Microsoft boosts search for top Chinese games in race against Sony

HONG KONG (Reuters) – Microsoft Corp. (MSFT.O) is stockpiling Chinese video game content to simulate the success of Sony Group (6758.T) with “Genshin Impact,” boosting China’s transition from land, sources said. Only from players to a center of great developers.

Sources said the US software giant and Japan’s technology avant-garde for a few years have been giving huge money to small developers to sponsor software and licensing titles, but the “Genshin Impact” has added to the sense of urgency.

The role-playing game from Shanghai start-up studio miHoYo has generated billions of dollars since its launch two years ago, and raised the bar for multiplayer and cross-platform games — sources said Microsoft and Sony are seeking their game in China. Pass and PlayStation Plus subscription services.

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Analysts said the growing Western interest in Chinese games reflects the maturity of China’s game development industry. Daniel Ahmed, senior analyst at researcher Nico Partners, said Chinese games are now on par with big-budget Western games.

“Chinese game developers are trying to standardize their development tools, build advanced production processes, and invest in really big teams,” Ahmed said. “Ultimately, this helps give them the competitive advantage to reach a broad audience both in terms of geography and platforms.”

Two industry sources said Microsoft is forming a team to explore Chinese games. The Xbox maker essentially filled its subscription list with big-brand titles, but now it’s attracting even indie studios that put up big-money shows, they said.

At the same time, the filings showed that Microsoft is expanding its subscription service to PCs and mobile devices, increasing the appeal of Chinese developers like miHoYo that have built a reputation for cross-platform multiplayer compatibility – with “Genshin Impact” a prime example.

One executive, whose studio signed a licensing deal with Microsoft three years ago to show its game on Game Pass, said the US company recently offered a several times larger licensing deal in exchange for a sequel.

“We haven’t signed it yet because we believe that when we complete our game completely, you’ll get a better offer,” the executive said.

To clarify the money involved, the filings showed that Microsoft paid $2.5 million to show the action game “ARK: Survival Evolved” on Game Pass and $2.3 million to sequel ARK 2 – both from US developer Studio Wildcard, which is owned by the Chinese company Snail Games.

An executive at another developer, Recreate Games in Shanghai, said his company signed a deal with Microsoft last year for its upcoming multiplayer title “Party Animals” to launch exclusively on Xbox.

“Xbox has contacted many projects in China and these projects are mainly focused on developing PC and PC games,” said CEO Lu Zixiong.

Microsoft did not respond to email requests for comment.

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Microsoft has been slower on the mark in China than Sony. The Japanese company launched a game accelerator program “China Hero Project” in 2017 with the aim of helping Chinese developers publish games on PlayStation. It has supported 17 titles, seven of which have reached the market.

“We have been quiet for the past two years. But the program is still working very well,” Quanjie Chu, a former project manager for China Hero, told Reuters in April. “We are proud of all the games that have successfully exited the program…There is no doubt that a new batch will come.”

In 2019, Sony partnered with miHoYo, a little-known studio developing “Genshin Impact”. The game – which was a worldwide hit when it was released a year later – is available for PC and mobile devices, but the console version is available exclusively on PlayStation.

Two people familiar with the matter said that Microsoft regretted the loss of the Genshin Impact. I spoke to miHoYo early in the game’s development but they couldn’t come to an agreement, one of them said. The other person said that experience is the driving force behind Microsoft’s most active pursuit of Chinese developers.

“The capture of ‘Genshin Impact’ made Sony a lot of money,” said the second person, declining to be identified because the information was not publicly available.

There’s no public data on console revenue from “Genshin Impact,” but data from Sensor Tower put the figure at $3 billion for mobile devices as of May.

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For much of the 21st century, Chinese players were mostly playing imported titles as local games were seen as less valuable to produce. Even the Chinese gaming company Tencent Holdings Ltd (0700.HK) has started publishing foreign games at home.

With the market growing to become the largest in the world, local studios have increasingly invested in developing better quality games. The trend accelerated with regulatory restrictions on new games and restrictions on the number of imports, and it benefited from the return of engineers who worked at top-tier studios such as Ubisoft Entertainment SA (UBIP.PA) and Activision Blizzard Inc (ATVI.O).

Gaming executives now refer to “Genshin Impact” as a milestone in the global industry, praising its production value and smooth cross-platform gameplay. Even Apple Inc (AAPL.O) used the game to prove the power of its premium hardware including the new iPad Air equipped with the latest M1 processor chip.

Another highlight is the 2021 “Naraka: Bladepoint” from NetEase Inc (9999.HK), the second largest gaming company in China. While most Chinese games are free to play and profit from in-game sales, “Naraka: Bladepoint” has sold over 10 million copies despite its $20 price tag, reflecting confidence in its production value.

Two sources told Reuters that the game has attracted the attention of both Microsoft and Sony. Someone said NetEase prioritized Microsoft making the game a Game Pass exclusive in June.

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Reporting by Josh Yee; Editing by Christopher Cushing

Our Standards: Thomson Reuters Trust Principles.

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