IP theft thrives as Beijing denies licensing to South Korean mobile games
South Korean game developers are struggling to contain a surge in IP theft in China, where they have been unable to receive mobile-game licenses for more than a year. Angered at Seoul's decision to deploy a missile-defense and radar system - China says the system threatens its security - Beijing has slapped a wide variety of unofficial economic sanctions on its neighbor.
The fallout over THAAD - a missile-defense and radar system Seoul installed last year to protect itself from North Korea - threatens to scar Sino-South Korean ties. With Washington's backing, Seoul installed THAAD over China's objections. Beijing believes that the U.S. and South Korea could use THAAD to spy on China.
To voice its displeasure with South Korea, China has targeted industries in which Seoul depends heavily on the Chinese market. Cosmetics and beauty is one of the most important. So is gaming: China is South Korea's largest market for PC and mobile games.
Globally, South Korea is a major player in online and mobile games. Gaming exports ranged from $3.8 billion to $4.7 billion in 2017, according to research by the Korea Creative Content Agency and Korea Association of the Gaming Industry. Further, despite having a population of just over 50 million, South Korea is the world's No. 6 video-game market; gamers account for half of the population. South Korea even has TV channels which focus on broadcasting eSports competitions.
In a May report, Forbes says that piracy of Korean video games is nothing new, "especially in China." The report says that China's Shanda Games claimed in 2016 that it earned more than US$100 million monthly from "The Legend of Mir" game, which Forbes alleges Shanda "ripped off from the Wemade Entertainment [a Korea developer] title of the same name."
An April report in the Korea Herald lays some of the blame at the feet of Korean game developers. “Korea’s major players that have led the game industry boom in the late 1990s and early 2000s were too arrogant" to address potential counterfeiting threats, Wi Jong-hyun, a professor at Chung-Ang University Business School, was quoted as saying by the Korea Herald.
While China has clearly boosted IP protection over recent years, "when it comes to the game industry, there still is an invisible wall that blocks foreigners from operating in the local market,” Wi said. The [great] wall of which Wi speaks may have something to do with the ambitions of Beijing's own game developers, like Tencent, the world's largest video game developer by revenue. In 2017, the Shenzhen-based Internet giant Chinese earned $18 billion from its gaming operations, well ahead of No. 2 Sony ($10.5 billion) and No. 3 Apple ($8 billion).
In the online space, Beijing has been throwing up formidable roadblocks at foreign companies for more than a decade. The reason is simple: China wants to create homegrown tech juggernauts. Amazon has managed to carve out a niche for itself, but only by offering access to US and European markets that its Chinese competitors cannot - at least for now. Google, eBay, Facebook and Uber have been less successful.
With that in mind, Korean game developers need a new game plan. Even if Seoul and Beijing manage to set aside their differences about THAAD - a strong possibility given new South Korean President Moon Jae-in's conciliatory stance towards Pyongyang - Chinese game developers will continue to press their homecourt advantage. It's only a matter of time before they can create games for their home market as or more popular than South Korean versions.
We would urge South Korean game developers to tap the ascendant Asean market, where they won't face the same political headwinds or aggressive domestic competitors as in China. Mobile gaming "has rooted itself deeply in Southeast Asia," according to a November 2017 report in The Asean Post. As noted by The Asean Post, The Global Mobile Game Confederation reckons Singapore, Malaysia, Indonesia, Vietnam, the Philippines and Thailand together will generate US$3.9 billion in mobile game revenue by 2019. By 2021, that figure will hit US$4.4 billion, Asian gaming research firm Niko Partners says.