Palace adventure: FriendTimes

A niche video game publisher targeting the underserved

My generation is the generation of kids where gaming was encouraged as an after school activity as it is suppose to “help” your brain until there is a huge backlash against gaming.

Gaming is suddenly seen as an addiction, a platform to make kids violent (please see Darroy’s article on gaming to understand the history of gaming).

Like any entertainment platform, their main aim is to make you addicted. The issue with video gaming is that you are doubly affected as unlike television program, you are immersed into the world. We could really see why gaming could be seen as a social ill in China but that do not take away the fact that they are good revenue generator generating margins that is the envy of most industries.

Unlike Tencent which has games in every genre, this company we are going to chat about is a gaming company from China building games for a particular niche genre.


The company we are talking about is FriendTimes Inc (FT). FT makes games for the female gaming market. Their top grossing games are all ancient Chinese style games.

The story usually starts with the protagonist starting as a lowly servant before working diligently to earn the love of the prince or the emperor. In order to do so, the gamer will need to work on lots of tasks to gain level, find friends to join or form an alliance.

It is sort of a mix of Role Playing Games (RPG)*, intersect with life, love and work simulation. You can work very hard on the game and do not progress much, thus making gamers who wants to know the storyline to pay in order to progress.

If you have bought it just slightly after IPO when they are buying back their shares, you would have been up a fold. At this price, you would be getting the company at around 10x forward earnings, at 30% plus ROE which look very reasonable.

The share price had retreated recently as investors are most likely worried about the drop off in their revenue for their legacy games.

Market Thesis: The drop in revenue for their legacy games signify a departure of gamers from their ecosystem.

We will attempt to invalidate the market thesis to justify if there is an investment opportunity by analysing the

  • Profile of the gamers and Appeal of the game

  • Growth strategy of FT and Monetisation

Profile of the gamers and Appeal of the game:

In 2019, the number of female gamers in China hit a record high of 300m representing around 42.6% of the gamers in China.

At the same time, while female gamers make up of 46.2% of the gaming population, they only account for 22.8% of the revenue spend in 2019.

The most popular games for female gamers in China now include games focusing on dress up - 换装, love simulation - 乙女 and ancient Chinese style - 宫廷

The commonality of these games is that the games need a serious commitment of time. Unlike PUBG, Fortnite which per game play last around 20 minutes, any of the female games include committing hundred of hours per gameplay.

FT focuses on games with theme on ancient Chinese style - 宫廷.

Their top games which are

  1. Fate of the Empress

  2. Legend of Empress

  3. Royal Chaos

  4. Rise of Queendom

forms 98% of their revenue base. Do take note that these are all RPG. In addition, the games above also has elements of dress up and love simulation incorporated to ensure that the game manage to capture as many segment of audience as possible.

While FT only control 2.9% of the whole market for female gamers, they completely dominate the genre of ancient Chinese style games. In their prospectus, they indicated that they control 31.5% of the market share. Even Tencent is trailing them at 2.9%.

The reviewer below played for 431 hours. By vesting so much time in making your character better, a lot of the gamers find it hard to leave the game.

85% of the FT gamers are female, and 50% of them are between the age of 23 - 29 years old having a specialist qualification or a bachelor degree. They are not students but working adults who are able to spend serious money to have some fun!

FT do have a very lucrative niche if they are able to build on their initial success. On the other hand, the bane of being a niche producer is that when the genre goes into a decline, you recede with the tide.

From a investor point of view, we would want the game developers to develop many genre of games allowing for some diversification. But we already have that in Tencent and Netease.

If we decide to invest in FT, we are investing in the possibility of sustain growth in the female gaming space and that FT is able to expand their market share of female games.

In RPG games, due to the extreme vesting of time by each gamer, the longevity of the game tends to be very long.

Legend of Empress was released in Sep 2015 and had only gone into recession in the last quarter!

Growth strategy of FT and Monetisation

Let’s dwell a tad into the history of FT.

FT first successful foray into the female gaming market is the Legend of the Empress in Sep 2015. It is a 2D game with gameplay closer to the early 2000 than now.

It is hard to analyse why a game succeeds or not but it stayed within the top 1000 selling games for the past 5 years.

In 2017 Sep, they managed to use the same storyline and launched the Royal Chaos. The only difference is that the game is no longer in 2D but has a 3D interface.

In March 2018, they launched the Rise of the Queendom which is a continuation of the story for Legend of the Empress. The sequel was a success with the game trending within the top 40.

The beauty of launching a game series is that there is a continuation of the storyline which allow gamers to migrate from one game to the next which kept FT gamers within the same ecosystem.

The launch of Fate of the Empress build on the success of the storyline development of the Legend of the Empress as well as the 3D capability developed in Royal Chaos.

The gameplay continue to be similar allowing older gamers to build upon the earlier knowledge. This “backward compatibility” in the game will continue to ease gamers into the next game (which usually feature higher complexity) but may create additional barriers for new gamers who may not be following the series.

