January 26, 2021
Online game market: The trend toward higher quality;
leading game companies boost R&D
China’s game market saw a boom
last year as people spent more time at home amid the COVID-19 pandemic.
Revenue generated by China’s game market grew 20.1% YoY to Rmb208.02bn over 1–3Q20,
with revenue from mobile games accounting for a 75% share. There was a rise in
both the number of active gamers and the amount of time spent on playing games.
Figure 1: Revenue generated by China’s game market (2010–3Q20)
Source: CNG, China
Audio-video and Digital Publishing Association, IDC, CICC Research
Figure 2: Breakdown of China’s
game market (2016–3Q20)
Source: CNG, China
Audio-video and Digital Publishing Association, IDC, CICC Research
Overview
The number
of people playing mobile games has reached 651mn, after having risen 0.94% QoQ in 1Q20, 0.25% QoQ in 2Q20 and 0.51%
QoQ in 3Q20.
While this number could gradually slow and stabilize, it is worth noting that
even after average revenue per user (ARPU) generated by mobile games grew 36.4%
QoQ in 1Q20, it still rose 2.6% QoQ to Rmb78 in 3Q20, which could indicate
strong growth potential.
Going forward, ARPU generated by mobile games could continue to grow and the
mobile game market may further expand. This is as users are increasingly
willing to pay for games and the quality of games is improving.
Regulatory
approval of licenses for online games normalized; policies to encourage quality
games
Over January 1–December 2, 2020, National Press and Publication
Administration (NPPA) issued 21 batches of licenses for domestic online games
(1,227 licenses in total) and four batches of licenses for imported online
games (98 licenses in total). On average, NPPA issued one to two batches of
licenses (about 50–70 licenses per batch) for domestic online games per month, even
during the COVID-19 pandemic.
In addition to issuing new licenses for games, NPPA has also revoked licenses
for 19 existing games that violated related rules since September, in an effort
to strictly control the quality of games. Meanwhile, NPPA released information
about changes of operators, publishers and names of some games that gained
regulatory licenses over 2015–2020.
The trend toward higher quality games
The number of regulatory licenses for online games has declined as gamers pay
greater attention to the quality of games.
The emphasis on quality could mean a trend toward higher R&D spending by
game developers. Average R&D spending of leading game development companies
in the A-share market grew at a CAGR of 24.4% from Rmb0.28bn in 2017 to
Rmb0.44bn in 2019, and rose 29.2% YoY over 1–3Q20.
Furthermore, their average number of R&D employees grew at a CAGR of 16.4%
from 766 in 2017 to 1,037 in 2019. Their R&D spending per R&D employee
rose from Rmb397,154 in 2017 to Rmb443,036 in 2019.
Figure 3: The
number of R&D employees has risen at most leading listed game companies
Note: Companies in the above figure are top 5
companies by market cap in the CITIC game sector index as of November 6, 2020;
R&D employees of Century Huatong increased markedly in 2019 due to the acquisition
of a game company; R&D employees of Sanqi Interactive decreased in 2018 due
to the disposal of auto parts business
Source: Corporate filings, CICC Research
Competitive landscape
Data from Analysys shows that the combined market share of Tencent and
NetEase stood at 69.8% in 1H20, slightly higher than in 1H19. It is worth
noting that revenues and recurring net profits of some leading game companies
have achieved higher-than-average growth.
Going forward, leading game companies could potentially see their market share
rise further, as they continue to increase R&D spending and improve the
quality of their titles.
For more details, please see our report 2021
outlook: Content, platforms, technology innovation to fuel growth published
in January 2021.