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Publishers risk being trapped between the US and China | Opinion

After decades of deepening engagement with Chinese giants, publishers are on the frontline of a battle that goes beyond trade -- and will far outlast the Trump administration

For an industry primarily focused around creating relatively lighthearted entertainment products, the video games business sure does seem to find itself right in the heart a lot of politically sticky situations. Perhaps it's just bad luck, but from the long-running fight over censorship to the canary-in-the-coalmine nature of Gamergate's harassment and hatred, all the way up to the present simmering controversy over gambling and loot boxes, the games industry has found itself on the sharp edge of more than its fair share of contentious and significant disputes.

Even given that history, though, I'm not sure anyone started this week remotely expecting that one of the industry's biggest companies was about to get dragged over the coals for aggressively enforcing Chinese state censorship. I also suspect that for all the outrage this has generated, we're ending the week with most people still underestimating how much of an impact this event could have on the fortunes of the industry as a whole.

"As cowardly, venal, and unpleasant a move as we've seen from a major games company in a pretty long time"

The focus of the week has naturally been on Blizzard, and it's hard to muster a shred of sympathy for the brutally awful few days the company has had. Condemnation from fans, public figures and its own employees, a high-profile movement of players cancelling their accounts in the company's games (though to what extent this is merely noisy and to what extent it's commercially impactful remains unclear), and attempts to subvert Blizzard's other tournaments and online outlets with messages in support of the Hong Kong demonstrations are undoubtedly a huge headache for the company -- yet still far less of a headache than they deserve.

The decision to strip a Hearthstone tournament winner of his title and prize for expressing support for the HK protestors, followed the next day by the firing of the two interviewers who had been on the livestream with him, was as cowardly, venal, and unpleasant a move as we've seen from a major games company in a pretty long time. It shouldn't need saying, but this is a company in a sector that spent the best part of its existence arguing passionately for freedom of expression and recruiting advocates to its cause in that name. For a games company, of all companies, to now clamp down so quickly and so ruthlessly on freedom of expression when a grubby fistful of Chinese Yuan might be at stake is beyond hypocrisy.

How exactly the decision was made -- whose knee jerked, and who knew about it and when -- isn't clear, but the buck stops with Blizzard's leadership. The company's leadership established a culture in which this kind of decision making happened, and the company's leadership has failed to respond to the situation in any positive or forward-looking way. If Blizzard is now caught between a rock and a hard place because it has tied its commercial fortunes so tightly to Chinese business interests, then that too is the fault of company leadership and deserves little sympathy.

This wasn't an unforeseeable situation. It has been perfectly clear and widely stated for many years that China's major media companies -- like Tencent (which owns 4.9% of Activision Blizzard and just partnered with it to launch Call of Duty Mobile, likely to be the most important product launch of the year for the company) and NetEase (which operates Blizzard's games in China), are not independent free-market enterprises in the way we would understand them in the rest of the world, but rather remain closely tied to the Chinese state and the ruling party. The hyper-sensitive and tantrum-prone nature of contemporary Chinese nationalism, too, is not some esoteric knowledge guarded by an ancient sect of monks somewhere up a hidden mountain; it's been clear as day for all to see for years.

"The hyper-sensitive nature of contemporary Chinese nationalism is not some esoteric knowledge guarded by an ancient sect of monks"

Any western company which fostered close commercial and financial ties with Chinese firms cannot claim to have been blindsided when those relationships turned out to come with baggage -- baggage in the form of some implicit and no doubt carefully deniable, but nonetheless hard to decline, demands related to the Chinese government's propaganda and censorship programs.

Under the circumstances, it's pretty unlikely that anyone actually ordered Blizzard to act as it did. Having spent decades building up its commercial influence across many spheres of public expression in the developed world -- from sponsoring university faculties to buying into news and entertainment media companies -- China has certainly become bolder and less veiled in its attempts to influence discourse beyond its own borders in recent years, as the ongoing dispute regarding the NBA has shown. Still, to overtly order Blizzard to punish a player for expressing pro-Hong Kong sentiment would just be gauche; why even bother, when you can instead cultivate a climate where everyone who matters is quietly but keenly aware of just how much money and market performance is on the line if enough Chinese feathers are ruffled?

