miHoYo Isn’t Playing Games, The Wire China, Feb. 5, 2023.
A look at the Chinese gaming company: its history, how it became a serious competitor on the global scene, and what the future has in store.
Tencent has long dominated video games in China, and now leads the global gaming industry in terms of revenues. Any challenger hoping to knock it off its number one spot would need unprecedented growth, an incredibly dedicated fanbase, and a heap of perseverance.
Chinese video game developer miHoYo might just have all three.
Founded in 2011 by a trio of graduates from Shanghai Jiaotong University, miHoYo has spent the last decade creating its ‘HoYoverse’ brand of games that appeal to the so-called “otaku” population — people who are obsessed with Japanese anime, manga, video games
In September 2020, miHoYo released its biggest game to date: Genshin Impact, which took the mobile gaming industry by storm, becoming the fastest app to surpass $1 billion in revenue. But despite its success, miHoYo has drawn controversy, from Chinese content regulators to gamers themselves.
This week, The Wire looks at miHoYo: its history, how it has risen up the ranks to become a real competitor in the global gaming scene, and what the future has in store.
OTAKU ORIGINS
miHoYo’s founders — Cai Haoyu (now the company’s chairman), Liu Wei and Luo Yuhao — got their first break in 2011 at an entrepreneurship competition in Shanghai where Liu pitched the team’s plan to create content aimed at otakus that would primarily consist of “sweet, cute, kawaii [Japanese for cute], pretty girls”. Despite audience skepticism about targeting such a niche market, the team landed third prize, winning 100,000 yuan and six months’ use of office space in Shanghai to develop content. The company was incorporated in 2012.
Still, it wasn’t until the release of the action role play game Honkai Impact 3rd in 2016 that miHoYo started to gain traction as a serious gaming industry contender. According to a prospectus miHoYo published ahead of a planned initial public offering — which it pulled in 2020 — the game accounted for nearly 85 percent of its total revenue by the first half of 2017.
GACHA IMPACT
Genshin Impact would soon blow all of miHoYo’s previous success out of the water. By December 2022, just over two years after its launch, the game had already surpassed $4 billion in total revenue, according to data from analytics firm Sensor Tower.
The game’s premise is relatively simple. Players take on the role of a ‘traveler’ who must journey across the land of ‘Teyvat ’in search of their twin sibling, who has been trapped by a mysterious god.
Genshin Impact is what’s known as a gacha-style game — from the Japanese toy ‘gachapon’ — in which players can exchange real world money for in-game currency that they can use to purchase mystery items to help them in their quest. The game is free to play but some fans spend up to $90,000 to try to acquire certain characters to play with.
While Genshin appeals to a core otaku clientele, it has attracted a broad base of gamers, both male and female. That’s partly a result of the heavy investment miHoYo made before launching the game, spending around $100 million on developing its high-quality graphics, and even publishing a manga comic to introduce the world of the game from 2018 onwards.
Still, Genshin’s popularity wasn’t always assured. When a trailer for the game came out in 2019, many fans of Nintendo’s Breath of the Wild criticized it for its apparent resemblance to that game. miHoYo later admitted to wanting to emulate Breath of the Wild, with which Genshin shares several similar gameplay elements.
ULTURE CLASH
Japanese culture exerts a heavy influence over Genshin and other games in the HoYoverse: miHoYo’s company motto is “tech otakus save the world”. Still, as a Chinese company publishing games on Chinese platforms, miHoYo has to ensure its content adheres to strict domestic regulations, or risk being pulled.
According to industry reports, Genshin was criticized by officials at a government-led industry conference held in Beijing in 2021 for having “effeminate looking males” — part of a broader campaign launched by regulators in Beijing that year aimed at Chinese celebrity culture. The same leaked documents upbraided the whole genre of ‘Japanese anime content’ in online games as inappropriate.
These days, the characters in the Chinese version of Genshin wear more modest outfits than they do elsewhere. Meanwhile miHoYo moved the servers for its community site HoYoLAB to Singapore in November 2021, and has been opening more offices outside China as its focus shifts to the global market. The company did not respond to requests for comment for this article.
TRIALS WITH TENCENT
Can Genshin take miHoYo ahead of Tencent? By November 2022, miHoYo — whose stable of games is still far smaller than Tencent’s — was second only to the industry leader in terms of global app revenue, albeit by a wide margin.
MiHoYo has already bucked one industry trend. For years, Tencent has operated a strategy of buying up rival games designers which look like becoming successful. To date, miHoYo’s management has rejected Tencent’s offers to take a stake in the company, according to industry reports.
MiHoYo’s determination to remain independent in part stems from the fact that it is financially strong enough on its own two feet, says Chenyu Cui, a senior analyst at Omdia, a tech research and advisory firm. Cui says it also shows how Tencent’s investment strategy is changing.
“Previously Tencent would make small investments in companies to help improve its reputation, or to test markets, or to establish a relationship,” she says. “Now it generally seeks majority stakes in companies to enrich its [games] pipeline and revenue.”
Still, in a reflection of just how successful Genshin Impact has been, Tencent and miHoYo reached an agreement in 2021 for Tencent to be able to sell the game via its cloud gaming platform, an unusual step for Tencent given it has no control over the game.
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Ella Apostoaie is an editorial associate at The Wire. She is a 2021 graduate of Wellesley College, where she majored in East Asian Studies, with a primary focus on Chinese history and politics. Ella grew up in Norwich, England and is now based in the Boston area.