Chinese language video games builders eye a slice of $49 billion console market

Gamers visit Sony PlayStation booth at China Joy annual gaming conference in Shanghai on July 30, 2021.

Arjun Kharpal | CNBC

GUANGZHOU, China – Sony, Microsoft and Nintendo game consoles were banned in China for 14 years.

In 2014 the ban was finally lifted.

While these consoles were available in so-called “gray markets” – places where imported devices were sold at high prices – the ban led to a surge in the popularity of PC and mobile games.

Chinese developers like the giants Tencent and NetEase have struggled to develop hit titles for these platforms during the more than ten-year ban.

Now things are changing. China’s tech giants, along with a new generation of game developers, want to unlock the growth of video game consoles in China, targeting overseas gamers who grew up with these devices.

For the world market, the console is huge – about 30% of sales. But in China it is only 1% and so there is a huge potential opportunity for the console game developer in China.

Daniel Ahmad |

senior analyst, Niko Partners

Sony, Microsoft and Nintendo all launched their next generation game consoles in China.

“For the global market, the console is huge – about 30% of sales. But it’s only 1% in China, so there’s huge potential for console game developers in China, ”Frank Mingbo Li, founder of Studio Surgical Scalpels, a Tencent-backed game studio, told CNBC.

Studio Surgical Scalpels is developing a space-based “first person shooter” game called “Boundary” for PC and Sony’s PlayStation 4 and PlayStation 5.

China’s game console hardware and software market reached $ 1.84 billion in 2020 and is projected to reach $ 2.46 billion in 2025, according to research firm Niko Partners. But that’s dwarfed by both mobile and PC gaming revenue. Mobile game sales alone amounted to $ 29.2 billion in 2020.

According to market research firm Newzoo, the console market is expected to reach $ 49.2 billion in revenue worldwide, which is 28% of the global gaming market.

That is where the opportunity lies.

“Although consoles were banned between 2000 and 2014, we are seeing high demand for consoles in China and there is an even larger market for consoles outside the country,” Daniel Ahmad, senior analyst at Niko Partners, told CNBC.

Li, who is a veteran of the game industry, said “Boundary” was designed for the global market from “the very first day,” which underscores the Chinese developer’s ambitions.

“Boundary” is just one of several high-profile console games from China. Another upcoming game is Black Myth: Wu Kong, which is being developed by the Chinese studio Game Science.

Gaming giants are watching the console market

The world’s largest games company Tencent and Chinese rival NetEase are also keeping an eye on the console market.

NetEase released a high profile game called Naraka: Bladepoint on Thursday – a 60-person battle royale game like the popular Fortnite game. The Hangzhou, China-based company is also developing the game for consoles, but has not yet announced a release date.

In 2019, NetEase opened a gaming outfit in Montreal, Canada to help with international expansion, and another studio in Japan that last year was dedicated to producing console games.

In an interview with CNBC this month, Hu Zhipeng, vice president of NetEase, described the console market as “pretty attractive.”

“Our Sakura studios in Japan and Montreal are dedicated to developing games on consoles, as one-third of the overseas market share is taken by console games,” said Hu.

Tencent’s growth in gaming over the years has been driven heavily by acquisitions or investments in game studios. That was heavily focused on mobile devices, but is now shifting to companies that make games for PC and console.

“Almost half of the 51 investments in 2021 will be in companies with experience in developing PC and console games. Many of them are domestic, ”reads a report by Niko Partners published in May.

Until 2020, Most of Tencent’s domestic investments went into mobile games, while PC and console investments were made overseas, the report said.

And Tencent’s own developer TiMi Studio has opened offices in Montreal and Seattle to focus on PC and console games.

“Chinese studios are trying to match their overseas competitors in game development by standardizing tools, developing advanced production processes, and investing in large teams to ensure they can develop great AAA quality titles that offer a competitive advantage that meet evolving player needs and reach a broad audience both in terms of regions and platforms, “said Ahmad of Niko Partners.

AAA is an unofficial term for high quality and popular games.

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