The top publisher lost 1.6 billion overseas in a single season, who is impeding the overseas games making money?
According to the “2020 China Game Industry Report” released by the China Game Work Committee and Gamma Data, in 2020, the actual sales revenue of China’s self-developed games in the overseas market will be approximately RMB 100.8 billion, breaking the 100 billion benchmark for the first time. The growth rate of 33.25% is also the highest in the past four years.
However, in 2020, some overseas teams also experienced “increasing revenue but not profit”. For example, Yozoo’s overseas revenue in the first half of the year was 1.229 billion yuan (RMB, the same below), a year-on-year increase of 21.76%, overseas business operating costs increased by 33.15%, gross profit margin decreased by 5.01%, and the company’s first three quarters net profit decreased by 20.56% compared with the same period last year, non-net profit fell 42.87%.
Even top publishers like Tencent and NetEase can lost hundreds of millions or even billions in a single season because of overseas business. From the perspective of the market, the overseas revenue of domestic games has increased year after year. But at the same time, the cost that the team has to bear is also rising. Exchange rates, customer acquisition, and monetization, these issues that overseas publishers cannot avoid, how will game companies make money in 2020?
The top publishers lost more than one billion in a single quarter. How can the overseas team reduce the exchange loss?
According to Tencent’s 2020 Q3 financial report, due to exchange losses, Tencent’s net financial costs during the reporting period increased by 11% year-on-year to 1.945 billion yuan. NetEase also mentioned in the Q3 financial report that the company’s net profit attributable to equity during the reporting period was 3 billion yuan, of which the net exchange loss was nearly 1.6 billion. The loss caused by the exchange rate exceeded half of NetEase’s single-quarter net profit.
It is known that except for the exchange rate between currencies, there are currency conversion fees that affect exchange gains and losses. If an international currency (such as US dollar, Euro, Japanese yen) is converted into RMB, the conversion fee may still be filled by the exchange rate difference. However, if it is the second conversion of currencies such as Hong Kong dollars, Korean won, and British pounds, it will definitely lose money. As we all know, in addition to Japan and the United States, China, Hong Kong, Macao, Taiwan, South Korea, and Southeast Asia are also major destinations for domestic games. Most of the leading overseas manufacturers have to face the secondary conversion of currencies.
A practitioner of an advertising platform told Game Daily that, from the distribution channels, the Google on the Android side has greater exchange losses than the Apple on the iOS side. Because the country or region selected by the developer when registering a Google Play account cannot be modified, and the bound bank account can only be the registered region. The country or region where App Store developers register will not affect the location and currency of the receiving bank account.
Specifically, if the developer registered a Google Play account in Hong Kong, China or South Korea, according to Google’s rules, the receiving account must be local in Hong Kong or South Korea. This will lead to no matter what currency the player pays in, in most cases, developers can only receive the local currency after Google’s conversion, such as U.S. dollars to Korean won and U.S. dollars to Hong Kong dollars. There is about 5% of exchange loss for settlement within the platform alone.
The App Store will not forcibly bind the location of the beneficiary bank to the registered region, so even if the developer is registered in Hong Kong, South Korea and other regions, the platform can also transfer US dollars to other regions designated by the developer.
On this basis, if Google developers in Hong Kong or South Korea need to use U.S. dollars to settle downstream vendors, they must perform another currency conversion. Therefore, in order to reduce exchange losses, many Google developers will register multiple accounts to publish games. Even if they are all in English, they will be disassembled into subcontracts in Europe, North America, and the United Kingdom. Handle the conversion of foreign exchange by itself to reduce the exchange loss at the settlement end of the platform.
Also, some developers will also choose third-party withdrawal platforms including PayPal. In Southeast Asia and Middle East and other regions, offline recharge and purchase of point cards are also popular for players. Although it will reduce the exchange loss of the game on the distribution platform, the developer also have to bear the handling fees of third-party platforms and offline currency exchanges. How to minimize losses depends on the business situation of the overseas team.
Installation costs in major markets have increased by 43%. How difficult is it to buy traffic in overseas market?
Compared with the uncontrollable exchange loss, the increase in customer acquisition costs seems more like a problem that the overseas team urgently needs to solve. Junhai Games CEO Chen Jinhai once said that by 2020, the two most obvious trends in the overseas game market are the heading of product content, and the high unit price and low profit of traffic.
The world’s third largest game advertising platform, IronSource China Director Ji Xiumei said that the gradual increase in advertising costs for advertisers is mainly due to the product itself and market competition. According to the App Annie and Sensor Tower overseas lists before 2018, which is before the outbreak, most of the products in the head group are based on SLG-based strategy games. In fact, until 2020, strategy games are still the first category of overseas games.
The number of overseas games has exploded, but the head products are still concentrated in specific categories. In addition, under the background of the pandemic, there are not many creative games in China to venture into the sea. The homogeneity situation is becoming more and more serious and traffic-buying cost is increasing. On this basis, the continuous increase of leading manufacturers has also further raised the entry barriers for overseas purchases this year.
