Nintendo, Sony and Microsoft launched their newest generation consoles in China, which is notable given all console hardware and software was banned in the country just seven years ago. According to Niko’s 2021 China Console Games Market Report, the console hardware and software market (legal + grey market) is set to reach $2.5 billion in 2025. Console game software will generate $1.67 billion in 2025 from 24 million gamers. While this is impressive, it would comprise merely 2.9% of China’s total games software revenue, with the majority derived from the grey market. Console gaming has niche popularity in China, being that Chinese gamers are very active with PC and mobile gaming. The strict regulatory environment for (all) game approvals and slim number of console games that appeal to Chinese players limit the potential of the market. This article looks at how increased investment in content will lead to console market growth in China, which is just one of the many drivers of growth covered in our full report.

While the Nintendo Switch (China ver.) has been on the market since December 2019, only 22 games have released legally for the console. The PlayStation 5 and Xbox Series X|S released in China without any titles approved at launch. Sackboy: A Big Adventure was granted an ISBN (publishing license) for the PS5 in China one month after the launch. This led gamers to the grey market to purchase games that have not been released legally in China. This is one of the limiting factors for growth of console gaming there. Platform holders, well known Chinese developers and indies are taking strides to develop console games to appeal to the local audience.

As a platform holder, Sony set up its China Hero Project in 2016 to fund Chinese development for PlayStation games. While the initiative had a slow start, we note that Sony is redoubling its efforts on the China market with PS5 and now has over 10 games in the pipeline through this project, including the highly anticipated Lost Soul Aside from UltiZero Games. Nintendo partnered with Tencent to bring the Switch to China and has been working closely with the company to bring games to the platform. Tencent has launched three of its own games on Switch, Biped, Iris.Fall and Crown Trick, all of which are developed by its NeXT Studios. The company is also working with Chinese indie game publishers to bring unique content to the platform.

Domestic game developers have traditionally focused on the mobile and PC games market, with free to play games, to reach the largest player base in the country. Chinese indie devs are exploring premium console and pc game development as platforms such as Steam, PS4 and Switch have shown there is an audience for these types of games. Developers with experience working at Western AAA studios in China, paired with the democratisation of game development tools such as Unreal Engine and Unity, are able to create high end AA and AAA games that target a global audience. One such game, Black Myth: Wu Kong from Game Science Studio, went viral last year with many in China and overseas praising the indie team for its impressive demo.

Chinese game developers are also starting to invest in free to play, large scale AAA cross platform games, which will also benefit the console games market in China. Genshin Impact from MiHoYo is a proof of concept for this trend with the open world RPG providing a console like experience while scaling across mobile, PC and console. Tencent’s TiMi Studios has taken its learnings from Honor of Kings over the past 5 years and worked with The Pokémon Company to create Pokémon Unite, a strategic team battle game that will release as a free to play game on both Nintendo Switch and mobile with cross play. The company has also opened new studios in LA and Seattle that are working on large scale AAA games for console. NetEase is taking a similar approach opening a new studio in Japan to create console games for the domestic and overseas audience.

Strong 1st party offerings from platform holders, support from overseas developers and Chinese developers will increase the appeal of consoles in China. The price of consoles will remain a barrier to typical gamers, and the strong leaning toward a PC and mobile gaming culture will not be overcome in the foreseeable future. In addition, the games that become popular on console will also be made for PCs, or eventually available through the cloud to all devices. That being said, the combination of investment from platform holders, premium games from Chinese indie devs and large-scale AAA games from larger Chinese developers will provide console platforms in China with new content that can release legally. This is highly likely to resonate with Chinese gamers who will spend money on games and hardware, hence having the potential to generate strong revenue in absolute value, even if not as a percentage of the overall market.

Our 2021 China Console Games Market Report contains more on this topic with 91 slides including a comprehensive market model and 5-year forecast through 2025.