China's Emerging Influence

Welcome to Master the Meta, a newsletter focused on the business of video games.

Unless you love geopolitical controversy, it’s probably a nice time to live under a rock.

China’s diligent censors cracked down on the NBA — and the Rockets in particular — after GM Daryl Morey fearlessly (or mindlessly?) supported Hong Kong on Twitter (which is ironically blocked in China). Broadcasts were canceled, merchandise was pulled, and TikTok is even acting like the Rockets don’t exist. According to Stratechery, this is what happens when you search ‘Warriors,’ ‘Lakers’, and ‘Rockets’ (using Chinese symbols) in TikTok:

So much for China’s favorite NBA team.

Although the response came multiple days later than it should’ve, NBA Commissioner Adam Silver finally stepped up to defend Morey:

I think as a values-based organization that I want to make it clear…that Daryl Morey is supported in terms of his ability to exercise his freedom of expression… The NBA will not put itself in a position of regulating what players, employees and team owners say or will not say on these issues. We simply could not operate that way... We will have to live with those consequences.

Consequences indeed. It turns out that standing up for your values can be a costly endeavor; consider it an emerging “woke tax.” Sadly, despite the immense complexity of this situation, the blabberers on Twitter are probably right that there is increasingly a binary decision at play: values or money. Speak up and suffer, or bend the knee and benefit; silence may not be passable anymore. What the blabberers seem to forget, though, is that this “money” doesn’t live in a vacuum and only harm “evil rich people”; there are natural ripple effects. All stakeholders — customers, employees, suppliers, shareholders, communities — suffer when there’s less money to go around.

South Park responded on brand...

Like the N.B.A., we welcome the Chinese censors into our homes and into our hearts,” the show’s creators said in a tongue-in-cheek response. “We too love money more than freedom and democracy.

… but few other brands can afford to boast a similar attitude.

Much of the tech industry’s supply chain resides in China (Apple, among others, should rapidly start investing in manufacturing elsewhere). Entertainment titans like Disney earn billions from China and have thousands of employees there (is it therefore a surprise that ESPN is forbidding discussing Chinese politics?). 

China has the leverage. It let our American companies become reliant on its citizens, and it’s now taking advantage of that reality to push its agenda. This isn’t new — China’s cracked down on companies who speak ill of it for decades — but it’s clearly reaching a new level.

It’s even affecting video game companies. From The Wall Street Journal:

Activision Blizzard, one of the world’s biggest video game companies, on Tuesday said in a blog post that “Hearthstone” competitor Ng Wai Chung, known as “Blitzchung” in the game, violated its rules that bar players from actions it considers offensive to a public group or that could damage the company’s image.

The gamer, in a live online interview after winning a match on Sunday, said “Liberate Hong Kong, revolution of our time,” a slogan commonly associated with the protests. He wore a gas mask and goggles while he spoke. Hong Kong last week banned protesters from wearing masks.

Activision Blizzard said the player, who had no immediate comment, won’t be allowed to compete in the second season of the digital card game’s Grandmasters competition and will be banned from playing any of the game’s company-run competitions for one year. He also lost the $7,000 awarded for making it into the tournament’s second season plus the chance to win up to $200,000 in prize money.

The Internet is up in arms at Activision’s decision. #BoycottBlizzard is gaining momentum, Twitch chats are full of pro-Hong Kong spam, and the pressure for a response is mounting. Yes, Activision’s leaders took the cowardly and unpatriotic approach, and from a PR standpoint they could do much better. Yet with most things… it’s complicated.

Activision has heavily invested in China, and China (Tencent specifically) has invested in Activision (among many other publishers). China is the largest gaming market in the world, and Tencent works closely with Activision to distribute and develop games (like the most recent Call of Duty: Mobile). Activision holds multi-national esports ambitions, and important licensing deals, like the Warcraft movie, succeeded because of Chinese fanfare.

In other words, Activision Blizzard has a lot to lose. If the company responded with sympathy to its Hearthstone protestor, more than profits could be lost. Entire games, partnerships, customers, suppliers, employees, and more could seriously be impacted for the worse.

The bigger question is what happens from here… and not just regarding Activision Blizzard. The internet allows anyone to speak his or her mind; many individuals will seize the opportunity to speak when given the spotlight, and mob-like consumers are using that power to force companies into choosing a position. Suffer and be praised or survive and get condemned; pick your poison. I bet other publishers and esports organizations will find themselves in similar situations soon (heck, NBA 2K recently announced a new Shanghai team).

For all we know, the noise surrounding this global controversy will die down, and we’ll return to business as usual. Unfortunately, if the noise continues, there’s really only downside for China-exposed American companies. Either stand up for your morals and reduce your global footprint (ceding business to Chinese alternatives)… or maintain your globally growing business while caving to China’s political agenda. Heads you lose, tails they win.

There are no easy answers.

  • If you’re a China-exposed business (video game or otherwise), you should 1) seek out alternatives for supplier purposes, 2) don’t apologize for someone else’s words, and 3) continue to respect the Chinese consumer (like any other consumer). Fight to serve everyone, but understand that you are risking both your economic and moral worth by deeply exposing your business to China.

  • If you’re not a China-exposed business, that’s perfectly fine. If there’s a relatively risk-free way of entering the country, great; if not, decide on what you’re willing to give up if you’re forced to make a tough decision.

  • If you’re the US government, you should be fully on top of this… yesterday. It’s clear that China is using both US companies and Chinese companies (like TikTok) to push its agenda. This activity should be heavily monitored, and any acquisitive / investment attempts even more so. In some sense, monitoring and regulating what companies are allowed to do is a more important aspect of any “trade war” than something like tariffs. 

Lastly, let me end with this meme (h/t Elaine’s Idle Mind):

Despite the obvious differences, what China and the US want is far more alike than different. However this Hong Kong situation ends — probably in China’s favor — it’s a shame these matters keep our countries from working closer together.

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