As part of a new co-published report by Niko Partners
and TransAsia Lawyers called "China's Videogame Industry Regulatory Landscape," analysts have called China's regulatory landscape the "the biggest barrier to entry and the biggest cause of frustration for foreign game and console companies" trying to break in to the country's hardware and software market.
From the 10 Chinese ministries and agencies that independently regulate and police the game industry, some 21 documents that need to be filed with three regulatory agencies and one additional association before a game can be launched in the region, to the still-standing country-wide console hardware ban, navigating this regulatory minefield can be tricky, to say the least.
To find out more about what foreign developers will have to contend with, and what they can do to successfully launch a game in the booming Chinese market, we talked with Niko Partners managing partner Lisa Cosmas Hanson.
Can you introduce yourself and give us a little more background on your history with Niko Partners?
Lisa Cosmas Hanson: I founded Niko Partners in 2002 and we have specialized in market research on China's video game industry since 2003. It turned out that most of our business was coming from that area, and there was a lack of high integrity, data oriented market intelligence on China. Gradually, we were able to assist more and more foreign game industry giants with their understanding about China, and we continue to build our client base every year.
Prior to Niko, I was a director at IDC for a few years, and prior to that I was an equity analyst in Tokyo and in London for a few years. I have a masters degree in international economic policy, and it is fun to be able to apply my education to my work with regard to market entry for foreign companies who want to sell games or game hardware in China.
How long have you been studying the Chinese gaming-regulation landscape?
LCH: 2007 is our 5th year of tracking China's game market, and each year we have examined relevant regulatory issues for that market. In January of this year we published our first report exclusively on China's video game industry regulatory landscape. It was co-published with a premier Chinese law firm called Trans Asia Lawyers, and their legal perspective mixed with our industry perspective allowed for greater insight into the cumbersome regulatory issues.
Can you help us understand the divide within the government between those that see games as a beneficial part of the new economy and those that are leery of it?
LCH: There is a tug-of-war in the government about regulations on games. On one hand, the regulatory agencies recognize that this is a big money making industry and that there are at least 30 million Chinese gamers who are eager to play. There is a desire to promote domestic companies and help foster industry growth for new jobs.
On the other hand, regulators see "evil" lurking in much of the game content in the world, and they do not want to harm their youth with that content.
Interestingly, the divide within the government is not between those pro and those against, it is actually within each agency, because each agency wants to see economic growth from this big industry, but they each also have responsibility to grow the industry at a steady pace, to help foster domestic companies, and to protect gamers from "evil" content as well as unsanitary gaming environments, such as was seen in some of the internet cafés a few years ago. Much of that has been corrected already.
We've seen some of the recent actions being taken, whether from the GAPP's online fatigue proposal or moves to police content for online games, SARFT banning game content in commercials -- is the reality quite so schizophrenic, or are the two sides converging?
LCH: It seems that the regulators are coming together to support a common goal of industry growth with domestic company development. The measures you list there are all regarding content, and China is very strict about what content they allow and do not allow.
Can you tell us more about the "21 documents" that need to be submitted to the various regulatory bodies?
LCH: The documents get submitted to the Ministry of Information Industry, the Ministry of Culture, and the General Administration of Press and Publications. They include software samples, copies of business licenses, applications, copyright documents, license agreements, description of the game's content and operation, and several other items.
How long can a developer hoping to launch a game in the region expect to undergo all of the various processes? At what stage should a developer begin the process?
LCH: That is the tricky question. You can't submit at all until your game is complete, so in the case of offline games this leads to piracy in the intervening period between completion and Chinese approval.
For foreign offline games the process has taken from 6-9 months to get approval or denial, but some companies have shortened that to 2-3 months. In the case of foreign online games, the licensor online game operator will submit before the beta launch period of the game, but will only do so if they think there is a very likely chance of approval.
What steps can a developer take to try and expedite the approval process?
LCH: The best way is to work with excellent partners who have extremely good processes in place, talented people, and strong governmental relationships.
You mention that there are certain "banned" topics for keeping out "harmful" game content what more can you tell us about those?
LCH: Banned topics include that which is detrimental to state security or national unity, that which instigates ethnic hatred, that which disrupts social order, that which is obscene, and other topics.
To really understand them requires reading between the lines. For example, any game that wrongly identifies Tibet or Hong Kong as independent countries would be banned because that is detrimental to national unity.
Have any of the regulatory bodies published a firm list of those topics that might be available to developers?
LCH: Yes, the Ministry of Culture has Article 15 of the Internet Content Provider Measures of 2000, which is the complete list. The trick is #9 on the list: "any other content forbidden by laws and regulations." Well, the regulations change quite often, so the government conceivably could block any game based on content even if the content is not on the current list.
How often have you seen or heard of games falling under scrutiny of those measures? Is it a fairly common occurrence?
LCH: It is very common, but not for domestic games.
Is there any evidence that Western or foreign games are more closely scrutinized by any of the agencies, or are the laws fairly evenly applied?
LCH: The laws are written evenly, though there are more steps for foreign game companies to take than for domestic companies. In practice, however, the laws are much tougher for foreigners than for domestic companies.
What other laws or pitfalls might a developer fall into apart from any of the above?
LCH: A developer may adhere to all content policies, get a great Chinese partner, make all the right applications, but then somehow do something to upset one or more agencies and then suddenly their content will be reviewed again and it could be rejected. But even if everything goes smoothly with the approval process, there is no guarantee the Chinese gamers will like the game.
What's the current state of the government plans to lift the ban on gaming consoles?
LCH: The rumor is that the console ban will be lifted at the end of 2007, but that could easily slide into 2008 or beyond. The ban is there to protect youth from gaming, but clearly when it was put in place no one predicted the huge boom in online games. There are moves within the agencies to exam the existing ban and revoke it, but what the new regulation will look like remains a question.
Nintendo's iQue was released to mainland China around 2003 -- how did that unit sidestep the ban?
LCH: It seems that the iQue is considered to be a digital media device instead of a gaming console. It was probably allowed to launch for two main reasons: first, iQue is a domestic company 50% owned by Nintendo as opposed to a foreign company, and second, the player only plays 64-bit games.
Have any recent anti-piracy actions genuinely worked to control pirate game sales in the region, or is it flourishing as well as ever?
LCH: This issue needs a solution from the commercial and regulatory perspectives. Commercially, there are measures being taken now to diminish the value of a copied game to a gamer by tying the "fun" to an online component. The regulators now need to take the steps to shorten the approval process.
In addition, there are measures whereby a company that has had its intellectual property infringed upon on the internet can file a complaint and the infringing site will be shut down, but I have not heard of many cases yet.
Is there any hope for developers hoping to sell boxed retail product in the region with the pirate market?
LCH: I believe there is hope. Even today gamers spend a lot of time on packaged PC offline games. If the price of a legitimate copy were to come down to a reasonable level to compete against the pirate price, and if the agencies allowed for the regulatory approval of lots of fun games, and if there were a marketing campaign to promote such games, I think there is a chance for a resurgence of that market segment. Several offline game distribution companies are working on commercial measures to encourage growth of this segment.