Academic Traces | Games Industry Analysis Report (Part 1)
In this assessment you are expected to demonstrate your understanding of the games and interactive entertainment industries by researching three companies in your chosen sector. Carry out high level comparative analysis of the three companies (including the production of a 1-page comparative analysis table), In addition highlight why they may, or may not, be good employment destinations for you given your current skillset.
Explaining your reasoning, choose one company and provide an in depth analysis of the company, products / services, performance and history and your potential fit.
You should include size, location(s), best-selling productions and a reasoned assessment of what the company does well or possibly struggles with. You may also consider its strategic direction in the wider competitive environment.
Also include a profile of the typical graduate roles they hire and their recruitment methods and comment on your own suitability based on this approach and criteria.
In your conclusion you should analyse the merit of your approach including any risks or barriers you see, with some thoughts on potential mitigation and action items for you to improve your chances of success in the event you applied to that company.
This report focuses on the development of gaming companies in Chinese mainland. The first part of this report will comparatively analyse three typical Chinese listed game companies: Century Huatong, 37 Interactive Entertainment and Perfect World, and analyse my potential match as a candidate in the context of their business. The second part of this report will analyse in depth Perfect World's history, performance, typical products, and job offers, and discuss its competitive strengths and weaknesses and strategic direction in light of the development trend of the gaming industry in Chinese mainland.
Ⅰ Comparative analysis of gaming companies
1. Basic information about the selected company
Century Huatong's business is mainly divided into three segments: internet games, artificial intelligence cloud data and auto parts manufacturing. Among them, the game business has formed a complete ecosystem integrating research and development, global distribution, and operation, with a number of game business subsidiaries including Shengqu Games, Century Games, T2 Entertainment, and 7 Cool Network. As of the end of 2023, the size by number of employees was 5,656.
37 Interactive Entertainment is a leading game company in China with a business layout covering the development and distribution of global online games. It has strong competitiveness in the agency and distribution business by virtue of its advertising and all-round marketing capabilities accumulated over the years. As at the end of 2023, the size by number of employees was 3,447.
Perfect World is a leading integrated game and film company in China, focusing on the research and development, distribution and operation of online games, as well as film and television business such as TV series and film production. Meanwhile, Perfect World also continues to make in-depth layouts in the field of e-sports, maintaining its leading market position in China. As of the end of 2023, the size by number of employees was 5,754.
In terms of game business, the three selected companies have certain similarities. All of them have the ability to self-publish and self-operate games, realising the integration of R&D and operation of their own projects, and at the same time covering the agency operation or distribution business of third-party games. The games in their operation are also all long-term operating online games, which are profitable through free play and in-app purchases.
Among them, two companies, Century Huatong and Perfect World, are not companies with games as their only business, but their game business revenue accounted for about 85% of the company's total revenue, so they can be regarded as game companies in the general sense.
2. Performance
According to the 2023 annual reports of the selected three companies, the revenue of their gaming business is second only to Tencent and NetEase among listed companies.
The highest revenue from the game business among the three companies was 37 Interactive Entertainment, which reached CNY 16.547 billion, up 0.86 per cent year-on-year. 37 Interactive Entertainment's stability in performance relies mainly on its years of deep cultivation of mobile mini-games (a unique application model. It runs on WeChat and does not require the installation of any additional apps to start playing), of which Xundao Daqian, which was launched in 2023, had the most impressive results: it dominated the WeChat mini-game best-seller list for ten consecutive months. This product has accumulated more first-class experience in the industry for 37 Interactive Entertainment in the mini-game track, laying a solid foundation for subsequent products.
The highest revenue growth rate was recorded by Century Huatong, whose revenue from its gaming business was CNY 11.276 billion, up 25.63 per cent year-on-year. Such a high growth rate was mainly due to the impressive performance of its Century Games in the global market last year. With its novel themes and gameplay innovations, Century Games was able to make Whiteout Survival, which is themed on ice and snow survival, earn a lot of revenue. According to the December 2023 global revenue ranking of Chinese game makers' apps released by data.ai, Whiteout Survival became the No. 1 Chinese game on the global revenue list in one fell swoop.
Perfect World was the only one of the three companies to see a decline in performance, with revenue from its gaming business falling 7.91 per cent year-on-year to CNY 6.669 billion. Perfect World's performance has been declining for three consecutive years since 2020, according to calendar year annual reports. The reason for its 2023 decline mainly comes from an unhealthy product development cycle: in-operation games enter a period of decay with reduced revenue, and there are not enough new games online to fill the gap, resulting in reduced revenue.
All three companies saw their operating costs rise to varying degrees in 2023, with Century Huatong and 37 Interactive Entertainment seeing year-on-year growth in operating costs of around 10%, while Perfect World saw growth of 5%. Century Huatong benefited from a significant increase in revenue and a near 5% increase in gross margin to around 70%. 37 Interactive Entertainment had a small drop in gross margin, but still had around 80%, the highest among the three companies. Perfect World, however, saw a significant drop in gross margins as well, from over 70% to 66%, due to a decline in revenue.
3. R&D
Among the three selected companies, Perfect World's R&D investment in 2023 is the highest, accounting for 33.22% of its total revenue, much higher than Century Huatong's 11.84% and 37 Interactive Entertainment's 4.31%.
Perfect World is the only one of the three companies with a self-developed 3D game engine, and the only one with the ability to develop on the game console end. Based on the accumulation of this technology, Perfect World chose to push forward the development strategy of multi-end integrated games, and the Tower of Fantasy, which was launched in 2021, became its first game that is interoperable between mobile, PC and game console. On the other hand, 37 Interactive Entertainment and Century Huatong are betting on the mini-game development, and a number of their new games have chosen to be released only on the mini-game platform or released in the mini-game + APP dual version. In the case of Whiteout Survival, the mini-game version was even launched before the APP version.
