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Games Growth Not a Given in China
The mobile games industry has been growing fast, but slowing population growth is just one reason why the sector’s best days may already be past.
China is the world’s biggest mobile game market, but the sector faces some hazards. Photo: carlos barria/Reuters
By Jacky Wong
Jan. 1, 2018 9:00 p.m. ET
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Selling smartphone games in China has been one of the best businesses in the world in the past few years. But can the companies involved, like tech giant Tencent, keep hitting the high scores?
China’s mobile games industry made nearly 18 billion dollars in revenue in 2017, more than twice the amount just two years ago, according to research firm Newzoo. And China is now the world’s biggest mobile game market, accounting for around a third of the total. The boom has driven Tencent, the country’s biggest game company with around half the market there, to become one of the biggest companies in the world by market cap, just behind Facebook.
Still, the sector faces some hazards. First, Chinese gamers are already spending a lot compared with those in other countries. According to Newzoo, average monthly revenue per paying user in China is 26.5 dollars, 9% higher than in the U.S. Considering the income level of an average Chinese, that is still a pretty high level.
China’s rapidly aging population could slow down the growth in mobile games. According to Euromonitor, there will be 34 million fewer people aged 15 to 44—the core demographic for gamers—in 2020, compared with 2016. The aging trend has been going on for years, but the explosive growth in smartphone, and hence mobile games, adoption in the past few years has glossed over the problem. Almost everyone in China already has a mobile phone and around a third of them are already gamers.
This isn’t to say China’s mobile game market will shrink—it should continue to grow, and probably faster than in other countries. But the days of an expansion rate above 50%, as in the past few years, look over, and may settle to around the high teens next year, according to Newzoo, slightly above the world’s average.
This means game makers in China will likely have to fight for share in a pie that isn’t growing as fast as before. That might actually benefit Tencent, with its pre-eminent distribution power thanks to its ownership the country’s biggest social networks WeChat and QQ. For some other game makers, like NetEase, game time may be running out. Investors, like videogame players, will need to become more discerning about the sector.
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