) and haven't really been forced to reckon with new competition that has the means to operate at the same scale as they do and perhaps no qualms with directly facing off against them.

There's surely opportunities for Netease to screw this up (like I would be super disappointed if they tried to publish in an all-digital manner and/or passing off the release overseas to another publisher instead of offering a full physical and digital release under their own brand), but I'm actually thinking they might pull it off. This combined with Krafton making moves to expand in this direction, I see interesting things happening in the future.

 

[HFbob]

Not true.
PS5 CY 2023 - 3M
PS4 CY 2023 - 1.6M

Remember this is LTD digital not launch digital, so even lowballing a LTD digital of 50% for PS5, 20% for PS4, you get 8M for PS5/4 which is in line with the range of PS4 phy software sales at its peak years (8-12M).

So assuming your number of 50% is correct (I certainly don't think we can, much less that such a number is lowballing it), PS5 sw sales, after the first 4cy are only slightly above WiiU? How is that not dreadful?

 

[Digikiki]

Thanks a ton for your time and answers Zhuge! A lot of really interesting things in here. Hope the forum can do something similar again in the future.

For this question, IMO the best answer is not to touch sensitive things there, especially those related to current affairs and politics. Any small mistake in this field may destroy the future of the game company in CN.

I kinda thought that'd be obvious. I'm sure almost all developers are somewhat aware of China's censorship and sensitivity regarding certain topics (though how well they deal with that is, of course, varied). I tried to make my question more about the less obvious aspects of that market.

 

[AruanaRiva]

So assuming your number of 50% is correct (I certainly don't think we can, much less that such a number is lowballing it), PS5 sw sales, after the first 4cy are only slightly above WiiU? Has is that not dreadful?

Also the combination of PS4 and PS5 does not mean that all those PS4 audience is going to end up becoming PS5 audience.

@ZhugeEX this is just anecdote from my observation but due to high price of PS5 console and software in SEA region, there is some audience that moved to Switch or even PC as financial barrier is simply to high to cross?

 

[HFbob]

Also the combination of PS4 and PS5 does not mean that all those PS4 audience is going to end up becoming PS5 audience.

Of course not, just as the PS2's audience, which also remained relevant years after its successor was launched, didn't just dutifully move to the PS3.

 

[Neo_arcadia7]

Yay more digital ratio for PS discussion lol, all
Jokes aside & as I said before I think @ZhugeEX is spot on, while some titles are hitting higher digital ratios. It might not be the case across the board. It’s likely higher than what we most expect but the biggest Takeaway as I’ve said before is that it’s growing and physical is not. Which would challenge are age old question of if it didn’t sell well physical it didn’t sell well digital that might not be the case anymore.
All in all I don’t think digital is 50 to 55% but I think it’s definitely rising substantially and could potentially float around 30 to 40% but we obviously know physical is shrinking and digital is gaining momentum which is the most important part, does it change the fact that SW as a whole are still not great? No but adds some context & yeah F2P is popular in Japan but just how much that changes things I don’t know.

 

[HFbob]

Yay more digital ratio for PS discussion lol, all
Jokes aside & as I said before I think @ZhugeEX is spot on, while some titles are hitting higher digital ratios. It might not be the case across the board. It’s likely higher than what we most expect but the biggest Takeaway as I’ve said before is that it’s growing and physical is not. Which would challenge are age old question of if it didn’t sell well physical it didn’t sell well digital that might not be the case anymore.
All in all I don’t think digital is 50 to 55% but I think it’s definitely rising substantially and could potentially float around 30 to 40% but we obviously know physical is shrinking and digital is gaining momentum which is the most important part, does it change the fact that SW as a whole are still not great? No but adds some context & yeah F2P is popular in Japan but just how much that changes things I don’t know.

Lol, at the risk of running a foul of the @Lelouch0612 post above, I don't disagree with anything you've posted. Even at a reasonable higher end (like 50/55%) it doesn't actually change much about PS5 sw situation is all I and others are saying. Even @ZhugeEX says this in a subsequent post.

 

[Neo_arcadia7]

Lol, at the risk of running a foul of the @Lelouch0612 post above, I don't disagree with anything you've posted. Even at a reasonable higher end (like 50/55%) it doesn't actually change much about PS5 sw situation is all I and others are saying. Even @ZhugeEX says this in a subsequent post.

Yeah the SW is still terrible no matter how we slice it. This is more so just saying I think we can all close the chapter on the whole digital ratio situation in Japan, it doesn’t make up for the current SW situation but the point is digital sales maybe higher then we think & they are growing while physical is likely shrinking.

 

[Rhaya]

@ZhugeEX
I realize the Q and A is technically over but i thought i ask the question anyway :

Over the last decades ( imo since the start of the PS3 gen at least ) it has been observed by me that the industry in general and Sony in Particular have shifted from making games for all ages or games suitable for young kids to making " mature " games marketed almost exclusively at teenagers and adults .

In fact from an outsiders perspective , it seems that Nintendo is the only one who caters to young children between 3 to 12 year old these days .
This always seemed wild to me how that entire segment of the market is mostly ignored by the industry , leaving Nintendo in sole control of that potential customer pool which i imagine played no small part in the Switch explosive success story .

Rather then trying to squeeze even more blood out of the older demographic stone do you think Sony and the industry should try to focus more on that younger market ?

 

[Adventureracing]

@ZhugeEX
I realize the Q and A is technically over but i thought i ask the question anyway :

Over the last decades ( imo since the start of the PS3 gen at least ) it has been observed by me that the industry in general and Sony in Particular have shifted from making games for all ages or games suitable for young kids to making " mature " games marketed almost exclusively at teenagers and adults .

In fact from an outsiders perspective , it seems that Nintendo is the only one who caters to young children between 3 to 12 year old these days .
This always seemed wild to me how that entire segment of the market is mostly ignored by the industry , leaving Nintendo in sole control of that potential customer pool which i imagine played no small part in the Switch explosive success story .

Rather then trying to squeeze even more blood out of the older demographic stone do you think Sony and the industry should try to focus more on that younger market ?

That market isn’t dominated by Nintendo IMO. Games like minecraft and roblox are what actually dominate that age group. It’s a very difficult market to crack.

Edit: Just to expand a bit more I think questions like this often come from a console centric POV which we often get stuck on in sales age. The industry absolutely targets this market extremely heavily, it’s a saturated market.

The truth is if you have a kid and you want to give than an entertainment device you aren’t thinking about an Xbox or Playstation. You’re thinking of a tablet or phone. Sony making a few more games that target that audience won’t change that simple reality.

 

[AruanaRiva]

Of course not, just as the PS2's audience, which also remained relevant years after its successor was launched, didn't just dutifully move to the PS3.

Yup. Atm, based on what i have seen. PS5 simply has not accommodate the SEA market.(Except Singapore because those rich folks has no money problemo lol) properly.

Price Hike hitting both HW and SW is really bad. It priced out audience immediately. This funnily has lead to PS5 rental becoming a business once more. PS5 for hardcore fans. Switch for children and female audience.(Switch Sports is very popular choice)

Until PS5 can find way to combat the high price. I feel PS5 is not going to come to PS4 level of hit here.