The actions Blizzard took against Chung 'blitzchung' Ng Wai are widely seen as being influenced by its relationship to Tencent

The actions Blizzard took against Chung 'blitzchung' Ng Wai are widely seen as being influenced by its relationship to Tencent

Blizzard's bad week isn't just about Blizzard, though, because that climate extends far beyond any single publisher. The reality is that as China flexes the muscle it has amassed over the past few decades, the games industry is especially vulnerable -- because for many years, the seemingly infinite cash hoards of Chinese partner companies and access to the rapidly growing Chinese market itself have been seen as a panacea for companies faced with tough, unsettled market conditions in many other parts of the world.

Tencent is the biggest games company in the world by some margin, and it's only the largest in a field of many Chinese giants. Just about every major publicly listed games company in the world has major dealings with Chinese firms on a number of levels; they've taken investment, launched a co-venture, licensed IP, or all of the above and more. There was always an unspoken understanding that a certain devil's bargain was being made, especially when it came to accessing the Chinese market itself. Companies would talk openly about the content changes they had to make (World of Warcraft's skeleton enemies being given some flesh for fear censors would find them offensive is perhaps the most famous example), since those are arguably a positive, or at least neutral, example of companies being sensitive to other nations' cultural mores.

"The reality is that as China flexes the muscle it has amassed over the past few decades, the games industry is especially vulnerable"

But it was far less common to hear any discussion of how certain terms might be automatically censored from in-game chat, how players' information might be shared to authorities in ways that would be considered a serious breach of trust in other territories, or how difficult and costly it might be to extricate the firm from such a relationship once it was in place. Now the other shoe is dropping, and some of the control companies were forced to accept within China's borders is threatening to flow over into their operations elsewhere as well.

To be clear, the implication is not that overseas investments by Chinese companies have all been some grand ruse, as some more extreme commentators have been suggesting; that's plainly ridiculous. Chinese companies invest and form partnerships overseas for the same reason as any other company -- to make money and grow their market. The problem is that their deep ties to the government and the authoritarian nature of the regime in which they exist makes them into a tool of convenience for that government when the need arises. And right now, that is putting the games industry, with its deep links to giant Chinese enterprises, right on the front line of a confrontation between the US and China that goes way beyond Donald Trump's grousing over the trade deficit. As relations between the two great powers worsen, it is inevitable that China will seek to use the commercial clout of major firms to spread its preferred narrative overseas -- and games will be seen as a key vector for that effort.

As China starts to take the gloves off in these situations, a line may well have been crossed among Western audiences -- and perhaps more worryingly, among US lawmakers. The consumer boycotts of Blizzard's products this week are well-intentioned and justified, but compared to the weight of the potential consequences to Activision Blizzard from really upsetting its Chinese partners, they amount to little. Still, the reputational damage this has caused isn't nothing, and it's very notable that Epic Games, one of the more blatantly China-linked firms in the industry (Tencent owns almost a half stake in the company), actually pre-empted any situation by saying it would never censor a player's expression as Blizzard had done.

We'll see how far that promise goes should such a situation actually arise, but no doubt Epic's decision to make a statement was informed in part by the speed with which lawmakers condemned Blizzard's action -- a rapid response which suggests that legislators on both sides of the aisle in the US are especially sensitive to this kind of case right now, with a bipartisan consensus over harsher measures on China emerging in the background of the current administration's amateurish trade war posturing.

This isn't a fight games companies would ever want to be trapped in the middle of, because it's a fight that's going to far outlive the Trump administration and is almost certainly, ultimately, going to involve some pretty serious legislation that imposes major burdens and costs for US firms that are over-exposed to China. Growth opportunities in this market have always come at a serious cost, as companies were forced to partner with local firms who often played fast and loose with both accounting and intellectual property. Now those opportunities look even more like a poison pill.

The more exposed a western firm is to Chinese business interests, the more likely it is to be forced to kowtow to CCP censorship and propaganda lines, even in its overseas dealings -- and the more likely it is to find itself in the line of fire for whatever regulatory and legislative response the US and other developed countries eventually devise. Blizzard's awful week is only the first in what will be a long, long chapter of cautionary tales. For game firms who have seen Chinese investment and market access as an easy way to grow in a tough global market, the time is now coming to pay the piper.

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