This article was originally published on Forbes.
Take a close look at the trends in the mobile gaming market in China, and you’ll see the signposts of an industry that’s evolving from fledgling upstart to mature market.
The mobile games segment has been staking an increasingly significant claim on the overall digital games market in China for several years. While online PC gaming is still the undisputed giant of the industry, and still dwarfs mobile gaming revenue by at least three times, analytics firm DataEye — a company that works closely with my employer, Niko Partners — reports that mobile games now account for nearly 40% of the country’s total digital games revenue. DataEye puts total revenues in mobile gaming at $7.94 billion. However, that number includes revenue from exported games. Independent research by Niko Partners puts in-country revenues at $5.5 billion — higher than that of the U.S., but lower than the roughly $18 billion in PC online revenue in China.
The key thing to keep in mind here is just how fast mobile gaming’s ascent in the country has been. In 2012, mobile accounted for just 5.4% of all gaming in China. Last year, it accounted for a whopping 36.6%, if you include the export value (as DataEye does). Although the growth in mobile gaming seems certain to continue, the same blistering pace is probably not sustainable in the long run. The expansion will most likely slow over time.
Here are some of the key factors that point toward an industry rapidly growing into maturity:
The Big Guys are Moving In
One of the most significant trends in the mobile gaming space last year was the arrival of China’s top PC online gaming companies on the scene. The top 7 companies, which includes NetEase, Tencent, Giant among others — released over 150 mobile games between them in 2015, with Tencent and NetEase accounting for the top 10 titles just between the two of them.
This was a big move for China’s top online PC gaming companies: While Tencent has previously showed interest in mobile gaming, the rest of China’s gaming giants had largely steered clear of the mobile space, staying focused on the bigger portion of games revenue, PC online games. The top 7’s expansion into mobile gaming serves as powerful validation that mobile gaming is a space worthy of their efforts, and it will be interesting to watch how the big players shape their mobile gaming presence moving forward.
Smaller Companies Are Getting Creative
Any time major players move to plant their flag in a new space, it serves as huge validation of the market’s inherent opportunity. But it also begs the question: What does the arrival of the big players on the Chinese mobile gaming scene mean for small-to-medium companies, who are now being forced to battle for users against competitors with bigger budgets and bigger name recognition?
In the face of escalating competition and the increased cost and reduced market share it brings with it, small- to medium-sized companies are taking advantage of their biggest asset — their agility — and using it to move in new directions and forge new paths into emerging markets. Animation and comic-based games, warfare games, indie games and female-centric games— the so-called “niche” segments — have all proven to be promising stomping grounds for small- to mid-sized companies looking to get away from the marquee competition and re-establish themselves on new turf.
And in an industry that’s defined by innovation, it’s always worth watching where the little guys are going, because where they’re going today is usually where the bigger players will be going next.
eSports is Big Business
Running in tandem with the arrival of the Chinese gaming giants on the mobile scene is the rise of mobile eSports. This is perhaps less surprising, given that eSports was clearly one of the major trends in the Chinese gaming industry as a whole last year, but what is surprising is how quickly an infrastructure emerged to support mobile eSports.
The attention of the gaming industry giants and the massive influx of capital in the space has kicked the development of an entire mobile eSports ecosystem into hyper-drive. Developers and publishers are working hand in hand with eSports clubs, event organizers, sponsors, e-commerce sites and live broadcast platforms to build out a fully realized eSports ecosystem, making mobile eSports an area to watch moving forward.
Multi-Screen (“Pan entertainment”) Gaming is Climbing
Also driving growth in the Chinese mobile gaming industry in 2015: a surge in what DataEye calls called “pan-entertainment”: cross-sector collaboration between mobile gaming and other media, including books, films, animation and comics. IP-based games accounted for 16% of the total mobile gaming market, suggesting that mobile gaming may be benefiting from converts, as fans of various media find their way into mobile gaming through their favorite properties. Also worth noting is that it seems only 4% of those games had official authorization to use the IP in question — indicating that game creators may be playing a little fast and loose with legalities in their quest to thrill gamers with mobile games based on their favorite media.
HTML5 Mobile Games Are Driving Growth
Another trend to watch in mobile gaming in China: HTML5 games. The ease of use for coding provided by HTML5 has made it a popular playground for game developers: By the end of 2015, there were more than 3,000 HTML5 mobile games active in China. 75% of those games fall in the casual games category; however, there’s also been a surge in higher monetized games, such as RPGs.
A final trend identified by DataEye that is worth noting here is the increasing use of games developed in Android — or Alibaba ’s competing operating system, AliYun — for TV-based gaming. This is a nascent space in the Chinese gaming scene, and as such is ripe for growth, which would push mobile game development even farther into the TV platform.
So what are the main takeaways from the Chinese mobile gaming market in 2015? Growth in the space has probably peaked, but revenue will continue to climb annually. As the market matures, only the strong will survive. The big 7 gaming companies will continue to assert their dominance in the space, resulting in consolidation among the tens of thousands of Chinese mobile game developers, and increasing costs for R&D, distribution and IP rights as demand for high-quality games continues to rise.
The good news for gamers in China is that all of these developments mean two things: More options, and the opportunity to be more discerning and demand the high-quality games that they want. It will be exciting to continue to watch these trends play out in 2016 — sure to be another interesting year in mobile gaming in China.
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