Trends in China’s online mobile gaming market

2015 may be the year that China leads the world in on-line gaming. China’s online gaming market (mobile and PC) as of 2014 exceeded RMB 100 billion (>US$15 billion), compared to the larger but slower growing US market. Presently, China’s video game console ban is less relevant simply because in China as in the rest of the world, mobile gaming is soaring in double digits. As of 2014, China’s mobile gaming market came to exceed US$1 billion per quarter.

Chinese audiences have also demanded graphics-intensive free-to-play-games. Video game releases are still subject to China’s Ministry of Culture oversight, which is less restrictive than the movie content and distribution censorship. How then might a foreign strategic investor participate in China’s on line gaming market, particularly in mobile applications?

China’s online gaming product market is currently led by Tencent, followed by Netease, Sohu spinoff Changyou, Shanda, and Kingsoft.

In addition, different platforms attempt to aggregate game players. Sky-Mobi is a leading platform in mobile downloadable games. In addition, Baidu and Qihu as search engines, Alibaba as an ecommerce platform and Xiaomi as a smart phone company integrating into software – are recognizing the value of establishing a presence in mobile game downloads. 

Partnering with these incumbents initially appeared to be the least risky alternative for most overseas game developers. Foreign game originators such as Take-Two introduced NBA 2K through Tencent. Activision brought World of Warcraft, to Netease. One notable rupture occurred between Shanda and its ally Korean game developer WeMade Entertainment. In 2003 Shanda developed a similar game as the one licensed from WeMade, and after being sued was able to reach a settlement with WeMade in 2009. 

Upstart Xiaomi (privately owned) represents a mobile phone maker integrating backwards into game production as well as downstream game distribution. One firm has joined Xiaomi as a partner. Moscow-founded (now Vilnius, Lithuania-headquartered) Game Instinct has modified a game to run on Xiaomi phones.

Paris-based Ubisoft chose the organic route, establishing a Shanghai based game development center. However, Ubisoft’s reach has not yet translated to depth, and the company overall is struggling for profitability.

A pure distributor, such as America, Europe and Australia leading GameStop, even with its game rating strengths, would be at a disadvantage in mobile game downloads until demonstrating command of Chinese and local game consumer tastes. Therefore, GameStop has been noticeably absent from Asia to date. 

Another media firm, Los Angeles based j2 Global owns IGN (San Francisco based) – a respected rater of games, with Chinese and Japanese language translation capability– but IGN has not expanded aggressively in China’s game market. Its parent’s focus instead has been business cloud services for digital media. 

Strategic investors in the game and entertainment space might prepare themselves for role reversal, or reverse competition in their home markets. Already in 2011, Tencent invested US$400 million in Riot Games which made League of Legends. In June 2012, Tencent bought a minority position in Epic Games, maker of Gears of War. 

Another Chinese gaming firm chose an organic approach to growth abroad. In February 2015, NetEase established a North American headquarters office in Silicon Valley’s Redwood Shores, California. It will be releasing a Chinese game, “Speedy Ninja,” rewritten for release in the West.

With the advent of dynamic Chinese mobile gaming firms in the West, what might be left for Western firms to consider in China? Actually, there is plenty to consider. As demonstrated by the Chinese non-game developers who are aggregating and distributing mobile games (SkyMobi, Qihu) there is opportunity in targeting the gamer. US-based Millennialmedia identified games as the leading mobile application category with the largest number of impressions in 2014, ahead of music, productivity tools, communications, dating, news, weather, health and books. Mobile gaming is not just about gaming; it’s about reaching a rising generation of consumers in China. That’s a giant cross-selling opportunity for Western advertisers, service and strategic firms.