Market Insight

China - Largest Games Market Continues Its Growth Story

June 28, 2017

Chenyu Cui Chenyu Cui Senior Research Analyst, Games

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China Games Market hits $25.6 billion in 2016: Forecast to grow to $29 billion in 2017

Key takeaways:

  • China extends lead as biggest country market for games content – represents 25% of World games market in 2016.
  • China remains by far the largest country market for both PC and mobile games.
  • PC platform retains biggest share of consumer spending on games in China with $13.1 billion (RMB 87 billion) or 51% of the total $25.6 billion (RMB 170 billion) market.
  • PC games spending grew 5% in local currency; Growth outlook remains muted due to major transition of consumption and content to mobile devices.   
  • Mobile games spending grew 55% in local currency in 2016 and reached $12.4 billion (RMB 82 billion); Spending on mobile games will overtake PC games in 2017.
  • Console games remain a nascent market opportunity in China – sales of official console games and services amounted to $53 million (RMB 387 million) in 2016; Installed base of official (non-grey market) PS4 and Xbox One consoles in China was under 500k at the end of 2016.   

PC games market dominated by in-game monetization

The $13.1 billion PC online games market uses four forms of direct consumer monetization – premium (paid downloads), subscriptions, paid game time and microtransactions. Share of China PC games spending from microtransactions was 88% in 2016. Tencent, operator of League of Legends and CrossFire, dominated the market with 59% share of spending, while NetEase – Blizzard’s long time publishing partner in China – solidified its second place in the market with help from Blizzard’s Overwatch.     

A lot has been made of the PC game download market in China through platforms such as Valve’s Steam and Tencent Games Platform (TGP) which is being repositioned as PC-centric and now acts as a storefront for premium download titles. Spending on download PC games reached $220 million (RMB 1.5 billion) in 2016 up from $54 million (RMB 335 million) in 2015 making China the fourth biggest market for PC download games globally. A majority of this growth was attributed to premium sales of Blizzard’s Overwatch. However, to put this in context, share of total China PC games spending derived from premium download titles was just 2%.

IHS Markit expects sales value of premium PC games to actually decline in 2017 even with the relaunch and rebranding of Tencent’s TGP site to WeGame. WeGame will be dedicated to PC gamers and offer a growing catalogue of premium games titles. Even so, the growth of Valve’s Steam and TGP will not be able to offset the vacuum left by the drop in sales from Overwatch compared to 2016.

Mobile games provide growth engine for market

The $12.4 billion mobile games market is, like the PC games segment, dominated by free to download content and in-game monetisation. Mobile games spending continues to expand at a fast pace with 55% spending growth in 2016 and a forecast of 24% growth in 2017. In 2016 the market was additionally fuelled by the successful transition of well-known traditional PC games across to the mobile sector which monetize strongly and are popular with traditional gamers.

Five years ago as growth outlook in the China PC games market started to slow and mobile game consumption increased rapidly most established PC games publishers in China made an aggressive and committed diversion to the mobile sector. Aside from Tencent, which runs multiple consumer platforms relevant to the mobile space and therefore has an inherent advantage in building its mobile games business, PC games publishers have relied heavily on their existing games franchises to break into this segment of the market.

Back in 2014 Changyou found success with Tian Long Ba Bu (TLBB) 3D a mobile version of its hit PC role playing game TLBB and this sparked interest from other PC game publishers. Since then NetEase has found significant success with the release of established PC games franchises on mobile including Fantasy Westward Journey. NetEase has subsequently gone on to have a breakout mobile success with turn-based role playing game Onmyoji illustrating the appeal of titles which have significant cross over with gameplay, themes and settings well established in the PC games sector.

The popularity of PC-like games experiences is further illustrated by the success of Tencent’s Honor of Kings a mobile MOBA title often compared to the world’s most popular PC online game, Tencent-owned Riot Games’ League of Legends. Tencent, who is busy developing its domestic esports strategy for Honor of Kings, views the title as non-competitive with League of Legends and actually considers it an acquisition vehicle for expanding League of Legends further.            

Console platform holders have a long road ahead to make an impact on the Chinese market

Sony’s PS4 and Microsoft’s Xbox One have had a slow start to life in China selling less than 500k Chinese versions of their consoles combined by the end of 2016. These consoles generated $53 million (RMB 387 million) in spending on games content and services. This slow adoption is a reflection of having to compete with the entrenched PC and mobile games markets and existing grey market console imports from Hong Kong and Japan, which are often cheaper than the official versions of the consoles.

Sony has experienced a mild increase in sales momentum in 2017 and will be further helped by the recent launch of the PS4 Pro, which has been priced aggressively to compete with grey market imports. The company also benefits from a well-established brand and its entrenched console lead versus Xbox in most Asian territories.    

IHS Markit has always maintained a realistic view of the potential of consoles in China due to the characteristics of the market, but it is right for the platform companies to try and establish a more significant presence in the World’s most populous country even if it takes many years to build a substantial following. 

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