Game Engine as a Competitive Advantage for Game Developer?

I joined a Hong Kong listed Chinese game developer conference call last Friday.

I don’t remember most of the stuff discussed but the call gave me an impression that the company believes having technical capability in game engine is kind of competitive advantage.

The management mentioned that some of their high quality game are developed in UE4 and they boast some kind of industry leading position (for example, the first Chinese XXX mobile massively multiplayer online role-playing-game, MMORPG, developed in UE4). Of course, the company also has other games developed in Unity3D and it might just want to showcase their research and development capability because Unreal Engine is known for its deep learning curve.

However, the management’s focus on game engine in the presentation indicates they might not be so innovative on gameplay, game genre or exploring new game business model. The capability of game engine and investment in customized engine might make future game development less flexible (from outsider’s perspective). The organization has tendency to keep iterating what they are good at or familiar with especially when the path is justified by previous large investment (suck costs). We can expect the company’s future game portfolio in terms genre will look quite similar today. The company currently focuses on MMORPG and simulation game (SLG) and it plans to release several games in those two genre but only 1 game in new genre.

There’s nothing wrong with the sustaining technology approach mentioned above. It’s understandable a company’s core competency is only in certain genre which links to gameplay, art style, story setting (IP type) and business model (monetization). The problem of this specialization is that it limits the optionality from other genre. If the game developer cannot explore more gameplay or monetization from genre they are good at, the business is just a pipeline while sometimes the revenue stream might be boosted by a hit. As this developer has established portfolio, it’s better than hit-driven, boom-bust business but there’s less growth potential from the business. Market tends to value this type of company by normal level P/E multiple and maybe with some premium if it’s a leading player.

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