Chinese Gaming Giant The9 Making Mobile Moves, Thinking More Global

Having already established itself as a powerhouse in the PC online gaming space, Chinese gaming company The9 (NASDAQ:NCTY - News) is now looking to change with the times and already has a decent foothold in the newer game spaces of mobile, social, and web. Its social gaming platform, The9 Game Zone, has accrued more than 12 million users since its launch in April 2011 (see chart below).

We recently spoke with The9’s head of mobile, Chris Shen, to find out more about what they can offer developers, as well as the company’s plans for the future.

Having already invested in mobile-focused companies outside of China like Open Feint and CrowdStar, The9’s Game Zone is hardly the company’s first effort to expand outside China via the mobile space. But the services that it offers to foreign developers aspiring to crack the fragmented Chinese mobile market, given its experience in PC gaming and its vast network of partners, is certainly remarkable. Chris explains:

In the US you just submit your game to the (Apple) App Store or to Google Play, but in China there more than 200 channels. Some would say there are more than 500. It’s quite fragmented and no channel is dominating the market yet. So Th9 has partnered with the most important ones, currently about 80. We are working with all three telecom carriers and their app stores. And we also work with some mobile device manufacturers such as Sony Mobile, HTC, Huawei, etc. We work with some third-party application store such as Gfan, and even Tencent.

He notes that when developers license their game to The9, it’s a big advantage to be able to leverage this large network. This is especially true for small and medium sized developers who might not have the resources to devote to marketing and promotion, especially in Chinese!

But why choose The9 over other partners in China? Chris points to The9’s wider network as its competitive advantage in comparison, noting that their tight collaboration with distribution channels, telecom carriers, and marketing resources ensure that a game will be well promoted. If a developer licenses a game to just Tencent, for example, they are limited to the Tencent platform.

One of the more prominent mobile games under The9’s umbrella is the 3D MMORPG Galaxy Frontier which was developed by Eitarosoft from Japan. The company feels that online RPGs is a genre that is not really popular yet but could be easily monetized in China. But The9 has its own in-house mobile games studio as well, which was established last year, with the TweetHero battle game ported from its Weibo Three Kingdoms title. They have also launched Fly King in January, a social game with LBS features aimed at the China market

Now I conducted this interview with Chris over Skype from Tokyo, and it’s difficult for me to not draw comparisons to the mobile games market here in Japan where companies like GREE and DeNA have already made boatloads of cash. Of course, Japanese mobile users are far more accustomed to paying for things via their mobile, whereas recent research has found that Chinese consumers are quite the opposite. I was eager to hear Chris’s expectations for Chinese mobile consumers and whether they will come around to paying anytime soon. While he acknowledged that the Chinese market is still in the initial stages with parts of the ecosystem on the unhealthy side, it turns out that he is ultimately optimistic:

We actually encountered these kind of issues when we did PC games operations, and we learned there should be some different business models for games so that developers can earn money. We’ve seen in just a couple of years that the PC gaming market transition from the subscription model to the free-to-pay model with microtransations, and we firmly believe that this will happen on mobile as well. […] Both DeNA and GREE are very successful in Japan, and actually we have a lot of communication with both companies about their model, which we believe is fit for the Chinese market as well, but there are some differences between the Chinese and Japanese markets. Chinese users still have to get used to these kinds of habits.

While their gameplay sounds all well and good, there have been some rumblings in Chinese media this year that all is not well in the land of The9, with some reports saying that as many as 50 percent of their staff had been laid off. I asked Chris about this, and to his credit, he gave me a pretty straight answer, saying flat out that the 50 percent figure was not true:

I think at the beginning of this year we had around 900 employees and currently we have about 800. To further answer your previous question we have two major business focuses: one is PC online games, including self-development and licensed games, and the other side is all about the new platforms such as web, social, and mobile games. We’re still working on various projects in both parts. In terms of [the breakdown of] staff, I think there are about 300 dedicated to new platforms (web, social, mobile) and 500 for PC online games.

But is The9 making any money? Chris tells me that the company is, unfortunately not profitable right now, but with the coming launch of PlanetSide 2 and Firefall, he thinks it can reach profitability. Interestingly, Chris notes that for the web and social aspects of its business, the company is profitable already.

It will be interesting to see how the rest of its drama plays out over the next year or so. The company’s second quarter financials are due out in a week, so we’ll know a little more at that point. But The9 is an interesting example of a Chinese company looking not just at domestic business but also at opportunities beyond its borders.