steam china

Why does Steam set China as a low-price area?

10 minutes to read
Article
Yan Shen
25/03/2020

Steam is a digital distribution platform launched by US video game maker Valve Corporation on September 12, 2003. Steam launched the RMB settlement function in 2015. By comparing the prices of the same game, it is clear that, when Steam users in China (mainland) can pay directly in their currency, RMB, they need to pay far less than what the cost is in US dollars (paid via international credit cards). 

This article will discuss why Steam has set China as a low-price area for game selling, mainly from the perspective of uneven development in the process of globalization.

Icon of Steam

 

The birth of video games

The video game was born in 1952. The original video game was a tic-tac-toe game. The tennis game "Tennis For Two" was then released in 1958 (Sun, 2009). At the same time, there are also those who claim that "Space War!", released in 1962, is actually the earliest video game (Bellis, 2017).

No matter which of the above is deemed the first video game, it is not difficult to observe that all these games were born in the West. In the eastern part of the world, the history of making video games began in the 1970s, and only Japanese game companies like Nintendo were involved in the field. When China’s first domestic video games appeared, it was already the 1990s.

Video game copyrights

In the United States, the law has played an enormous role in protecting game copyrights. Under the broad framework of copyright protection for video games, the US courts responded to the electronic game industry in different periods tending to existing copyright issues and showing sufficient flexibility in the application of copyright laws.

Under the premise of ensuring compliance with basic judicial rules, judicial value orientation had to be appropriately adjusted so that judicial judgment could be well-adapted to the development needs of the video game industry in various periods. This has helped create tremendous prosperity in the US video game industry and video game culture (Xiong, 2017).

China's copyright law does not explicitly classify electronic games as works.

In China, pirated game discs have been popular all over the country since the last century, and buying original games seems to be a concept that has only existed for nearly a decade.

At the same time, China's copyright law does not explicitly classify electronic games as works. In judicial practice, judging whether plagiarism exists in video games is usually done through a comparison of a particular part of the game (such as its music, art, or characters) to the alleged plagiarised work. This approach lacks protection for video game ideas and game rules, so it is hard to protect video games truly (Xiong, 2017).

The impact of economic imbalance on pricing

As Immanuel Wallerstein points out, there is inequality to be found in the process of globalization. In the world economic system, developed countries have more rights to make more profits in production. In global trade, they are often involved in businesses that require more knowledge support. Also, this part of the profits is much bigger than the labor-intensive industries that provide products and raw materials in developing countries (Wallerstein, 2006).

"The basic idea was very simple. International trade was not, they said, trade between equals. Some countries were stronger economically than others (the core) and were, therefore, able to trade on terms that allowed surplus-value to flow from the weaker countries (the periphery) to the core. Some would later label this process 'unequal exchange.'" (Wallerstein, 2006)

This injustice has exacerbated the imbalance in economic development. Therefore, developing countries find it more difficult to develop their economies. In the case of an underdeveloped economy, it is difficult for people to consume pure entertainment products such as games.

Economic development and shopping preferences

As mentioned above, the economic developement level of the US and other Western developed countries far exceeds that of developing countries such as China. This difference in economic levels leads to different needs. According to Maslow's (2000) theory of demand, the majority of people in developing countries may still remain at the level of physiological needs, security needs and, at most, social belonging needs (see Figure below). People in developed countries can easily reach higher levels of demand because they have a sufficient economic base to support these behaviors (Maslow, 2000).

So, which level of needs should video games belong to? This may depend on the mindset of the player. If it is for entertainment, it may be a case of social belonging needs. If the gamer is focused on the thrill of beating other players, it may be a case of self-actualization needs (Maslow, 2000). In short, the kind of entertainment needs that games may fulfill is not in line with basic physiological needs or security needs. Video games are not life necessities; they are just products for amusement.

In this way, we can explain why a lot of the Steam users in developing countries such as China “buy” free games like Dota2. However, in developed countries like the US, there are many games that are expensive and still sell well. Because for the less developed regions, a game is just a pastime, it is dispensable. Spending much money on buying a game is obviously a luxury. For the people in developed countries, these consumptions are a pursuit of entertainment, and it can be said that they are already part of their necessities.

Still, we cannot easily argue that people in developing countries like China have no entertainment needs. In China, because people do not have the habit of spending on non-essential items like games, there are many low-cost and even free pirated games to be found.

Consumption preferences and platform pricing

The Steam Store has different price settings for different countries. Depending on the level of consumption in different countries, Valve Corporation has different pricing for games in each region. For example, the US region is a standard-price area, Europe and Australia are high-price areas, and Russia and Indonesia are low-price areas.

Because users in different regions have different preferences for game consumption, the platform has different strategies for pricing. As we can see in Steam Spy's pricing advice, the company has regional recommendations for game pricing. For example, when selling games in the US and Europe, doubling the price is suggested, while for countries with lower GDP per capita, such as the BRICS, an appropriate price reduction is suggested. When referring to China, the platform explicitly mentions that pirated games in China are very common (Galyonkin, 2015).

Due to the lack of strict copyright regulations, Chinese players are accustomed to downloading free pirated games from the Internet.

This is because people in lower per-capita GDP countries have lower incomes, and their desire to buy games is lower than that of people who live in developed countries. At the same time, compared to users in developed countries, the money they can spend to buy games is less, so the platform will recommend setting a lower price for them. In developed countries such as European countries and the United States, due to high disposable income per capita, people are more willing to invest in entertainment needs, and more money can be invested into buying games, so the platform will recommend increasing prices or even doubling them.

