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China to lose the title of top gaming market in 2019, a first since 2015


  • Overview of the global gaming market
  • Slowdown in China, the largest gaming market in the world
  • Road ahead for the gaming market

 

The global gaming market has undergone a major facelift since the last few decades and growing at a massive pace with revenue estimates expecting to hit $152.1 billion in 2019, up from $137.9 billion in 2018, representing an estimated increase of about 9.6% year-on-year. Of the $152.1 billion about $68.5 billion (~45% of the total) is expected to be a direct contribution from mobile games as per estimates from Newzoo. Also, as per the report, the total number of people playing mobile games globally is expected to touch a new high of 2.4 billion users by the end of 2019. The surge in the use of smartphones along with the increase in the penetration of internet users has been the growth catalysts for the global gaming market, both in terms of revenue and user base. Even though mobile gaming is the largest segment in the gaming industry, the Console segment is expected to grow the fastest, with the expected growth rate to touch 13.4% year-on-year to $47.9 Billion as of 2019. Considering the projected growth, it will be second year in a row that console games grow at a faster pace than mobile gaming segment.

With the rapid growth in recent years, the industry has attracted a number of investments and mergers & acquisitions actions. As per reports by Digi-Capital report on investment and M&A in the gaming industry, over the last 18 months between venture capitalists and strategic investors in the sector, the industry has seen over $9.6 billion in total investment, which is equal to the total of the previous five year’s investments in the gaming industry. The report also highlighted the fact that, if the pace of then investment continued in the later months of 2019, then the total investment in 2018 and 2019 combined was expected to  be higher than total investment combined from the previous eight years.

As of 2018, China was the largest market gaming market in the world, representing ~27% of the global market share in terms of total revenue with the United States following closely at $30.4 billion. But as per estimates by Newzoo, the United States was expected to overtake China as of 2019 as the world’s biggest gaming market in terms of revenue. The US market is expected to generate $36.9 billion in gaming revenue in 2019, driven mainly by the growth in the console game segment. Meanwhile, China the largest gaming market as of 2018 feared to experience slowdown in 2019 because of the nine-month license freezing on new games in 2018, a measure introduced by the Chinese regulators to reduce screen time among children. This to be the first time since 2015 that China has been pushed to the second place and the US overtaking it to take the top spot. The added push for the US to reach the top is also due to a healthy growth in the US’ console game market.

In March of 2018, the Chinese government stopped approvals for the monetization of new games amid regulatory bodies concerns over the violent content of games hurting young people. During this nine-month period from March 2018, the gaming companies could continue with filing application and distribution of new games and titles, but they could not monetize from those games (example, app purchases). With the freeze until December of 2018, the Chinese gaming companies could not monetize the entire of 2018. This move had significant impact on all the large and small game publishers as well. Tencent Holdings, one of the largest gaming companies both in China and globally as well, reported a net drop of 32% in its net profits in the fourth quarter of 2018 and also registered its slowest annual profits in 13 years. Among the top 25 gaming companies in the world, four of them were from China as of 2018 with Tencent leading the pack as well as the global chart by contributing about 15% to the global gaming revenue in 2018. Industry analysts estimate that there are over 7,000 games which are still pending approval in China, a backlog which has piled up and regulators had stopped accepting applications for new games in February 2019 to work on the backlog. This resulted in  slow down the gaming industry of China in 2019, as it is very important with mobile games, that a continuous flow of new games there are keep the players engaged.

The gaming industry is evolving into a massive market with huge user engagement and extensive demographic and geographic reach. Globally, console games are at its peak with the Xbox, PlayStation, Nintendo and other console games, and this segment is expected to grow by 13.4% more in terms of revenue this year, higher than the mobile gaming segment which is the biggest segment. With console segment peaking the segment is expected to grow at about 13.4% in revenue this year, higher than the mobile gaming segment which is the biggest segment. The main catalyst for this growth has been the continued shift in the gaming market to games-as-a-service business model. Reports also state that, along with a solid base installed in the current console, players/users and also spending from new releases has also and will continue to contribute to the growth for this segment of the gaming market. But this does not mean mobile gaming segment will slow down. This segment will also continue to grow and with more investment behind it as well, the market will be flooded with more option of games. The United States might have overtaken China in the gaming market for 2019 because of its increase in new console users, growth in the console game spending coupled with the slowdown in the Chinese gaming market. Nonetheless, the Chinese gaming market presents unique opportunities due to its superiority in terms of size, magnitude and internet penetration. It is for this reason that research companies’ estimates are positive about the Chinese gaming industry, despite the current slowdown, with the expectation that China will once again reclaim the top position after the effects of the gaming approval freeze wears off.

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