After a few scorching years, China’s mobile game market is at a turning point. Jeff Lyndon, the president and cofounder of China’s iDreamSky Technology, fears that a downturn is in the works.

China is expected to hit $25 billion in gaming revenue by 2016, according to market-researcher Newzoo. Shenzhen, China-based iDreamSky, which managed to go public last year, is a big beneficiary of that trend. Like other rivals, iDreamSky specializes in taking Western games and publishing them for the Chinese market. Pretty soon, the company will introduce Chinese mobile users to a favorite: Monument Valley.

Few companies have been as nimble in adapting to change as iDreamSky, which has had more than 500 million downloads thanks to Chinese publishing rights for games such as Fruit Ninja. Growth has come easy. But it’s getting harder to acquire titles that the company needs.

We caught up with Lyndon at the Game Developers Conference in San Francisco. Here’s an edited transcript of our interview. Lyndon will also be one of our speakers at the GamesBeat Summit event on May 5 and May 6 in Sausalito, Calif.

Ned Stark's motto: "Winter is coming."

Above: Ned Stark’s motto: “Winter is coming.”

Image Credit: HBO

GamesBeat: What’s been changing fast since we last talked in September at GamesBeat 2014?

Jeff Lyndon: This year for the Chinese market, a lot of us are predicting a cold winter. 2014 was really hot. Any developer that came out of a big company creating some sort of a hit – just a producer and a couple of friends — could come up with a valuation of around $5 million right off the bat.

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Developers could get this kind of money because publishers were lacking content. A lot of the secondary genres weren’t being filled – first-person shooters, role-playing games, and trading-card games. Publishers are on a buying spree. They’ll pay millions of dollars for even B-level games in China. Because of that, VCs were willing to fund these companies – “Here’s $2-3 million, and six months down the road, you’ll have a game that a publisher will buy, even if it’s only so-so.” And if your game created top-line revenue, A-list Chinese companies – even if they’re not involved in gaming – would come in and buy you because they need that revenue on their quarterly report.

In the past 18 months, we’ve seen a lot of these developers being acquired by public companies in China. But what happens is that these deals almost always have a three-year convertible. More and more of these companies are seeing that game companies can’t necessarily maintain that top-line revenue over three years, and so they’ve stopped buying them.

Also, the land-grab in the Chinese game market is slowing down. There are leaders in each genre now, and so publishers are much more careful about selecting product. There’s less space for new publishers to come in to a crowded market, too. No one big is coming in to publishing anymore. The amount of content is decreasing, meaning we look for quality, meaning that a lot of developers who used to be able to just crunch out B-level games can’t do that anymore. VCs are seeing that and have stopped funding them. This year we’re looking at a 70 or 80 percent failure rate for developers in China.

iDreamSky games

Above: iDreamSky games

Image Credit: iDreamSky

GamesBeat: You had this boom in China. It’s starting to look more like a bubble.

Lyndon: The question is, how is the bubble going to burst? If it bursts earlier, it’s a smaller bubble. If it bursts later, it’ll be a bigger one.

GamesBeat: In Game of Thrones, the Starks of Winterfell have a favorite saying: “Winter is coming.”

Lyndon: That’s right.

GamesBeat: It almost seemed sustainable for a while.

Lyndon: The bubble can be sustained by user growth, but we’re definitely seeing a decrease in the user growth rate. We can see that in reports from Tencent and all the major platforms.

GamesBeat: I went to their event, and it did look like they were flattening out their game lineup.

Lyndon: Right. The land grab is ending. The part that’s scary, if you drill down, is that normally when you have a decrease in user growth rate, you have another way to support a game in the average revenue per paying user [ARPPU]. In general, ARPPU and conversion rate go up. But the decrease in one and the growth in the other aren’t matching. That’s why the bubble can’t be sustained. It’s a matter of time.

GamesBeat: The interesting effect over here is that a lot of Western game developers have been counting on that Chinese money.

Lyndon: That’s a good sign, actually. A lot of Chinese money isn’t going to Chinese developers or publishers because VCs have felt like it’s better to do a deal outside of China. You get more experience and more quality, a more stable investment. If you’re looking for a company with a $10 million valuation, you can find one in the U.S. or other parts of the world with an actual track record that can give you a predictable forecast.

GamesBeat: So the Western investments go up because they look better compared to what’s available in China?

Lyndon: A lot of Chinese conglomerates are seeing that. One thing I’ve observed for a while, and now I’m confident in saying that it’s the right time — in the past decade or two, China has grown from a market no one cared about in gaming to a market that’s considered a cash cow. But the content here isn’t appreciated outside of China. No publisher in China is able to become a true global publisher.

With recent hits in the SLG [city-builder simulation] and RPG genres, though – some of them are Chinese-made, some are heavily borrowing from Chinese hardcore and midcore game mechanics – the time for Chinese companies to step into the global arena is here. Not just making money in the Chinese market, but moving toward exports. I see quite a few signs that this could be doable.

Heroes Charge is totally a Chinese game. Or if you look at Fire Age, those are very Chinese SLG mechanics with a Western skin. We see games like Dark Summoner from Korea also closely following Chinese monetization mechanics.

iDreamSky booth at ChinaJoy

Above: iDreamSky booth at ChinaJoy

Image Credit: Dean Takahashi

GamesBeat: So, China is influencing game design in other markets.

Lyndon: Right. It’s only a matter of time until a Chinese publisher cracks the U.S. market. That’s something to look out for.

A lot of Western developers who come to China fail to realize that the games Chinese users like, especially once you get past the casual genre — it’s all in the metagame. If you compare the metagame experience in a Western game to a Chinese game, it’s lagging behind. At this GDC, we’ve been talking about this a lot. If you want to take your game to China, beyond just the art direction and the technical specifications that everyone knows about, it’s about your metagame. Do you have the metagame to support Chinese users’ behavior? If you just have a good core mechanic, they’ll burn it out 10 times faster than Western gamers.