China's Mobile Gaming Economy: Lessons & Insights

The Evolving Landscape of Mobile Gaming in China

The global mobile gaming market has experienced considerable volatility in recent years, making future projections challenging. China, in particular, presents a unique situation due to ongoing efforts to regulate the industry and enhance security and privacy for all stakeholders.

Despite these regulatory adjustments, the Chinese mobile gaming sector has demonstrated resilience and continued growth over the last 18 months.

Growth and Revenue in the Chinese Mobile Market

2020 proved to be a significant year for mobile gaming in China. Publishers successfully reached new player bases and experimented with innovative mobile advertising strategies, many of which are now established practices.

Reportedly, China boasted 681.7 million mobile gamers in 2020. This substantial figure underscores the country’s position as a dominant force in the industry.

Furthermore, China generated over 35% of the total global revenue from mobile gaming in 2020, solidifying its leadership in financial terms.

Challenges and Opportunities for Western Publishers

While Western publishers have observed this growth, recent stricter regulations have caused some hesitation. Concerns regarding the evolving regulatory environment are understandable.

What strategies can be implemented to alleviate these concerns and facilitate greater market access for international gaming publishers?

• Addressing regulatory uncertainties is paramount.
• Building strong relationships with local partners can be beneficial.
• Understanding and adapting to Chinese consumer preferences is crucial.

Successfully navigating these challenges will be key to unlocking the immense potential of the Chinese mobile gaming market.

Expansion of Chinese Game Developers into International Markets

Leading Chinese technology companies, such as Tencent and Netease, appear to have anticipated recent regulatory changes and proactively prepared for them. This preparation involved strategic investments and acquisitions of game studios worldwide.

Tencent, specifically, has made investments in more than 30 gaming enterprises globally. These include prominent names like Roblox, Supercell, Riot, and Voodoo.

Revenue Growth Through Global Strategy

Chinese game publishers who adopted a global approach experienced a significant revenue increase of 36.7% in 2020. Currently, these publishers are generating a larger portion of their revenue from international markets compared to their domestic market in China.

This shift is partly attributable to a strategic move away from games constrained by ISBN restrictions and reliant on in-app purchases (IAP). Instead, publishers are focusing on popular free-to-play (F2P) games, coupled with effective advertising monetization strategies.

Opportunities for Cross-Platform Growth

Mobile gaming leaders like Zynga and Scopely have demonstrated success with gaming intellectual property (IP) and possess substantial resources. This creates a potential opportunity for expansion into cross-platform gaming.

While achieving this growth is undoubtedly challenging, it may be essential for maintaining both user engagement and revenue streams. Sustained growth necessitates exploring new avenues for reaching players.

Cross-platform development and strategic partnerships are becoming increasingly vital for Chinese developers seeking continued success in the global gaming landscape.

Lessons from the East: How Western Publishers are Adapting to the Chinese Market

Western publishing companies aiming to expand into Asian markets are observing the achievements of Chinese game developers. These developers are effectively leveraging established intellectual property (IP), such as the classic Journey to the West, within China.

Zynga has recognized this trend and is strategically investing in the region. This includes developing mobile games based on popular franchises like Harry Potter and an anticipated Star Wars title.

Success with Established IP

Kabam’s utilization of the Marvel IP has also yielded positive results. Their free-to-play game, Contest of Champions, reached the top of the U.S. charts for licensed action mobile games.

Following this success, Kabam formed a partnership with Netease to localize the game specifically for the Chinese gaming audience.

Navigating Chinese Distribution

Furthermore, companies like Zynga have demonstrated proficiency in scaling their in-app purchase (IAP) based games. They have consistently secured the necessary International Standard Book Number (ISBN) for game distribution within China.

Recently, Zynga announced plans to launch its well-known puzzle game, Merge Dragons, in the Chinese market.

Overcoming Challenges Through Collaboration

Although navigating stringent regulations and compliance requirements can present challenges for Western publishers, a continued influx of both large and independent studios is expected.

Working with a local partner can significantly streamline the process. A recent example is Tilting Point’s collaboration with Huya, a streaming platform supported by Tencent.

Strategic partnerships within China can minimize obstacles and accelerate the app store approval process.

• Local partnerships are key to success.
• Understanding and adhering to regulations is crucial.
• Leveraging popular IP can drive engagement.

Continued Expansion Amidst Regulatory Adjustments

Recent implementations of more stringent game approval procedures within China, designed to limit gaming time for underage players and enforce stricter ISBN compliance, have undeniably influenced the market landscape.

These measures are largely viewed as an effort to refine and regulate the gaming industry. However, Niko Partners forecasts substantial growth in both revenue and user base.

This projection suggests that the limitations placed on younger players haven't significantly hindered business performance, contrary to initial expectations.

For instance, Tencent disclosed that individuals under the age of 16 contributed only 2.6% to their total revenue generated in China.

Regulatory Approval Statistics

Data from Reyun, a Chinese mobile measurement and marketing firm, reveals that 506 games secured Chinese regulatory approval from January to May 2021.

This figure contrasts with the 521 approvals granted during the corresponding period in the previous year.

While a slight decrease is observed, it isn't substantial.

This indicates that game developers are facing heightened competition and must refine their approaches to effectively reach their intended audiences.

Adaptation will be key for continued success in the evolving Chinese gaming market.

The Intensifying Competition for User Acquisition

The landscape of user acquisition is becoming increasingly competitive. This heightened competition resulted in a record ¥58.83 billion ($8.36 billion) in domestic ad revenue within China during the first quarter of 2021, as reported by Reyun data.

This period typically generates substantial revenue for major Chinese technology companies like Tencent and Netease. This is largely due to the timing of significant Chinese public holidays, such as the Spring Festival and Chinese New Year, during which mobile user engagement and game spending demonstrably increase.

Growth in Traffic and Emerging Markets

Overall traffic within China experienced a 6.25% rise in the first quarter of 2021 compared to the previous year, according to Reyun data. A significant portion of this growth originated from users located in smaller cities and towns.

These emerging markets have exhibited the most substantial growth in mobile app users to date this year. Users in these areas are generally price-conscious, yet demonstrate a notable openness to exploring new applications. This characteristic has contributed to the rapid popularity of platforms like Kuaishou, a short-video platform, over the last year.

This trend potentially unlocks new avenues for attracting players, especially for free-to-play (F2P) games.

Reyun data indicates that Chinese users aged 18-35 respond favorably to organically styled video advertisements. These now comprise over 70% of all mobile game ad content in 2021.

The Importance of Tiered Cities

Western developers frequently underestimate the potential of China’s emerging markets, often concentrating their efforts on larger cities. However, these smaller markets are gaining prominence and represent a significant opportunity for growth that should be carefully evaluated.

New Advertising Frontiers: Social News Platforms

Social news platforms are emerging as a promising new advertising frontier. They effectively target young professionals and middle-aged users who frequently engage with MMORPGs and other RPG games.

Toutiao, Bytedance’s second-largest application after Douyin, has proven to be particularly lucrative for advertisers. Boasting over 220 million monthly active users, it provides access to a demographic that may be less receptive to short-form video platforms and conventional social media.

Navigating Change and Regulatory Considerations

The gaming industry is poised for further evolution, and China will undoubtedly be impacted. New regulations and compliance requirements are anticipated, necessitating adjustments from both developers and advertisers.

Despite these potential challenges, Western publishers should not be discouraged from exploring and testing this substantial market. The potential rewards remain significant.