According to the report jointly released by AppsFlyer, Google and App Annie, in April-June 2020 alone, the cost of traffic-buying for overseas games has risen sharply. Compared with April, June CPI (cost per installation) in North America increased by 16%, Korea increased by 12%, and Japan increased by 43%. It is not difficult to understand why Yozoo and other regions that focus on the United States, Japan and South Korea as their main overseas targets will experience rising costs and revenue, but net profits are declining.
At the same time, the importance of buying traffic for overseas games is gradually emerging. Also according to the above report, in 2020, the number of organic installs for overseas games will decrease by 5.5%, and the number of unorganized installs through marketing will increase by 26.4%. In North America, Japan, South Korea and other major regions, unorganized installations accounted for more than 60%, of which the Korean market is close to 70%. Like domestically, buying volume has become the best, and possibly the only way out for overseas games.
At the GTC2020 (Global Traffic Conference) , Bidalgo Greater China & Singapore General Manager Cecilia Xu said that Chinese advertisers are very good at engaging in organic traffic and ranking. This is feasible in the first few years, but with the overall maturity of the overseas game market, overseas games now need to be forced to perform refined operations.
Gao Sheng, VP of game publishing at YY of Joyy group, also believes that the quality and creativity of the materials are becoming more and more important. Because the conversion of material directly determines the cost of traffic-buying, mainstream game advertising platforms use the conversion rate of material to determine the price of game manufacturers and determine the magnitude and quality of their purchases. In addition, with the development of AI technology on the Facebook and Google platforms, the judgment of the conversion rate of materials will become more and more accurate, and manufacturers can only control the material creativity.
Of course, the prerequisite for the maximum effect of material creativity is the content of the product itself, which has a certain degree of confidence.
The overseas market has also reached a point in time to force content to be refined
Many practitioners told the Game Daily that although the direct cause of “increasing revenue but not profit” is the exchange loss and the increase in customer acquisition costs, after all, games are not fast-moving consumer goods. If the timeline is extended, the profit will be determined by content of the product itself.
In this regard, the Game Daily also compiled the long-term situation of some “overseas hit” in the past year, which is roughly as follows.
It can be seen from the above table that most of the 2020 new products that have entered the top 5 iOS free lists in various regions will experience significant user loss after one month. But relatively speaking, the best-selling ranking of the game is relatively stable, some games after the major version update, even surpassing the initial results of the launch.
Lilith CEO Wang Xinwen said that for a game that has been online for a while, the cost of acquiring new users will become higher and higher. Although the overseas market has a relatively large plate, the number of users is relatively limited. Therefore, as players become more mature and traffic becomes more expensive, it is particularly important to do refined operations. In addition, doing a good job of refined operations will also help shape brand identity, and it is easier to form “private domain traffic.”
“Now players are no longer like in the past, just watching ads and they will download games. Now more depends on the quality of the game, and the reputation of other players, and the previous products of the game company, etc.”. To a certain extent, the increase in traffic-buying cost is more like forcing the overseas team to return to the product itself and increase revenue through content polishing. In addition, focusing on polishing the content will add a new payment model to the product.
At present, the main monetization methods for domestic games going overseas are advertising and in-app purchase, or a mixture of the two. However, according to a survey conducted by the mobile data monitoring platform Adjust, in Western countries, among mobile Internet users aged 25 to 34, the subscription cost of advertising applications is the largest expenditure of this group of people, reaching $25 per month. In the App download list that provides subscription mode, games are the second most downloaded games, accounting for 9%, but they are still far from the 30.7% of the first media app.
It is worth mentioning that some top games have begun to pay attention to the subscription payment model. For example, in November 2020, Epic Games issued a questionnaire to “Fortnite” players to collect their opinions on the subscription model. It didn’t take long for Epic to launch a subscription payment model for $11.99 per month.
Compared with advertising monetization and in-app purchase, the subscription model is characterized by stable income and predictable revenue. As long as it can be updated continuously and monthly benefits or the latest gameplay content can be output, the game theoretically fits the subscription monetization model.
Deconstructor of Fun, a foreign industry analysis website, once concluded in the article “Subscription Model Changes the Global Game Industry” that the subscription model is to turn players into VIP users of the operator, provide simple choices and create sincere relationships. But the premise is to focus on providing content that allows players to obtain unique rights, rather than simply copying their rewards when buying in-house or watching ads.
All in all, whether it is the refined operation of the top manufacturers, the formation of the concept of brand recognition, or the subscription model that has been discussed overseas in the past two years, its essence is to promote overseas mobile games to focus more on the content itself.
Looking back at the changes in overseas games in the past two years, it is not difficult to see that the development of the overseas mobile game market is basically repeating the path of the domestic market. After the traffic dividend period, the cost of acquiring customers has increased, the aesthetic ability of players has grown, and the quality of head games is guided. Whether it is domestic or overseas, the game industry will eventually return to the right track of content.