Tencent and NetEase are the two largest games companies in China, accounting for more than 70% total games revenue generated domestically. Each company recently posted earnings for the first nine months of 2018. Since April, there has been a temporary game license approval freeze in China, which has had an impact on the entire games industry. Whilst Tencent and NetEase have both been affected by this, each company has been able to weather the storm and their combined online game revenues are up 9.4% YoY. This is in line with our updated market forecast which projects total game revenue will increase 11% this calendar year.
- Net Revenue: RMB 227.8 billion ($33.3 billion), +33% YoY
- Operating Profit: RMB 69.0 billion ($10.1 billion), +7% YoY
- Total Games revenue: RMB 98.2 billion ($14.4 billion), +11.3% YoY
- Mobile games revenue: RMB 58.8 billion ($8.6 billion), +28% YoY
- PC games revenue: RMB 39.4 billion ($5.8 billion), -6.9% YoY
Tencent’s earnings continues to highlight its strength in mobile games with strong performance from Honor of Kings this year, despite the introduction of an anti-addiction system that limits the amount of time that minors can play the game. This new anti-addiction system will be rolled out across all Tencent games in the future. We don’t expect this policy to have a significant impact on Tencent’s gaming revenue, as those under 18 make up a small percentage of paying players according to the company.
Despite the temporary game license approval freeze, Tencent has been able to release a sustainable number of brand-new mobile games this year. A total of 21 mobile games were released by Tencent since the temporary game license approval freeze went into place at the end of March 2018. These titles have been able to launch and monetise as they were approved prior to the freeze. New games such as FIFA Mobile, Free Fantasy Online Mobile, MT4, Saint Seiya and Red Alert OL have had successful launches, demonstrating strong demand from the mobile gaming audience for new games and content.
Apart from those games, Tencent has been unable to receive approval for other games that were planned to launch this year. The pipeline has now more than 30 announced mobile games, but only 15 of them have monetisation approval and authorisation to launch in the future. This has caused Tencent to prioritise on titles that have monetisation approval whilst shifting focus and resources away from titles that have not yet been cleared to launch.
Tencent is still the largest gaming company in the world and its gaming revenue is set to grow this year. The tough regulatory environment has had an impact on Tencent this year but it’s also clear that Tencent has been able to maintain a stable position and once game license approvals restart the company will be able to move quickly to further dominate the market.
- Net Revenue: RMB 47.3 billion ($6.9 billion), +20%YoY
- Operating Profit: RMB 5.6 billion ($0.8 billion), -47% YoY
- Total Games revenue: RMB 29.2 billion ($4.3 billion), +3.1% YoY
- Mobile games revenue: RMB 20.8 billion ($3.1 billion), +3.0% YoY
- PC games revenue: RMB 8.3 billion ($1.2 billion), +3.6% YoY
NetEase’s earnings show that the company has seen stable performance across both PC and Mobile games, primarily due to strong performance from new game launches and legacy titles such as Fantasy Westward Journey, Westward Journey Online and New Ghost. These titles have been mainstays in the iOS top 10 grossing chart and continue to build on NetEase’s reputation for high quality games by offering a stream a new content to keep players engaged and spending.
Despite the temporary game approval freeze, NetEase has been able to launch more than a dozen new mobile games. Whilst some have been traditional MMORPG’s, which NetEase is well known for, the company continues to expand into other new and growing genres such as MOBA, Survival, Sandbox, CCG and ABA. Exploring new genres has paid off for NetEase this year with the company finding success with Identity V, an asymmetrical battle arena game that is similar to Dead by Daylight. The company also launched a survival shooter game with RPG elements called Night Falls: Survival which provides an in-depth gaming experience on mobile that was previously only seen in console games. These titles have performed well, charting in the top 10 iOS grossing chart.
Whilst NetEase did not launch many new PC games this year, they did decide to focus on a new MMORPG positioned as a high-quality IP called Justice. The title launched at the end of June and instantly became a top grossing game. An expansion pack for the game was recently launched that adds new social, faction and marriage systems to the game to keep players engaged and develop a deeply integrated user community. NetEase also launched an expansion for World of Warcraft this year which helped keep PC game revenues stable.
NetEase continues to focus on its online gaming business despite the ongoing temporary game approval freeze. The company is taking a more global approach that includes launching self-developed titles overseas, investing in overseas games companies and working to bring new game products to the Chinese market. This year has seen NetEase invest in Bungie to create a new game for the global market, create a joint partnership with Mattel to develop mobile games for the global market and work with Blizzard to grow esports in China and develop brand new mobile games based on Blizzard IP for the global market. It’s clear that NetEase not only wants to conquer China, but the world as well.
This article is a short excerpt from Niko’s Monthly Asia Trend Report. The Monthly Asia Trend Report delivers timely, in-depth analysis of the market’s most important topics as they happen. Past notes have included topics such as regulatory landscape changes, how the next 150 million mobile gamers will enter China’s mobile games market, analysis of games or genres and what’s behind their growth, and more. Contact us to learn more or to subscribe.