For the AI boom, all three companies chose to follow up in time. 37 Interactive Entertainment has already developed a number of middle-platform products based on AI technology, which are used for a variety of purposes such as art asset management and generation, user profile analysis, public opinion analysis, game localisation, numerical balance testing, and so on. Century Huatong is also actively accessing and using AI tools to assist in improving project development efficiency. As for Perfect World, in addition to using AI technology to assist in the production process, it has gone a step further by using AI technology for automatically generating character overlay animations and character dialogues, which include character movements, emotions, facial expressions, text, voice, and other content. At the same time, Perfect World has also accessed NVIDIA's Audio2Face technology in the upcoming World of Jade Dynasty, so that game characters can automatically generate facial animations directly through voice.
In terms of game category R&D, all three companies have deep MMORPG strengths, and all of them have also proposed a diversified strategy of MMO+X at the same time. For example, Perfect World proposed to promote the iterative upgrading of MMORPG gameplay while developing anime art styles and multiplayer open-world content; 37 Interactive Entertainment proposed to develop lightweight genres such as placement and casual puzzle while ploughing into the four major categories of MMORPG, SLG, cards and simulation management; and Century Huatong proposed to consolidate the advantages of MMORPG category while laying out the open-world sandbox, shooter, strategy and other gameplay styles.
4. Marketing and operations
Among the three selected companies, the one that pays the most attention to marketing is 37 Interactive Entertainment, whose sales expenses (including advertising expenses, publicity expenses, investigation expenses, and related employees' salaries, etc.) amounted to CNY 9.091 billion in 2023, which accounted for more than 50% of its total revenues. Century Huatong's marketing expenses amounted to CNY 3.379 billion, which is a lot different from 37 Interactive Entertainment, but it also accounted for almost one-fourth of Century Huatong's total revenue. In contrast, Perfect World spent the least on marketing, only CNY 1.195 billion, accounting for only 15.34 per cent of total revenue.
37 Interactive Entertainment 's extremely high sales expenses stem from its extreme marketing strategy. Its self-developed intelligent marketing platform has standardised advertisement placement, enabling fully automated advertisement placement in mainstream channels 24 hours a day, 7 days a week. The content of the advertisements is mainly based on ‘eye-catching’ as the entry point, and the game content is displayed through immersive advertisements to attract the interest of users. In addition to traditional marketing methods, 37 Interactive Entertainment also actively adopts new types of KOL marketing, including short-video trial game promotion and live trial game promotion, to attract new users with real-life experience and real-life evaluation as the core. In terms of the allocation of marketing resources, 37 Interactive Entertainment has formulated targeted marketing strategies for different products, prioritising resources towards core products that have already achieved a certain degree of success.
Century Huatong, on the other hand, ploughs into short video channels in terms of marketing and boosts the number of new users by cooperating with high-traffic short video KOLs. In addition, Century Huatong also cooperates with game clubs and entertainment companies, joining hands to cultivate game players and game anchors, in order to broaden the exposure channels of the game and enhance the exposure rate of the game. Meanwhile, Century Huatong also tries to cooperate with manufacturers in other industries in the physical industry to acquire users in other fields.
In contrast, Perfect World is much more low-key in its marketing. Perfect World did not choose to advertise continuously for a long period of time, but only before and after the launch of new games and version updates. In addition, because of the strong community attributes of most of Perfect World's games, its marketing strategy is more inclined to online topic interaction. In terms of attracting new users, Perfect World has also adopted offline small-scale advertising. These factors resulted in Perfect World's marketing costs being much lower compared to the other two. Benefiting from Perfect World's business in film and television, Perfect World has also conducted film-game collaboration promotions, producing film and television episodes for its games and promoting them in a low-cost manner.
By the end of 2023, in terms of game operation, both Century Huatong and 37 Interactive Entertainment have more than 100 games in operation, while Perfect World has only 30; in terms of game reserves, 37 Interactive Entertainment has more than 40 in-process games, while Century Huatong and Perfect World have 19 and 13 in-process games respectively. In terms of release rhythm, it is estimated that 37 Interactive Entertainment will have more than 10 games online every year, and Century Huatong will have 5 games every year. While Perfect World only launched 2 games in 2023, its R&D progress is not optimistic, although 6 new games are expected to be released in 2024.
5. Personnel status
In 2023, all three companies experienced varying degrees of decline in the number of employees, with Perfect World's performance resulting in a reduction of more than 300 employees.
The largest number of R&D personnel among the three companies is Perfect World, close to 4,000, accounting for nearly 70 per cent of the total; while Century Huatong and 37 Interactive Entertainment's R&D personnel accounted for only 40 per cent or less.
In terms of the demand for highly educated R&D talents, Century Huatong and Perfect World's master's degree R&D personnel accounted for 10 per cent, while 37 Interactive Entertainment's was less than 5 per cent.
6. Potential match
From a macro point of view, 37 Interactive Entertainment 's investment in R&D and its investment in marketing reflect that it is a company that emphasises marketing over R&D and has a low demand for highly educated R&D talents. It is not a good employment destination for game industry practitioners.
In terms of details, all three companies are based on MMORPG, whose core is based on numerical balance, with less need for gameplay design and level design. For the learning content of my programme, their employment match is not high.
In terms of development trends, both 37 Interactive Entertainment and Century Huatong have begun to transition to mini-game development. Mini-games also have a low demand for gameplay design, which does not match well with my programme of study. However, Perfect World focuses on the development of multi-end integrated games, and the gameplay tends to be diversified, with a higher demand for gameplay design and level design. Based on the skills I have acquired in gameplay design, Perfect World may be a better employment destination.
7. Comparative analysis table