The situation in China is even more special though. Due to the lack of strict copyright regulations, Chinese players are accustomed to downloading free pirated games from the Internet. Coupled with the country's low per-capita GDP, all of this has made Chinese players not that interested in buying games. This also means that selling games in China is more difficult than in other countries. So, only by decreasing the price of the game will it be possible to increase sales. This is the exact reason why Steam has set up China as a low-price area.

Steam and Russia as a low-price area

The low-price area policy mentioned here has been implemented for years, and it has long featured several countries like Russia and Brazil. Here, we take Russia as an example because the situation in Russia is more similar to the situation in China: like in China, pirated games in Russia are very common.

In the case of Steam, the games that are not "localized" for Russia (low-cost status, language support), only have a 1.7% of Russian users. For localized games, the proportion of Russian users can rise up to 6% (Galyonkin, 2015).

Russia's mature low-price area strategy has successfully established a solid market in Russia.

Let's make a calculation. Suppose there is a game that is sold for $60, with a sales volume of 500,000, and the Russian market has a sales volume of 8,500, yielding a revenue of 8,500 x 60 = $510,000. If the price in Russia becomes $30, assuming the volume in other regions does not change, then the total sales volume is 50x (1-1.7%)/ (1-6%) = 523,000, with the Russian market having a total of 31,400 sales, and a revenue of $940,000. This means that, after the price is halved, sales in the Russian market can increase by 3.7 times and revenue can increase by 84%. In other words, the price of the game is decreased, but a larger total profit can be obtained.

Russia's mature low-price area strategy has successfully established a solid market in Russia, enabling the Russian game market to establish a comprehensive local distribution system, so all new games can be released in the country as soon as possible.

Moreover, Steam itself can even give a more considerable margin. For example, Steam can sell new 3A class games for $20 (1200 rubles) in Russia. The situation in Russia shows that it is not feasible to talk about an "original game" without considering the localization of the market and purchasing power.

The significance of China for Steam

In this section, we will discuss data that can be found on Steam Spy and can be accessed via this link.

First of all, the core characteristics of the Chinese user base are clear: the average number of games owned is far lower than that of other countries, but the average gaming time in two weeks is the same as the world level.

However, how can we believe that the "potential" of the Steam platform in China is huge? Another statistic on the website shows this very clearly. Just half a year after its release, the 3A class game GTA5 was sold in North America for $60, but it had become the third highest-ranking game Chinese users owned, even surpassing Valve's flagship product, the free game TF2 which was released in 2007.

Therefore, after the miraculous result of GTA5, the "potential" of the Chinese market was revealed to be undoubtedly huge. For the sellers, especially the 3A class game sellers, the temptation of the Chinese market is enough for them to re-adjust the price.

Steam, low-price areas and China

Due to the imbalance of economic development in the process of globalization, the per-capita income difference between different countries is large, and China's per-capita GDP is lower than that of European countries and the US. Because per-capita GDP is low, entertainment products such as games are not so necessary for the Chinese people. Also, the copyright management of games in China is not strict, which makes pirated games popular. Chinese players have thus become accustomed to cheap or even free pirated games. As a result, they have a lower propensity for game consumption.

Players in developed countries that have higher GDP per capita, in addition to basic physiological needs and safety needs, are more demanding in terms of love and belonging needs as well as self-actualization needs. Games and other entertainment forms can meet these needs, and because of their higher income, people in developed countries can spend more money to buy games.

Steam's low-price area policy was found to be successful in Russia. This successful precedent gave more practical support to the establishment of a low-price area in China. At the same time, the Chinese market does have great potential, and it is worthwhile for game companies and the platform to lower the price of games to increase total sales.

All in all, we have seen how the preference for game consumption has an impact on platform pricing. Steam has thus specifically increased the pricing of games in the US, European countries and other developed countries. In developing countries such as China, the platform has chosen to decrease prices and set up low-price areas to maximize its sales - and it's working.

References

Sun. (2009). Video Games Introduction. Beijing: Higher Education Press.

Bellis, M. (2017). Spacewar: The First Computer Game Ever Created. Retrieved from https://www.thoughtco.com/history-of-spacewar-1992412

Xiong, L. (2017). Historical Evolution of Video Game Copyright Protection in the U.S and Its Enlightenment. Master’s Degree Thesis, Zhongnan University of Economics and Law.

Wallerstein, I. (2006). World-systems analysis (4th ed.). Durham, NC: Duke University Press.

Maslow, A. (2000). Classics in the History of Psychology -- A. H. Maslow (1943) A Theory of Human Motivation. Retrieved from http://psychclassics.yorku.ca/Maslow/motivation.htm

Galyonkin, S. (2015). Some things you should know about Steam – Steam Spy. Retrieved from https://galyonk.in/some-things-you-should-know-about-steam-5eaffcf33218

Galyonkin, S. (2015). Pricing on Steam – Steam Spy. Retrieved from https://galyonk.in/pricing-on-steam-67d1e040b543

Chinese - Language Stats (2017). Retrieved from https://steamspy.com/language/Chinese

Steam strengthens zone restrictions, games bought in the low-price area will be locked with area activation (2016). Retrieved from http://games.sina.com.cn/t/n/2016-12-20/fxytqax6841891.shtml