Hollywood studios invest in Hong Kong developer of smartphone games

Local platform Fifth Journey has the skills and know-how to get big-name titles into the right hands in China – and the studios are giving his team inside access to the creators of upcoming releases

PUBLISHED : Monday, 14 March, 2016, 6:00am
UPDATED : Monday, 14 March, 2016, 6:00am

Fifth Journey has a co-working space at Blue Print in Taikoo Shing, but the company will have to find a bigger space to accommodate more people because the plan hatched by chief executive and founder Eric Tan Xuen Da is fast becoming a reality.

The company, founded last March, announced recently that three Hollywood studios – MGM, Lionsgate and Universal Pictures – have taken a minority stake in Fifth Journey. It is, according to the local game developer, the first time Hollywood has invested in an Asian mobile entertainment company.

Tan would not divulge how big the stake was, but added even “Hollywood celebrities”have expressed interest in investing in the company too.

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Fifth Journey is touted as a one-stop shop that doesn’t only offer free downloads of games and movie trailers but also allows users to buy merchandise and movie tickets through its mobile phone app. But most of all, it could become a profitable tool for film studios to recoup some of their production costs.

Mobile gaming can be hit or miss. There are thousands of games out there for smartphone users but only one in 10,000 makes it big, says Tan. But if it’s a hit, it’s like winning the jackpot. Candy Crush Saga developed by King.com, for instance, makes US$500-$800 million a year, says Tan, while Supercell’s Clash of Clans makes between US$2-$3 million a day.

Fifth Journey increases its chance of success by featuring characters from Hollywood blockbusters in its titles, which it sells to one of the biggest game markets in the world: China.

While there is a quota imposed on the number of Hollywood productions that can be screened on the mainland (34 titles a year), there is no such restriction for mobile games.

“The Hollywood box office is flat. But with gaming, it gives them a way to get into China,” explains Tan, 36.

However, tapping into the vast mainland market is not just about translating everything into Chinese. Tan has to make sure games developed by Fifth Journey are properly distributed and localised.

He explains in the West the distribution channels are Apple Store and Google Play. But in China, game distribution is fragmented into some 100 different channels and outsiders must work with top industry players like Baidu, Tencent and Netease.

“We have the edge because we know which channels to work with depending on the type of game, genre and audience,” says Tan, who had previously worked at two major game developers, Electronic Arts and Gameloft.

“The second is the culturalisation.”

He says for the game Despicable Me, developed by Gameloft, the file was shrunk from 150MB to 50MB for the mainland market: “We had to do this because data is quite expensive for average Chinese consumers compared to Hong Kong or the US,” says Tan.

“Because they are very sensitive about file size in China, we have to do audio and video compression and we might sacrifice some of the later stages of the game. Another issue is the game difficulty. In the Western version, 60 per cent can’t get past the first round, but in the Chinese one, we tutorialise the game so that you will pass it.”

For the mainland market, players will have to pay hard currency to continue if all their virtual lives have run out. In Despicable Me, an extra life costs only one yuan, charged to the user’s mobile bill, but this rule alone contributed to 70 per cent of the game’s revenue. “It’s impulsive buying,” says Tan.

He says Chinese players are willing to pay for the game once they like it.

“If you charge them 6 kuai in the beginning, they wouldn’t pay up front. But once they play it and like it, and you offer them a VIP package worth 600 kuai, they’ll buy it. For a Communist-influenced country they are very capitalistic,” Tan says with a laugh. “In some ways China is ahead from a monetisation aspect.”

Tan says the mobile gaming market is already much bigger in China than in the United States, but only a few Hollywood mobile games are available. Currently, the best-selling titles on the mainland revolve around popular and familiar stories such as Journey to the West and Romance of the Three Kingdoms.

But as pressure grows on Hollywood to recoup its production costs, it is turning more to gaming and China.

Perhaps the biggest challenge in Tan’s latest venture was getting permission to use Hollywood characters, which he did through sheer hard work together with working the contacts he had in the entertainment industry.

“First and foremost you have to be passionate about the IP [intellectual property]. We are huge fans of the franchise The Expendables, but there’s also the business aspect. Expendables 3 was a flop in the US and only made US$25 million, but in China it made three times as much, and Terminator Genisys was also a flop but made US$28 million on the first day it was released in China,” says Tan.

“Many gaming companies want to work in Hollywood, but we understand their stories and characters first and then decide what kind of game to make.”

Fifth Journey can even help studios create sequels or prequels and side stories, like in the case of Expendables for Lions Gate. “And for fans that comes across as very authentic. They can even test out storylines or introduce characters to see how the gamers like them.”

The three Hollywood studios are so keen for Tan to get started that his team has been given permission to look at movies six months ahead of the release and have access to the writers and creators of the movies for as much information as they need to create the games.

The actual design of the storylines and characters, the game design and the monetisation are done by Fifth Journey’s creative office in San Francisco, led by chief creative officer Craig Derrick, while publishing, sales and marketing, dealing with Asian channels and distribution are done in Hong Kong.

Tan has extensive experience in the entertainment industry. Born and raised in Hong Kong, he went to university in the UK. One of his first jobs at 18 was as a trainee at an accountancy firm but admits he was not cut out for the job.

But growing up he loved everything entertainment – listening to Michael Jackson and Jacky Cheung, watching Jackie Chan movies and Sam Hui comedies. He eventually managed to get a junior sales position at Warner Music, later moving to Universal Pictures in London, doing financial strategy, planning and analysis.

By 2005 he moved back to Hong Kong to work at Universal Music Asia Pacific, where he specialised in digital distribution of albums on iTunes and Tencent, and then five years later switched to gaming at Electronic Arts in Beijing, where he sold games like Need for Speed and Sim City.

In 2012 he became managing director at Gameloft, publishing Hollywood titles, like Marvel Captain America, Spider-Man, Ice Age Village and Despicable Me.

With this experience, Tan felt it was time to take a few more risks before he turned 40. He believes mobile games are still in their infancy.

“Hong Kong hasn’t had much buzz in the entertainment industry since Norman Cheng of Polygram and Golden Harvest with Raymond Chow in the 80s. We hope to use Fifth Journey to raise the flag for Hong Kong.”

There are plans to produce five or more titles in the next 18 months, with the first one from Universal Pictures in August.