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Niko Partners has cut its forecast for China’s video game market for the first time in 20 years due to a weakening outlook.

The market research firm expects China’s market to generate $47 billion in 2021, which is down $460 million from an earlier forecast due to a variety of factors, including strict regulations on young gamers and a temporary freeze on game approvals. China recently limited gamers under 18 to three hours of gaming per week.

Niko said that total domestic video game revenue will reach $46.98 billion in 2021, a downward revision from the forecast made in Q2 of $47.52 billion. This reflects revenue generated in mainland China from mobile, PC, and console games.

Niko projects mobile games revenue to reach $32.3 billion in 2021, up 10.5% from 2020. This is a downward revision from the Q2 forecast of 11.9% growth for 2021.

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And Niko said PC games revenue will reach $13.6 billion in 2021, down 2.1% from a year earlier. This is a downward revision from the Q2 forecast of a drop of 1.2%, due to the lack of new approval licenses for PC games and a slower than expected recovery for internet cafes.

The 2021 console forecast remains unchanged, as consoles are a small piece of China’s games market and these games are not as impacted by the new regulations.

China recently surpassed 700 million gamers, but Niko expects the total number to decrease over time as youth gamers leave the market due to the restrictions on their available time of gameplay.

Chinese game companies are expanding overseas through sales and investment as growth at home slows. China game export revenue is growing at a faster rate than domestic revenue.

“For the first time in our 20-year history of tracking the China games market, we have revised our forecast downward mid-year, said Lisa Hanson, president of Niko Partners, in a statement. “Contributing factors include continuing uncertainty of the Covid-19 pandemic, a smaller number of ISBN licenses granted than we had anticipated, and the major regulatory policies put into place during Q3. We will continue to watch the impact that these three inputs have on the market over time.”

Hanson said the reduction of the number of youth mobile gamers is impactful for the future, but not for the near-term revenue of major games companies. The regulations impact esports, whereby until September 1 gamers 16-18 could compete, but since September 1 only 18-plus can compete.

She said the impact on demand and behavior among 18 to 34-year-olds is still to be determined, but Niko has its concerns.

“There are over 110 million minors that play video games in China today, and we expect the new limits to lead to a decline in the number of players and a reduction in the amount of time and money spent in-game by those under 18,” Hanson said.

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