China has the biggest gaming industry in the world. With over 660 million players each year, the industry is generating revenues for both local and foreign companies. Last year, the gaming industry in China generated around $37.9 billion in revenues. The gaming industry is usually less understood by the older generations, however the gaming industry in China offers many opportunities for businesses. This is not only the case in China, but everywhere in the world. Recently, more and more international companies have started entering the Chinese market. Often this is done by either by acquiring shares in Chinese gaming companies or by sponsoring teams of professional players.
The goal of this article is to provide you with a global overview of the gaming industry in China. First it will discuss the changes in rules and regulations that happened in the industry last year. Furthermore, it will make a distinction between the computer gaming industry and the mobile gaming industry. Both sectors are evolving at a different pace and have different influences and trends. Finally, we will discuss the opportunities for foreign companies to promote themselves in the industry.
Suspension of gaming licenses in the Gaming Industry in China
In 2018, the gaming industry in China generated around $37.9 billion in revenues compared to roughly $30 billion in 2017. Despite the growth in revenues, 2018 was a tough year for the industry due to the introduction of new regulations and the suspension of government licenses which are required to launch a new game in China.
Between March 2018 to December 2018, the Chinese government froze the approval process of licenses for new games. The motivation behind this move was to control the content of video games. For example, games with too much violence are considered as inappropriate for distribution. Furthermore, the Chinese government believes that are the cause of video games the widespread nearsightedness and video game addictions among children.
The approval process for gaming licenses is open again, however every videogame publisher in China is required to submit games for review to the State Administration of Press and Publications before being authorized to sell them in the domestic market.
The suspension and the new rules have greatly reduced the amount of games being approved yearly. For example, around 9,800 games were approved in 2017, while only around 1,300 games were approved by the authorities in 2018. Consequently, the gaming industry saw a growth of only 5.2% in the first two quarters of 2018, compared to a 26.7% growth over the same period in 2017.
Moreover, the impact of the new rules and regulations had a direct impact on the 52 listed companies in China’s gaming industry. 45 of the Chinese gaming companies saw their share price drop, which accounted for a total of $124.7 billion loss in value.
Computer gaming industry in China
The computer gaming industry in China is the largest one in the world. It accounted for more than half of the sales of computer games worldwide. In 2018, there were 312.4 million computer online gamers in China. 79.7 million of these gamers spend additional money on in-game purchases. By 2023, the number of gamers is expected to reach 354 million, which is more than the entire population of the US.
In terms of revenues, the Chinese computer gaming industry generated around $15.21 billion in 2018 which represents a slow decrease compared to 2017. It is likely that it is caused by the suspension of new game licenses in China. Nevertheless, revenue is forecasted to grow slightly to $16 billion by 2023.
One of the main drivers of growth for the computer gaming industry is eSports. eSports is the competitive part of the gaming industry, where players participate in competitions while the game is broadcasted online. Esports tournaments are often held in large arenas, akin to the ones you see in football, where fans can cheer for their favorite team. Esports game revenue was $6.3 billion in 2018 which represents a 11.1% growth year-on-year. By 2023, the Esports industry is set to reach $9.5 billion.
Mobile gaming industry in China
The mobile gaming industry in China also suffered a slowdown in growth because of the new regulations. In 2018, the number of mobile gamers was somewhere between 603 million to 619.5 million. This number is much higher than the amount of computer gamers. Moreover, because of the increasing internet penetration rate in rural areas and in more affordable mobile phones, it is expected that the number of mobile gamers will increase to 700 million by the end of 2021. It is no surprise that 97% of the 1296 games approved in 2018 were mobile games.
In terms of revenues, the Chinese mobile gaming industry generated around $23 billion in 2018 which was an increase of 15.4%. By the end of 2020, it is expected that the mobile gaming industry will generate early revenues of roughly $30 billion representing an increase of $7 billion in a period of 2 years.
Main player in the gaming industry in China
The Chinese company Tencent Holdings is the world’s largest gaming company. Tencent also owns QQ and Wechat. Tencent is mainly active in the mobile gaming industry. In 2017 its market share of the mobile gaming industry in China was roughly 44% . In comparison, the second largest player in China, Netease, had a market share of around 18% during the same period.
Throughout the years, Tencent upgraded WeChat to become their main gaming platform in China. Currently, they have a portfolio of 147 mobile games. One of their most popular games is called “Honour of Kings” which has over 200 million players in China. Honour of Kings generated a revenue of $1.3 billion in 2018. Another successful Tencent game is called “Tiao Yi Tao” and has over 100 million players on WeChat. In the west, Tencent holds 40% of the very popular game called “Fornite”. They have also acquired 100% of the shares of Riot Games, the company behind the famous game “League of Legends”. Furthermore, Tencent holds minority and majority stakes in many other video game companies. More famous examples are Ubisoft (5%), Activision (5%), and Supercell (80%).
However, even Tencent has felt the effects of the new rules and regulations. After the publication of the new policies, Tencent’s share price dropped by 14% and the company suffered a $20 billion loss in value.
Opportunities in the gaming industry for foreign companies
Foreign companies in the Chinese gaming industry only play a small role and with 20% of the market share. However, there are many opportunities for growth.
One of the major opportunities is the female gaming industry, which is often less focused upon in Western markets because in Western countries gaming is still often seen as something for men. Chinese female players have spent around $7 billion on games in 2018 which represents an increase of 13.8% compared to the previous year. Furthermore, the amount of female players is estimated to be around 280 million, thus females make up almost 50% of Chinese gamers. Foreign companies need to take this into consideration. Female gamers are willing to spend money on games and in-game purchases just as men.
Another opportunity for foreign companies is to gain visibility by sponsoring professional gaming teams or events. eSports is becoming more popular in the West, however China still has the biggest market. In 2016, the advertisement expenditures in the competitive online gaming was around $280 million. This money was primarily funneled into influencer marketing and sponsorships. Popular eSport gamers are seen as China Key Opinion Leaders (KOGs). Sometimes, these KOGs are paid to organize gaming events in which they compete with other KOGs, while being watched by thousands of people around the world. The revenue generated from advertisement during competitive events is predicted to increase to more than $1 billion by 2021.
To conclude, the gaming industry in China is full of opportunities for foreign companies. Companies need to be mindful of the new regulations, however due to a fast growing internet penetration and a growing female player base, the gains far outweigh the additional preparation needed. Feel free to contact us anytime to for further information or for assistance with market research!
This article was written by Benôit Renéry, who contributed as an Intern at our Beijing Office.
