China dominates the global gaming industry. Wait, that's an understatement. China's gaming market is nearly twice as large as Japan's — the nation that introduced the world to video games — and boasts three times as many online gamers as the world's second-largest gaming nation, the US.
To put a number to China's gaming market, consider that 619.5 million people in China played games in 2018 — way more than the total population of the US and Japan combined!
As awe-inspiring as China's growth in the industry has been, a remarkable trend is taking shape that could change the dynamics of the Chinese gaming market: mobile gaming. In 2018, half the global total in online gaming revenues came from mobile, including smartphones and tablets, according to marketing intelligence firm Newzoo's 2018 Global Games Market Report. Newzoo estimates the number to go up to 59% by 2021. China should be the frontrunner.
Now, you may have your fair share of doubts if you look at recent growth numbers: revenue from China's mobile gaming market grew only 15.4% to roughly RMB 134 billion in 2018 compared with 41.7% growth in 2017.
However, those who've followed the industry closely would also know that Chinese regulators froze approvals for new games eligible for monetization last year for several months amid various concerns, hitting the gaming market hard. Mobile gaming, otherwise, continues to gather steam in China.
The overall share of personal computer (PC) games (client and web) in China's total online gaming market shrunk from 86.9% in 2012 to only 36.1% in 2017, according to data from iResearch.
Meanwhile, mobile's contribution shot up to 62.1% from only 13.1% during the period. iResearch foresees mobile gaming's share to cross 70% by 2020.
So what's powering up the mobile gaming growth engine in China? "Mobile" is the keyword here.
3 key gaming industry drivers: Smartphones, quality and internet
Mobile gaming, of course, wouldn't have taken off if not for the rising penetration of smartphones in China. The availability of high-end economical smartphones has fuelled the gaming market.
As smartphones become even smarter (think software and features that support high-end games), gaming companies also have an incentive to innovate to improve the user experience in games. A high-quality experience is one of the biggest drivers of China's gaming industry.
Add to that affordable mobile internet and advanced mobile infrastructure such as the upcoming 5G, and you have an ever-growing addressable market for gaming companies.
According to Statista, nearly 788 million people in China are currently accessing the internet through mobile phones. Compare that with China's total estimated internet population of around 800 million and it quickly becomes obvious that nearly every internet user in China today is accessing the web via mobile.
That's an astounding statistic. And it's one that has unsurprisingly caught the attention of gaming stalwarts like Tencent Holdings (NASDAQOTH:TCEHY) and Netease (NASDAQ:NTES). These two are the largest gaming companies in China with a 2017 market share of roughly 44% and 18%, respectively (among publicly listed companies), according to iReasearch.
In 2018, Tencent's total revenue from smartphone games jumped 24% to RMB 77.8 billion. In sharp contrast, Tencent's PC client games business saw revenue drop 8% to RMB 50.6 billion last year. Meanwhile, Netease derived 71% of its net online gaming revenue from mobile last year.
It's a win-win for such companies as mobile games are not only generally cheaper and quicker to develop and launch than PC games but also easier to monetise.
In fact, China's mobile gaming market is so alluring that other global companies want to try their luck. For example, Taiwan-based Asus is reportedly launching a sequel to its gamer-centric ROG Phone this year and will likely partner with Tencent to gain a foothold in China.
The future of mobile gaming in China
US bank Morgan Stanley predicts entertainment spending by the average Chinese consumer will grow 8% annually over the next 10 years, with games likely to drive this growth. In other words, mobile games clearly dominate China's online gaming industry and all signs point toward the trend continuing for years to come.
So if you're a game lover, expect a lot more excitement and entertainment as companies rack their brains to launch better games that deploy machine learning and artificial intelligence (AI) like never before. And if you want a bigger piece of the action, pay close attention to mobile gaming stocks.
This article originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.