The type of “mini-games” within Fate of the Empress had extended from the standard battle scene from Legend of the Empress. The new “mini-games” include quizzes, beauty pageants, puzzles, taking care of pets and of course designing your character and playing dress up! Having an “open map” (just the palace for gamers who chose to be female) to walked around also enabled more interaction between the gamers.

With heavy advertising, experience from previous hits and a crowd eager to move into the new game, it is no wonder that Fate of the Empress is one of the fastest grossing games in China!

The choice of monetisation for Fate of the Empress is similar to previous games where gamers are suppose to fork out money for items which will help them to game battle strength and advance in the game.

For the small spender - 小氪, they can spend up to RMB 120 to unlock up to VIP level** 4. For the medium spender - 中氪, they can spend up to RMB 1000 to unlock up to VIP level 8. For the heavy spender - 重氪, there is mention of gamers who spend up to RMB 10,000 and more on each character. Since some of them have multiple characters, the cost can pile up quickly.

When games are first launched, a large number of gamers are attracted to try the new games freely or to spend a small amount of money to try certain functions of the games. As such, in the early growth stage, the average DAUs and MAUs would be relatively higher while its ARPPU would be relatively lower.***As time goes by, some gamers who become less interested in the game will gradually play less or cease to play the game and those gamers with keener interest in the game will continue to play the game leading to lower DAUs, MAUs and higher ARPPU.

FT ability to get gamers to build a long term relationship with their in game character, the ability to galvanise gamers to bring in other gamers, to form meaningful relationship or adversaries within the game, the ability to build communities which can be monetised are strengths which would take time for others companies to catch up on. There is also concerns which we could not resolve below.

Complaints and Conclusion:

If you go online to see the reviews of the games, there is 3 major complaints.

  1. New gamers complaints - The advertisement of the games and the actual gameplay of the game is substantially different.

Advertisement: The gaming industry in China had always resorted to such tricks to get potential gamers to download their game. This allow them to bump up their numbers attracting more gamers which often backfire when reviewers go online to lambast them. This action while common within the industry will destroy FT reputation with their newly acquired gamers. We believe that in order to rise above the competition, game publishers should at least deliver what they had promised.

  1. New/Migrated**** gamers complaints - The game requires “substantial investment” to continue playing at a decent level.

Substantial investment: Everyone goes into free to play games expecting to pay to win, but not much new gamers expected that they could be “force” to part with their money so quickly. The worst part is that even if you are willing to part with your cash, the gamers soon realise that they still cannot beat the other gamers as there are so many heavy spender - 重氪 around. This deter new gamers from playing eventually reducing the number of gamers and reducing the attractiveness of the game. Economics of pay to win game is one of the trickiest things to balance and the economics imbalances will eventually doom the game.

  1. Migrated/Existing gamers complaints - The update of the games are excruciating slow and gamers are demanding a faster update to continue the game

Gamers are complaining that the updates for the game had basically stalled. We believe that FT deliberately stalled the story to allow them to get more players to fork out cash to maintain their position within the game. Squeezing that extra dollar from loyal gamers is just distasteful. At the same time, during the time of writing, a couple of their servers had gone down creating widespread unhappiness.


Going back to our thesis at the start of the article: due to the heavy marketing by Fate of the Empress, their legacy games are facing a drop off in revenue as gamers are being diverted to Fate of the Empress. Fate of the Empress had cannibalised their audience from their older running title such as the Legend of the Empress!

We believe that the drop in revenue for the legacy games is just a migration from the legacy games to their new game.

Retention of existing customers within the system: If Fate of the Empress continue to “irritate” their new/existing clients through constant “monetisation” tricks, they may possibly lose a substantial portion of their client in a permanent manner to the next well advertised game. The complaints against the economics of the game are real as it would be harder to attract new gamers which makes the economy of a game to go into an early decline. If a game shrinks, the heavy spender - 重氪 may just decide to pack their bags and leave for the next better game.

Stagnant TAM: FT had basically hit their maximum Target Addressable Market for Chinese female gamers in the ancient Chinese style games. The way to continue growing is to expand their reach to the regional countries which understand ancient Chinese style games such as Korea, Vietnam, Taiwan, Malaysia and Singapore which are a lot smaller than China.

Moving into other genre: FT needs to expand their market share into different genre of female games to continue growing and that means moving into unfamiliar territory and additional risk.

Positives: The continued share buybacks and the insider purchase warms the cockle of our heart but we believe it is hard to justify putting any serious buck into FT unless we can resolve the few questions we had raised above.

New thesis: FT’s current strategy of rapid monetisation will boost their short term returns but hurt their long term prospect as they will be seen as a brand which female gamers might want to avoid.

If you have an alternative view, do hit on the comment button below.

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*RPGs refers to role-playing games in which users assume the roles of characters in an evolving fictional setting or world. RPG game accounted for 29.7% of the total mobile game market in the PRC in 2018. The market of RPG mobile game in the PRC is relatively concentrated.

** VIP level usually allows you to accumulate experience faster allowing for faster progression within the game.

*** DAU = Daily Average Users, MAU = Monthly Average Users, ARPPU= Average Revenue Per Paying User

**** Migrated gamers can be gamers who moved from other genre to the ancient Chinese style