In celebration of 16 years of delivering market intelligence on the Chinese and Greater Southeast Asian digital games industry, we’ve put together 16 predictions about the 2018 digital games industry in the eight markets we cover: China, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, and Taiwan (Chinese Taipei).
China is the single most important market in the world for PC online and mobile games. We expect China’s games market to grow from $27 billion in 2017 to $35 billion in domestic revenue by 2021. Niko Partners has tracked this market since 2001, with our first report on China published in 2003. We predicted that the market had huge promise – our first prediction 16 years ago has certainly remained true each year.
Greater Southeast Asia’s games market is booming, representing a lucrative opportunity for developers and publishers. Investment in the region by multinational companies and country governments will continue to boost this growth. The region represents a giant opportunity however each country’s different culture, gamer preferences, and spending behavior means there is no one-size-fits-all approach to the region.
Our predictions for 2018:
1. China’s mobile games revenue will exceed PC games revenue
China’s games market is constantly changing. Mobile games, which has been the fastest growing segment in China for some time, is now projected to overtake PC online games revenue in 2018. Further, by 2021 the segment will account for 58 percent of total games revenue according to our 2017 China Digital Games Market Report. We expect the total number of gamers to exceed 650 million in China with 90 percent playing on mobile devices and 40 percent playing on both mobile and PC.
2. Esports to get a boost from competitive PC and Mobile titles
Esports will continue to be a hot industry in 2018 thanks to the ongoing success of popular competitive MOBA titles such as League of Legends on PC and Honor of Kings (which Tencent brought to the West as Arena of Valor) on mobile. We expect growth in PC esports to come from the newly launched Overwatch League as well as esports tournaments for battle royale games such as Playerunknown’s Battlegrounds. We also expect battle royale games to drive esports growth on mobile. NetEase already held an esports tournament for its mobile battle royal game in 2017 with prize money of RMB 500,000.
3. Tencent to remain the market leader despite heavy competition
Tencent is currently the market leader in China with over 50 percent market share of PC and mobile games revenue. The company has done well thanks to its increased focus and investment in internally developed and licensed IP that it has paired with a robust marketing and distribution strategy via its popular social networking apps. Tencent will continue to be the market leader in 2018 but will have to fend off companies like NetEase as well as new entrants such as Alibaba, who are looking to take a slice of the pie.
4. Regulations will continue to dictate the market
Regulations have been a huge part of the China games market since its inception, and 2017 was no different. China’s Ministry of Culture enhanced anti-addiction regulations and this led to Tencent self-regulating its hit mobile game, Honor of Kings, by restricting the amount of time that minors could play. 2018 has already seen announcements from various regulatory bodies promising to tighten regulations and ensure all online game companies comply with the rules.
5. PC to mobile game adaptations will continue to succeed
A major trend we noted in 2017 was the success of PC to mobile game adaptations. This is when a PC game is relaunched as a mobile game. In 2016, we noted that there were six games in the top 10 iOS grossing chart that were classified as PC to mobile game adaptations and in 2017 this number increased to seven. We expect these types of games to do even better in 2018 driven by the continued success of legacy titles and the launch of new PC to Mobile game adaptations.
6. Battle royale secures its place as the new hit genre
PlayerUnknown’s Battleground (PUBG) was the hot topic of 2017. The game popularized the battle royal genre and sold 30 million copies worldwide, including 10 million from China alone. Battle royal games usually drop 100 players into a map with the aim to be eliminate all other players to be the last one standing. The game has inspired a number of Chinese companies, including the likes of Tencent and NetEase, to jump on the trend. Tencent has acquired the rights to launch PUBG in China and will launch two mobile games alongside the PC game. Tencent has also published its own internally developed battle royal game on mobile. NetEase however was able to beat Tencent to the market with its global release of Rules of Survival, a mobile battle royal game. We expect to see more battle royal games launch in 2018 and no doubt they will engage in a battle royal of their own to see which game comes out on top.
7. Chinese games will perform better overseas
Chinese developed games have traditionally done better at home due to the genre, story, UI and language. A number of Chinese companies, including Youzu (Legacy of Discord) and ELEX (Clash of Kings), have started to develop games with a global audience in mind and this has led to multiple Chinese games reaching the top of the charts in Southeast Asia, Japan, Korea, Europe and the US. We expect 2018 to be a strong year for game exports as Chinese companies work with International partners to grow outside China.
