Summary of Key Points
Recently, "Travel Frog: China Journey" announced its official closure in December. Many people assumed the game had become unpopular, but the real reason was that the exclusive IP license for mainland China, which Alibaba acquired from the Japanese original team 8 years ago, had expired. Despite the fact that the operation team had created a large amount of localized content for China, accumulated millions of active users, and established a comprehensive operational system, the closure was inevitable unless the license was renewed. This incident has brought to the fore the underlying logic of the IP licensing business in the gaming industry, which has been hidden for years: most people think that when a game company "buys an IP," it buys the rights to the characters and story, allowing them to use it freely. However, in 99% of cases, what is purchased is merely the right to use the IP for profit within a specified time and scope. Essentially, the game company trades a portion of its future profits and operational control for a lower-risk entry into the market. By 2025, the domestic market for such IP games had reached nearly 300 billion yuan, with nearly half of all game companies participating in this practice. But the rules and costs behind it are much more straightforward than most people realize.
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Detailed Analysis
Why do game companies prefer to buy IP rather than develop their own games?
The reason is the high risks associated with developing new games. If you want to start a small business, you can either start from scratch, spending years on creating a unique menu, designing the interior, and advertising your restaurant, only to find that you might still have few customers and fail nine out of ten times. Alternatively, you can join a well-known franchise with a proven formula and a loyal customer base. The gaming industry is even more competitive: developing a new game from scratch can cost hundreds of millions, and there's a more than 80% chance that it won't be successful, resulting in all the investment being lost. Buying an established IP, on the other hand, is like getting a "pass" that has already been tested by the market. For example, "Travel Frog" was already a huge hit before entering China, so there was no need to explain the game's purpose to users; it skipped the risky stages of developing and educating new players. For game companies, this investment ensures a certain return on investment.
Do IP games really make more money than self-developed games?
Not necessarily. Comparing two real companies—China Mobile Games, which focuses on IP licensing, and Jibite, which develops its own games—reveals the truth. For IP businesses, for every 100 yuan earned, 60 yuan goes to the IP owner, distributors, and developers, leaving only 40 yuan for the company. In contrast, with self-developed games, the company keeps almost all the profits once they become successful. Moreover, IP games don't necessarily save on advertising costs; both companies spend more than a third of their revenue on acquiring traffic and advertising. An IP only guarantees initial interest from users; retaining them and encouraging them to spend money depends on the game's quality and content, and additional marketing efforts are necessary.
All licensed IPs have a built-in "death clock"
The hidden risk of IP licensing is that every penny spent must be justified by the remaining time of the license. If you have an IP license for three years and spend 1 million yuan on a new version, but it takes a year to complete and three years to earn that amount, you'll lose all your investment if the license expires before you make a profit. Many game companies rely on IP licenses for their revenue, but if the license ends, their assets (such as code and user data) become useless. As a result, they often focus on promotional activities to retain existing users rather than investing in new content.
The IP you use belongs to someone else
Even after years of investment, the IP remains the property of the original owner. For instance, despite Alibaba's 8 years of development and localization efforts, the rights to "Travel Frog" still belong to the Japanese company. The company can decide to end the license at any time, leaving the game company with nothing. Game companies gain operational experience and marketing strategies but lose any user assets accumulated during that period.
IP licensing is a fair transaction with clear terms
IP licensing is not a scam; it's a reasonable business model for small and medium-sized companies that lack the resources to develop successful games from scratch. It reduces the risk of failure significantly. While some profits must be shared, it's still better than investing millions with no guarantee of success. The closure of "Travel Frog" illustrates that what you buy is the right to use the IP for a specified period, not the IP itself.
In summary, while IP licensing can seem like a low-risk option, it comes with its own set of challenges and costs. It's a fair transaction with clear terms, but it's important to understand the underlying realities and risks involved.