Mobile games have also benefited at the expense of video game consoles, which until last year had been banned for 14 years in China. So while members of Generation Y elsewhere have grown up with PlayStations and Xboxes, China’s Generation Y haven't, and this has seen simple PC browser-based and mobile-based games flourish. It is also worth noting that the quality and speed of China’s internet isn’t particularly good, which makes online multiplayer PC games a niche market.
The development boom
Traditionally, China’s gaming industry has relied heavily on imports and Chinese versions of foreign games, but over the past few years, locally produced games have become more popular. This is mainly because these games are China-centric and in Mandarin, which suit users from all regions of China.
During 2014, exports of China’s original mobile games reached $1.3 billion, which was a 366% increase from 2013, compared to original PC game exports that grew 30.5% year on year to $950 million.
One of the reasons for the explosive growth of independent mobile game development in China is the relatively low cost of production. Industry estimates suggest that for a mobile game, independent developers only need a team of five people, a time frame of three to six months, and an investment of around $150,000, which is significantly below that of a PC game, and below rival markets such as the US and Japan.
But even just considering amateur or semi-professional developers, the accessibility of iOS and Android app development tools through Xcode and SDK means that games can be produced relatively easily.
This boom in independent game development benefits the third-party app distribution stores, the biggest of which is Qihoo’s 360 Mobile Assistant. According to industry data from iResearch China, the main source of iOS game downloads is Apple’s App Store, which accounts for 66.8% of all game downloads. However, for Android games, the main source is third-party stores, which is why the 360 Mobile Assistant store has grown so quickly.
Mobile game download channels for iOS and Android
The seasonality of the gaming market
While Qihoo is one of the biggest players in the game distribution market in China, the other market leader is Tencent. However, there is a distinct difference between the two. Qihoo’s 360 Mobile Assistant is a third-party app distribution platform where developers upload their games for sale. Tencent, on the other hand, is a game developer and hence the majority of the games on its distribution platform is its own.
The game development industry is very cyclical, with the first and fourth quarter seeing the majority of game releases, while the second and third quarters are relatively quiet. The effect on the likes of Qihoo 360 Mobile Assistant is clear, because the seasonality of game production is difficult to control.
Tencent can minimise this seasonality because it distributes its own games, and hence can control and neutralise the seasonality effect. Nevertheless, Tencent has been opening its platform up to third-party developers in order to capitalise on the growing market, and with its wildly successful WeChat and QQ platforms, it has the strongest mobile ecosystem in the market to take advantage of China’s mobile game industry.
– Edited by Gayle Bryant
Neil Flynn is head equity analyst at Chinese Investors. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.