China Gaming Industry at a Glance

Introduction

In this note we will outline the salient trends and user habits, as well as increased regulation, within the China gaming industry. As one of the largest gaming markets in the world, China user habits may provide insights to developers targeting other countries in Asia. We think this data like this is important because we believe that while many early crypto games have had great success, this has largely been down to the “PlayToEarn” model, where gamers have earned substantial rewards, often enough to warrant full time engagement, and not because the games were inherently fun to play. In the future, as GameFi develops and competition grows, we believe it is important that developers not overlook tried and tested game mechanics so they can attract more users and, more importantly, cultivate long term engagement of devoted fans. Once the base gameplay is there, the true power of GameFi can be unlocked with, for example; value exchange, collectibles, skins and items trading, micro-markets for skills and abilities as well as NFT based avatars, being naturally and organically woven into the story and world of the game, instead of being the core purpose of the game itself.

Executive summary

  • By the first half of 2021, Chinese gaming users had reached 667 million.
  • The actual sales revenue of the Chinese gaming market for the same period was CN¥150.5 billion ($23.3 billion), a year-on-year increase of 7.89%.
  • Domestic market sales revenue of Chinese indigenously developed online games was CN¥130.1 billion ($20.1 billion), an increase of 8.3% year-on-year, and continued to maintain more than 80% market share.
  • China’s indigenously developed games have been increasing their dominance of market share. The actual growth in sales revenue of China’s self-developed games in the domestic market has increased at a rate of at least 15% per year since 2014.
  • Tencent, NetEase: Gaming giants took in over CN¥200 billion ($30.9 billion) in game revenue last year. In 2020, Tencent’s game business revenue was CN¥156.1 billion, dominated by mobile gaming; reaching CN¥146.6 billion; NetEase’s online game net revenue for the year was CN¥54.6 billion, exceeding CN¥50 billion for the first time. (Source: https://finance.sina.com.cn/jjxw/2021-05-03/doc-ikmxzfmm0327440.shtml)

China Gaming Industry development

A large number of game developers, led by Tencent and NetEase, have completed the transformation from “game agency” to “independent innovation”, with joint research and innovation with overseas developers, pivoting from a strategy of “light on creation, heavy on operation” to one with an equal focus on quality and operation.

Regulation

In the past ten years, gaming has developed steadily amid strict control of relevant policies on game content and public criticism. Online games in China have developed most of the playing styles of overseas games like F2P (free-to-play) modes, monthly subscriptions, point card systems, free with in app purchases etc. In terms of the quality, the initial “junk games” where players need to spend money to pass the game, have gradually transformed into “social games” that emphasize competitive or social features.

The Chinese government has long wavered between supporting and combatting gaming culture.

Customer/user habits

For gender breakdown, the ratio tends to be balanced with female gamers becoming increasingly important in the sector, reaching 43.7% in H1 2020 (for reference, women composed 41% of gamers in the US in 2020).

In terms of age distribution, the majority of users were born in the 90s, with users under 30 accounting for more than 50%.

Due to the wide audience and extensive smartphone penetration, mobile games still dominate the domestic game market. According to statistics, the top 100 game types are quite diverse, leading the pack is RPGs, accounting for 28%.

Among the subcategories within RPG, MMORPG, ARPG and turn-based RPG are most popular in the Chinese market.

Mobile dominance

The actual sales revenue of mobile games (mobile phone and tablets) accounted for 76.26% of the total market revenue while desktop (consoles / PC) accounted for 19.86%. Web / in-browser games accounted for 2.01%. Mobile games still occupy the dominant position and are the main source of revenue in the domestic game market. Desktop gaming sales revenue increased slightly, but share continued a downward trend in market share.

At time of writing, Tencent and NetEase (网易) developed games dominate the iOS download charts in the China app store. Top genres include action (动作), card games (卡牌), strategy (策略), RPG (角色扮演), sim (模拟) and adventure (冒险). Source: Qimai.

Top players in the gaming industry

In 2020, companies with a net profit of at least 1 billion included Tencent, NetEase, Century Huatong, Sanqi Interactive Entertainment, Kunlun Wanwei, Kingsoft, IGG, Chinese Media, NetDragon, and Perfect World.

At present, relevant listed companies in the China game industry include Tencent Holdings (00700.HK), NetEase (09999.HK), Century Huatong (002602.SZ), Sanqi Interactive Entertainment (002555.SZ), Perfect World (002624.SZ), Youzu Network (002174.SZ), Giant Network (002558.SZ), Shengtian Network (300494.SZ), Yaoji Technology (002605.SZ), Electric Soul Network (603258.SZ), etc.

Look into the future

Companies that have found breakthroughs overseas are increasing. Statistics show that overseas revenue of China’s self-developed game products continues to grow, and it is the general trend for domestic games to “go global” and build a global development pattern. From the perspective of national and regional distribution, the United States, Japan and South Korea are still the main markets, with combined revenue accounting for 59.51% of total overseas market revenue. As for top categories of these domestic games that have “gone abroad”; strategy accounts for 41.47%, shooters account for 13.58% while role-playing games account for 12.25%.

What GameFi companies targeting Asia can learn from Chinese gaming habits

  • These gamers are eager to sport rare skins and collectibles “in-game” as a status symbol; a potential fit for the collecting and trading of collectibles via NFT technology.
  • Mobile is by far the most preferred media of gaming, with most being apps downloaded and connected to third party apps owned by the developer. Given that most crypto games are web based, a mobile first design at a minimum may make more sense.
  • RPG games, card trading and strategy are all popular, which are perfect use cases for NFT technology above aesthetic collectibles. Here, NFT based skills and upgrades could be used to create, for example, advanced battle scenarios.
  • Many of the most popular games in China have a heavy cultural / historical flare; themes around the story of Journey to the West (西游记) and heroes, real and mythical, from the Three Kingdoms (三国) are incredibly popular. The 4th most popular game in the iOS app store in China is “Fantasy Westward Journey”, an MMORPG inspired entirely by the story of Journey to the West. Localization is no less key for success in attracting customers in other Asian markets. Adding themes, historical references and characters from antiquity can be key attractions.

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Sino Global Capital

Sino Global Capital

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A team of former consulting, Wall Street, private equity, government, and corporate veterans accelerating the blockchain revolution