Market researcher Niko Partners studied the effects of the pandemic in China in the first quarter, and it found both negative and positive effects on the world’s biggest gaming market.
The report said that the outbreak of COVID-19 hit China the hardest in the first quarter, with more than 84,000 cases and 4,500 deaths. Wuhan, the epicenter of the outbreak, was under quarantine for 77 days and most of China was in lockdown for two months that included the normally busy Lunar New Year. Niko Partners President Lisa Cosmas Hanson moderated a session on this topic at our GamesBeat Summit 2020 event.
Niko Partners estimates that revenue for games on all platforms was roughly 30% higher in Q1 2020 than Q1 2019. But we saw plenty of negative effects as well, based on an April survey of 1,057 Chinese gamers.
Home-based mobile gaming increased, with a record for in-app purchases (IAP), a sharp increase in mobile game downloads, and a far higher value for the number of times per month a gamer would revisit a game.
An example of this is that some casual games that may typically have 5 visits per gamer per month had more like 15-20 visits. Gamers became more discerning about their spending.
97.2% of the survey respondents reported spending more hours on mobile games than prior to the pandemic. 88.8% of respondents said that they stuck to playing legacy titles or games that they had played before, opting for familiarity.
81.6% reported spending more money on gaming. Gamers spent more on weekends because developers were pushing promos and sales then. Sensor Tower data shows average weekly downloads of iOS games during Lunar New Year were 153% higher than in December 2019, and March 2020 still 67% higher than in December.
Ad views were down, ad revenue was down, and fewer ad spaces were filled because advertisers were either out of business, closed, or spending less. Word of mouth created a gravitational pull to more popular games as social behavior encouraged gamers to play what their friends were playing. This may have been detrimental to smaller titles.
Niko believes that most casual game developers will look to hybrid monetization options to offset some of this impact. While we expect revenue from ad-supported games to be down this year, Niko noted that the increase from IAP spending will more than offset any impact.
PC gaming and internet cafes
94.6% of respondents claim to have spent more time on PC games during the quarantine than before. 61.5% of respondents said that they returned to a game that they had dropped previously.
76.3% of PC gamers surveyed said that they spent more on PC games during the lockdown. In-game Lunar New Year events and promotions were key drivers of engagement and spend across top PC games, with publishers extending these events as the lockdown dragged on. PC game publishers also offered free content in-game, opened new servers, and ran in-game charity events.
Steam hit an all-time peak concurrent user record of 18.8 million (globally) on February 2, the final day before the intended end of the holiday period across most of the country. The higher usage in China is a likely contributor to the PCU level. On January 26th, the day after the actual Lunar New Year celebration, Steam had 18.4 million PCU, which was the highest of the month.
Innovation happened by Tencent licensed icafes launching a virtual cloud icafe service, at least in Shenzhen, according to the owner of 20 such cafes.
Internet cafes were shut (all 133,000 in the country), eliminating the gameplay from there by the 115 million gamers who typically frequent them. 57% of respondents that use icafes said that they do not intend to return once they have reopened.
Shanghai, Beijing, Chengdu, Guangzhou, and other municipal governments partnered with esports operators to help support the growing industry by lessening red tape and enabling online competitions.
61.7% of respondents said that they spent more time watching esports during the COVID-19 outbreak than prior.
Tournaments migrated online, or were canceled or postponed at least until the end of April 2020. Concern arose about cheating that could take place in online play. The remote nature of the online format also brings its own additional challenges in terms of bandwidth and latency, especially for players in different locations.
It took Tencent around one month to go from delaying offline esports events to starting online format esports. Tencent rebroadcast classic esports matches or scrims matches during the transition. The League of Legends Pro League restarted with an online format on March 9, the King Pro League (Honor of Kings) restarted on March 18 and the Peacekeeper Elite League restarted on March 19.
Niko Partners monitors the largest three platforms in China: Douyu, Huya and Bilibili. In March, the data showed that streaming video traffic is strong.
65.5% of respondents said that they spent more time watching video game livestreams since the COVID-19 outbreak with 39.7% saying that they streamed themselves for the first time. One trend we noticed is how non-gaming celebrities have joined game livestreaming platforms to broadcast themselves to fans. It is one way that gaming has been able to bridge the gap between other entertainment industries where production has stopped.
Only 27.1% of respondents said that they received more tips/gifts than prior to the outbreak.
Console gaming and manufacturing
As with mobile gaming, console gaming has seen a surge with 95% of console gamers surveyed stating that they spent more time playing console games since the COVID-19 outbreak. Grey market titles such as Animal Crossing: New Horizons and Ring Fit Adventure (already in short supply prior to COVID-19 then sold out online and tripled in price on Taobao.com) were very popular, in fact causing a big boost in Nintendo Switch sales.
In 2019, nearly 90% of video game consoles imported into the US were manufactured in China. Little to no manufacturing happened in February with production capacity ramping up again through March and April. This primarily impacted Nintendo who saw unprecedented demand for their Switch console. Niko expects supplies of the Switch to recover by the end of Q2 2020.
Next-generation consoles from Sony and Microsoft are also scheduled to launch by the end of this year. Component scarcity, logistics issues, and software delays now pose a bigger threat to a limited launch or even a delayed launch. Component scarcity and logistics issues will increase the build price of next-generation consoles, whilst logistics issues may lead to shortages at launch, even with air shipments. Software delays could also make the launch line up less attractive to potential buyers.
These factors, along with a recession, could lower the incentive for consumers to purchase or upgrade to a next-gen console this year.