The global gaming market has been booming recently with Newzoo recently announcing that the market is expected to grow another 9.4% this year to reach $91.5 billion. China is also expected to become the largest gaming market this year, but could that be due to the sheer number of gamers or because Chinese gamers are spending more?
The average gamer in the US spends around $80 on video games per year, this can include packaged content in the form of console or PC games and Digital content in the form of full game purchases, DLC and in app purchases. This number is actually down from 2008’s peak of $130 when gaming was thriving thanks to the Nintendo Wii. The reason this number has fallen is because more and more gamers are moving to mobile and PC and playing free 2 play games where they don’t need to spend a penny and if they do it’s only a few dollars here and there.
The decline in video game spending in the US has been quite sharp from 2008 through 2013 but seems to be somewhat stabilising in 2014 and we should see the decline round off in 2015 and beyond as generation 8 consoles grow their install bases and PC and Mobile developers monetize and encourage spending on additional games content. In the US we still see a huge number of gamers purchases attributed to console games, in fact 51% of US households have at least one dedicated gaming device and there are at least two gamers in each of those houses.In the USA the next generation install base for consoles and handhelds has reached 38 million and is set to grow to over 45 million before the end of this year.
In total the US is estimated to have 180 million gamers compared to 440 million gamers in China. However only 35% of those gamers in China actually spend money on games, the abundance of free 2 play titles on browser, PC and Mobile as well as how easy it is to pirate a paid game has meant that the average Chinese gamer spends less than $10 on games per year. If you were just to include gamers that actually spend money in China then that number jumps up to almost $150 per person on average for the total video game market so that shows that there are gamers out there fuelling growth in the gaming industry but it’s only a very small number of the total gaming population.
In China there are now 366 million gamers who play mobile games, that’s more than the population of the US and almost 3x the amount of PC gamers in the country. China has seen a huge change in that more and more “casual gamers” are entering the market thanks to Android and iOS phones being easy to purchase and use. The mobile gaming industry in China grew by about 400% last year compared to the PC gaming industry which remained static YOY. The Chinese gaming industry is going through a huge period of growth and it is expected that average gamer spend will soon break the $10 mark sometime next year.
Whilst mobile has grown drastically in China it’s PC that still remains king when it comes to revenue generation as despite there being less PC gamers in the country they are more willing to spend money on their hobby compared to an overwhelmingly casual mobile gaming audience who are looking for a quick 5 minute game. But mobile is growing quicker than ever in China and revenues are expected to eclipse PC gaming by next year/ The combination of Mobile and PC gaming revenues in China is enough for China to become the worlds largest gaming market this year. It’s estimated that revenue generated in China will exceed $22 billion this year compared to just under $22 billion in the US. From there the Chinese market is expected to grow to $30 billion by 2018 whilst the maturing US market will have just reached $25 billion.
So just why is China’s gaming market growing so much? And why wasn’t the word console mentioned in regards to China above? Well the simple fact is that PC gaming is just more convenient for Chinese gamers. For one, PC games are either free to play or can be pirated easily, this means that Chinese gamers don’t need to spend much on software to try out a game or play their favourite games. PC’s can be built quite cheaply in China but if you don’t have the money for a PC then you can simply visit one of the 140,000 internet cafe’s across the country and play as much as you want for a very low fee. It’s much more convenient than paying $400 for a console and then having to purchase additional content. PC gaming is available to everyone in China and even Western publishers such as Activision Blizzard are taking advantage.
The smartphone market in China is growing at the fastest rate ever thanks to cheap domestic phones and the ease of use. A gamer in China then has access to hundreds of thousands of free to play games from the app store and can start playing. Chinese gamers are more likely to download a game when it has been recommended from a friend or family member and they can play with or compete against them. Many Chinese gamers decide to spend money on smartphone games in order to gain a competitive edge, or to make the experience more fun, or unlock more levels. More and more Chinese gamers are spending money on Smartphone games and this is only set to increase as the number of smartphone users in the country increases.
Consoles still remain bigger than Mobile in the US this year, although that will change very soon, but in China consoles don’t represent much at all. Consoles had been banned for 14 years prior before the Xbox One went on sale in 2014 and whilst there were grey imports of Gen 6 and 7 consoles during those years, they never reached more than 2 million shipments per year. This year a report from Niko Partners estimates that only 550,000 PS4’s and Xbox One’s will be sold in the country by the end of 2015, a far cry from the current US install base of 16.2 million.
Both Sony and Microsoft have made it clear that they want to enter the console market in China to ship 100 software titles per year, increase the attach rate to over 3:1 for software and increase the install base of consoles in the country. Penetrating this market will require Sony and Microsoft to change their business models and bring custom versions of its most popular franchises as free-to-play online games to increase brand awareness. Once they’ve done this they can introduce more paid services for that game and other games. They also need to work with local Chinese developers to ensure that Chinese gamers are able to play their favourite PC or mobile games on console with unique enhancements and exclusive content to encourage hardware purchases.
This isn’t something that can happen over night but I’m hopeful that we will see more Chinese gamers and in turn more active developments in China with new game titles launching internationally as well. Overall the console market in China will never be massive but there is an opportunity for Sony and Microsoft to tap into a niche of gamers who are willing to purchase their hardware and stay for the software.