21 March 2019

Kingsoft to step up the game with paying customers

Kingsoft Corp. Ltd. (03888.HK), a Chinese online game and internet software developer, said it will devote more resources to improving the online game content to retain its existing paying customers, rather than try to attract a large group of non-paying new customers, given the changing dynamics of the industry. 

“There will still be a lot of online game players in the market but the growth rate of new players will not be as strong as before,” the company’s chief executive Zhang Hongjiang {張宏江} told the Hong Kong Economic Journal’s EJ Insight. 

Spending a lot of money on marketing to attract a large group of new customers is not the best strategy for Chinese online game firms right now, Zhang said in an interview. “With the public praise of our products, we can use social network to do advertising, attracting players from rivals.” 

The business model of having 95 percent non-paying users and 5 percent paying customers will not work any more, he said. Paid-service models involve either time charge or sales of virtual items, Zhang said, adding that the prerequisite is to provide a fair and comfortable environment for customers to play the games.

Kingsoft, founded in 1995 in Zhuhai in South China’s Guangdong province, in 1997 launched its first computer game Jianxia (JX), a role playing game with a story line about Chinese martial arts and ancient history. In 2003, it launched JX Online, which marked the first batch of massive multiplayer online role playing games (MMORPG) in China. The company launched JX Online II in 2005 and JX Online III in 2009.

In the three months to September this year, JX Online III recorded 18 percent growth in revenue from the previous quarter due to the launch of an expansion pack “Changan in Trouble Times”, the company said in a regulatory filing on Nov. 12. However, revenue from the overall online game segment was flat for the period due to lower sales of other games during the summer holiday. Monthly average paying accounts for the firm’s online games fell 11 percent to 1.79 million.

PC players

“There is no doubt that the growth of mobile game players is much higher than that of traditional personal computer (PC) game players,” Zhang said. However, “it may not be true that many PC game players are shifting to mobile,” he said. “In fact, they are two different markets.”

A lot of hardcore players still like to play online games over their desktops for several hours a day but the growth rate of this group of players would be slow, he said. 

As more and more players are treating online games as social platforms, Kingsoft has started to focus more on “avatar” business, he said. “People are willing to pay for virtual items that can make their characters look smarter,” he said.

The company will continue with different kinds of paid models to prolong the life span of its online games, he said. 

In the paid business model, China’s online game industry has experienced three different main phases and is still searching for the best model. In the early phase, most developers adopted a time charge model, which provides a relatively fair environment to all players but cannot attract a large amount of unpaid users.

Due to the rise of young players, nearly all developers have shifted to sales of virtual items, including weapons and accessories. Under such model, a small portion of paid users are financing the entire game while unpaid users need to spend much more time to gain a weapon. Small poor Chinese villagers have to spend days and nights on the games to gain a virtual item and sell it to make a living.

In the past year, some developers, including Netease Inc. (NTES.US) and Tencent Holdings Ltd.(00700.HK), have started to promote their games with a gimmick of having “no virtual shop”, saying they only charge the players the transaction fee on virtual items being traded. However, such “taxation” model also failed to win players’ confidence due to excessive tax. Online games operating with these three models usually have an 18 to 24 month lifespan.

Durable content

Zhang said Kingsoft is putting a lot of resources to improving the sustainability of its online games. For example, the Jianxia series has already sustained for a decade while the Mission Against Terror, an action game, has been in place for seven years.

In a very saturated market, online game developers can only survive with high-quality games and good services, Zhang said. “All we need to do is to improve ourselves.”

“No matter how interesting a movie is, it will be forgotten one day,” he said. “But if it becomes a television drama, it can last very long.”

In the three months to September, Kingsoft’s online game revenue grew 28.45 percent to 270.98 million yuan (US$44.21 million) over the same period last year, and accounted for 49.17 percent of total revenue. The company generated its remaining revenue by selling antivirus and word processing software. 

– Contact the reporter at [email protected]


Chief reporter at EJ Insight

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