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Video Games

Cracking Up

The power of the marketplace is breaking up China’s video game piracy industry, and bolstering the impact of premium content

By Li Jia Updated Jul.31

Nearly 10 million gamers in China have subscribed to [online video game store] Steam. The era of genuine sales is on the horizon. 3DMgame will be doomed [if it continues its piracy operations]. It is an irreversible trend that no one can stop.” This April 6 microblog post by Su Feifei, head of China-based 3DMgame, caused a stir among China’s video gamers. Su’s operation is one of the most notorious online video game crackers in the world, meaning it removes copyright protections from copyrighted games to obtain them without paying for them, then releases them to the masses. In 2014, they were the first to break a unique anti- tampering encryption system developed by Austria’s Denuvo Software Solutions GmbH. 
3DMgame, nicknamed san dama (“third auntie” in Chinese), pulled the plug on a cracked version of the popular video game Romance of the Three Kingdoms XIII in early February immediately after receiving a warning letter written by a Chinese law firm on behalf of the game’s Japanese developer, Koei. Indeed, 3DMgame publicly expressed intentions to end its involvement with piracy in 2015. 
As Su Feifei told NewsChina, “nobody likes to build their reputation on piracy.” However, she admits, the most important reason behind the company’s decision is a shift in the market climate. “Piracy has already become a liability, not an asset, for us, as it has made it difficult to shift our users’ attention to our online gaming services, such as training courses for players and the localization of games,” Su added. 
3DMgame’s recent change of heart is therefore viewed as a result of and a catalyst for the paradigm shift currently underway in China’s legitimate online video game market. 
Cat-and-Mouse A 24-year-old man who works for an Internet- based tourism company explained to NewsChina why pirated online video games have proven so consistently popular in China. 
He said he had been “obsessed” with online video games throughout his teenage years. 
The cheap and easily available option of acquiring pirated games and their associated downloadable content (DLC), rather than paying full price for the real thing, made it much easier for keen players to advance to higher levels quickly, with personal income no barrier to success. “It was so exciting to be top dog in a game,” he said. 
Chinese cracking outfits like 3DMgame started out by circumventing encryption in order to allow players of pirated games to update them. According to Huang An (pseudonym), a core member of the 3DMgame team, foreign cracking groups, such as Norway’s Razor 1911 and Sweden’s FairLight,dominated the international code-breaking business up until a few years ago, while their Chinese counterparts focused on patches and updates. 
The turning point for Chinese crackers seemed to come in 2014, when Denuvo was created. Neither Razor nor FairLight could break the system’s code. Huang and his colleagues had no choice but to stage their own attempt, and succeeded. Gamers from South Korea, Russia and the US rushed to download their pirated versions of new games protected by Denuvo. 
Huang believes that different motivations are what distinguish Chinese pirates from others. Overseas hackers are typically working in their spare time. While many Chinese peers share a passion for coding, the profits available turned some professional, and transformed their warez groups (illegal distributors that deliver copyrighted content for free or at a low price) into sophisticated operations. 
These “career geeks” are much more willing to invest massive effort and resources into cracking games. When Huang and his team were working on the first 64-bit Denuvoprotected game, they even invited dozens of veteran players to test the game until they had unlocked a satisfactory version. 
However, the level of effort required to crack ever more sophisticated code has also made the warez business less commercially meaningful than in the past. Cracking tech as complex as Denuvo required a huge investment of time and personnel, and if crackers aren’t quick enough off the mark, players will simply turn to legitimate versions instead of waiting on the pirates. Liu Ming, general manager of 3DMgame, believes that within two years there will no longer be enough money in the warez business to make it worthwhile. 
In this context, Steam surfaced. As the world’s largest online single-player video game platform, Steam began to accept credit card payments in Chinese yuan last November, and the number of its users in China soared by two million over the following six months. 
Foreign games studios have begun beefing up their efforts to attract Chinese players in recent years by releasing localized versions, even some with Mandarin dubbing. Steam has gone even further, adding a Chinese-language interface and simplifying downloads. Its online store even offers special China-specific half-price sales on certain titles. Warez has consequently lost key advantages – localization, convenience and price. “Since Steam entered China, warez has lost its appeal among Chinese gamers,” Cao Liang, a designer at a Beijing-based mobile gaming company, told NewsChina. 
Game-changer The key force behind this transformation of China’s gaming industry has been the consumer. 
As the abovementioned anonymous young gamer we spoke to told our reporter, more and more Chinese gamers like him can afford and are eager to enjoy premium “AAA” games, with price less of a consideration than being up to date with the latest releases. Cao Liang told NewsChina that the enhanced user experience of games purchased legitimately from developers and distributors is another area in which warez groups are losing out. 
The growing fanbase for premium games has helped raise awareness of copyright protection among a younger generation of Chinese gamers. In the past, numerous community members would flood 3DMgame message boards with requests to crack new releases. Now, every AAA release comes with a slew of online attacks from those who oppose piracy. 
As Cao explained to NewsChina, the collapse of China’s own video game industry has also taught Chinese gamers a lesson about how intellectual property protection can work to the consumer’s advantage. From the late 1990s to the early 2000s, a number of indigenous Chinese games were very popular, but their profitability slumped after dozens of pirated copies flooded the market. Established Chinese games studios have in the past even had to bribe cracking groups to delay the release of new warez, leading many legitimate studios to close up shop, depriving China of advancements seen elsewhere in the video game industry. 
According to a report jointly published by China Audio-Video and Digital Publishing Association; CNG, a gaming industry information provider under the China News Service; and the US-based International Data Corporation, 534 million players in China spent US$22 billion on online, social, mobile, single-player and console games in 2015. 
About US$20 million, or only 0.1 percent of the total, was spent on single-player games. 
Liu Ming insisted this figure, which only included releases approved for distribution by the Chinese government, greatly underestimated the size of the country’s single-player community. 
Steam, for example, claims more than eight million users in the Chinese mainland, making China its fourth-largest market after the US, Russia and Germany. As each of these Chinese gamers purchased an average of nine games at a per-unit price of US$23, Liu thinks China’s total single-player game market might be worth more than US$7.7 billion, if the upgrading of hardware to accommodate gamers’ needs is taken into account. 
In this context, shifting to legitimate sales has already become a common choice for cracking groups. 3DMgame is now negotiating with some foreign providers on bringing their games into China at discounted prices. 
However, foreign platforms cannot operate in China without restrictions. Steam’s games and services have not been approved for distribution by the Chinese government. Instead of contributing any tax revenue or jobs, the company has, critics claim, siphoned massive amounts of capital offshore. “The [Chinese] government will not allow this kind of thing to continue, and there is consensus in the industry that Steam is on borrowed time,” said Liu. 
A manager with a major Chinese online video game platform, speaking on condition of anonymity, told NewsChina that the country’s existing approval system has not only blocked foreign platforms, but also impeded the growth of China’s indigenous developers. 
Industry insiders think the government regards online video games as an addictive substance, and thus subjects the sector to excessively stringent standards. Many believe a ratings system restricting depictions of violence, sex and other content that is banned or limited in other Chinese media is a better solution. Before the games can truly begin, it seems, a crucial player – the government – needs to join in the fun.