The Game Industry in China – Part II

By: Celia Qiu

Investment Analyst – Communication Services, Software, Telecoms

Now let’s take a closer look at the largest component of online gaming: mobile games, which is the fastest growing segment. In the past few years, China has been leading the way in mobile games development, with mobile games representing ~70% of total online game market, significantly higher than 47% globally, thanks to the rapid transition from PC to mobile internet. (iResearch, Newzoo, 2020)

In our view, shorter game round/more casual nature captures fragmented user time spent during commute. In addition, the increasing prevalence of Free-to-Play (FTP) model, where download is usually free at App stores, but users can purchase heroes, skins and battle passes in game, also helps lower the entry barrier and helps tap to a broader user base, especially female gamers.

In China, mobile gamers now also embrace different mobile genres, with MOBA (multi-player online battle game), MMORPG (Massively Multiplayer Online Role Playing Game), FPS (first-player shooting), card, and casual games being some most popular genres.

Looking ahead, we expect mobile games to account for an increasingly larger part of China’s total online games market, mainly driven by average revenue per user (ARPU) growth.

Tencent and NetEase are the two dominant online game companies in China, with an estimated combined market share of more than 60% as of 2019 (Company data, iResearch). HoK (Honour of Kings), Tencent’s flagship MOBA title launched in 2016, has 100mn daily active users (DAUs) (Tencent, Jan-Oct. 2020) and is one of the most successful mobile games as of date.

NetEase is an online game veteran with strong game development, publication and operation capabilities. Fantasy Worldwide Journey (FWJ), NetEase’s flagship MMORPG games, is recognized as one of the most successful PC titles in terms of longevity, as it remains a top 4 PC title in China after 17 years in operation. (Superdata, 2020)

Across the globe, major mobile games develop/publish companies include Activision Blizzard, Electronic Arts, BANDAI NAMCO, Netmarble, etc. (App Annie, 2020)