8. VR developers experiment, AR gains traction
Virtual reality has been a hot topic for some time, but outside of low-priced mobile headsets, the market has not evolved to truly adopt VR as a mainstream gaming platform. The VR games industry is still relatively fragmented across hardware and software. 2018 will see the release of new standalone VR hardware alongside higher end VR hardware at a lower price. Augmented reality became a popular topic with the launch of Pokémon Go in 2016. While Pokemon Go was not officially launched in China, a number of Chinese companies did embrace elements from the game in their own titles. With the release of Google’s ARCore and Apple’s ARKit, we expect this trend to continue into 2018. Companies like NetEase have already committed to AR games and hardware. We expect to see more unified ecosystems across VR and AR this year.
9. Buy-to-play games market may face risks despite growth
Buy-to-play refers to video games that require the user to pay upfront, as opposed to free-to-play games that require no payment to start playing. We previously called “buy-to-play” games “standalone” games. The buy-to-play games market, has always remained niche in China but 2016 and 2017 have been strong years of growth thanks to distribution platforms such as Steam and Tencent WeGame. Both platforms support local payment, regional pricing and Chinese language support. This, alongside the launch of huge titles such as Overwatch and PlayerUnknown’s Battlegrounds has led to strong growth in the buy-to-play category and Steam has seen its user base in China more than double in the past year. We expect to see more games, especially indie titles, going the buy-to-play route in China but we do express caution for platforms such as Steam which could be disrupted in the future if regulations were to force it to shut down.
10. Pan-entertainment IP continues to grow in importance
Pan-entertainment has been a growing trend over the past few years and we expect this trend to continue through into 2018. Games are now having tie-ins with TV shows, movies, books, comics and more. NetEase for example has been keen to expand its hit Onmyouji IP that launched as a mobile game in 2016. Alongside the original game, there is now a MOBA spinoff, a comic book collection and a potential movie in the works. At the same time, books, movies and online dramas are inspiring game spin offs themselves. Tencent’s China Literature division, which was spun off in an IPO at the end of last year, plans to bring popular literature to other forms of entertainment such as games.
11. HTML5 minigames bring in more casual gamers
HTML5 games are set to increase in popularity this year as they attract a large casual gamer audience that traditionally used to play web games on their PCs. Tencent is one of the companies at the forefront of this growth and its WeChat minigames program is already seeing signs of success. Minigames are HTML5 based games that do not require a download to play — players can select any game and start playing instantly.
12. A boom in esports industry hiring
As the games industry continues to grow in China, so does the demand for talent and industry professionals. We expect demand to be especially strong for esports players, VR developers, and research and development staff. A recent report from Tencent noted that there were 50,000 people working in esports but the potential of the industry could support another 210,000. We expect to see an uptick in demand for jobs in non-traditional game roles such as live streaming anchors and esports management staff.
13.Online and mobile payments are going to surge
As Southeast Asians continue to adopt technology at a blistering pace, we will see 2018 become the year that financial tech takes off in the region. We will see more technologies and companies that allow players to pay for games and in-game items enter the market more than ever before as banks and startups around the region try to capitalize off the growing popularity and size of the gaming market in Southeast Asia.
14. The investment spotlight will shine on Southeast Asia in 2018
Given the high-profile IPOs of both Sea, Ltd. and Razer of Singapore in 2017, 2018 will see an influx of venture capital and investment money into Southeast Asia as companies seek to find the next Southeast Asian unicorn in the gaming and tech industry.
15. The esports and gaming support ecosystem will continue to beat the market
The ecosystem that supports the explosion of online gaming will continue to outperform the market in general. Growth in the sales of gaming PCs and gaming peripherals will continue to shine in a weak PC market, money will flow into event and team sponsorship at a rate higher than ever before, new events will be hosted, new arenas will continue to open, I-cafes will flourish, and 2018 will see prize money available set new records for Southeast Asia. The gaming market in Southeast Asia is on fire and those companies peripheral to the market, but that help make it tick, will benefit.
16. Consoles will grow in Asia thanks to new models
The console market in Southeast Asia has remained niche for a while. However, the launch of Sony’s PlayStation 4 in 2013 has driven growth in markets such as Malaysia and South Korea. Traditional Chinese localisation, local distribution and regional pricing has been key to console adoption in the region. Nintendo has launched its new console in Asia and is committed to following a similar strategy to Sony. The portability and social nature of the Nintendo Switch console lends itself well to gamers in Southeast Asia and we believe the console market will experience a strong year of growth as a result of the launch.
(This post originally appeared at Niko Partners’ website.)
For 16 years, Lisa Hanson has served as founder and managing partner of Niko Partners, where she’s helped companies and brands understand and succeed in China and Southeast Asia.