Tencent-Netease Take 70% Of Chinese Mobile Games Market
Summary
- Tencent and Netease's combined China online game market share rose to 59.3% in H1 2016, while that of mobile games jumped to 67%.
- Netease’s online game revenues jumped to 36.4% that of Tencent in H1 2016 from 26.5% a year ago.
- China's online game user number grew less than 5% in 2015, the lowest growth in 7 years. Most online game publishers suffered from a revenue drop.
- Major online game publishers look for diversification and M&A as ways out of market doldrums.
Tencent (OTCPK:TCEHY) and Netease (NASDAQ: NASDAQ:NTES) have enlarged their duopoly of China's mobile games market, with a total market share approaching 70%. Though still far behind, Netease has narrowed its gap with Tencent. Yet, facing a deteriorating market, the duo have taken similar strategies of diversification and M&As with their fellow games publishers.
According to data gathered by Sina Technology, mobile games accounted for nearly half of Chinese online game market in the first half this year. In the mobile games market, Tencent and Netease continue their lead, together taking approaching 70% of the industry's revenues. Squeezed by the duopoly, three out of the next big seven online games service providers suffered from shrinking revenue while the small ones were in deep troubles.
Tencent-Netease H1 Online Game market share Rise to 59.3%
According to the second quarter earnings reported by the two market leaders, Netease's online game net revenues was 6.438 billion yuan, still far behind Tencent's 17.124 billion yuan . The first half 2016 figures for Netease and Tencent are 12.453 billion and 34.209 billion yuan respectively.
Company | H1 2016 Online Games Revenue (Billion Yuan) | H1 2015 Online Games Revenue(Billion Yuan) |
Tencent | 34.209 | 26.283 |
Netease | 12.453 | 6.954 |
Source: Sina Technology | ||
According to a report published by Games Publishing Committee, China's online games industrial body, the industry's revenue during the first six months this year was 78.75 billion yuan, of which 37.48 billion yuan came from mobile games. In other words, Netease and Tencent together grabbed 59.3% of China's online games market, a great improvement from the 52.3% in the whole 2015, according to Sina report. The two firms grabbed a combined mobile games market share of 60.5% in the whole 2015.
In the first half 2016, the leading duo both relied on mobile games for revenue growth. Tencent's mobile games revenues for the first and second quarters were 7.5 billion and 9.6 billion yuan respectively, with a half-year total of 17.1 billion.
Netease does not publish mobile games revenue, but CEO Ding Lei revealed in the fourth quarter last year that mobile games accounted for 57% all online game revenue. Sina projected Netease' mobile game revenue to reach 8 billion yuan in the first half this year.
Tencent-Netease H1 Mobile Game market share Rise to 67%
Hence, the duo's total mobile games market share in the first half 2016 was estimated of 67%.
Netease has long has been considered the only viable competitor against Tencent on online games. It has indeed narrowed the gap with Tencent--Netease's online game revenue in the second quarter this year jumped 76% from a year ago and had a respectable 4% rise quarter-to-quarter. Tencent managed to register a 32% rise compared with a year ago but achieved no growth from the previous three months.
Netease's online game revenues jumped to 36.4% that of Tencent in the first half 2016 from 26.5% a year ago. Source: LinkedIn
Yet, Netease is still far behind Tencent in online game revenues. In the first half 2015, Netease's revenue in this business was only 26.5% that of Tencent. The ratio rose to 36.4% in the first six months this year.
Three Out of Seven Next Biggest Game Companies Suffer Revenue Fall
According to the GPC report, online game developers experienced polarized operating environments. Those who had launched successful products have become popular among investors but the small and medium enterprises have to fight for survival.
However, latest earnings reports suggested the situation is not optimistic for most big online game players other than Tencent and Netease. According to Sina, three of the top seven online game companies ranked below the two giants suffered from revenue decline in the first half 2016.
Company | Online Games Revenue (M Yuan H1,2016) | Y-O-Y Change | Profit ( M Yuan) |
Kingsoft Internet | 934 | +50% | |
Perfect World | 1,848 | -3.52% | |
Giant Network | 1,050 | -1.57% | 590 |
Blue Harbor Interactive | 301 | +9.7% | -50 |
Chinese Universe | 2,404 | +173.75% | |
Hero Entertainment | 377 | 4,728.94% | 224 |
Changyou.com (CYOU) | 1,700 | -37% | 424 |
Source: Sina Technology | |||
Online Game User Number Grows Less than 5% In 2015 -Lowest In 7 Years
In the first half 2016, sales of mobile games accounted for 47.6% of all online game services but are facing slowing growth. The GPC report shows that the growth of online game users has declined for the fifth consecutive year. The growth rate topped at 71.1% in 2010 but dropped gradually to less than 5% in 2014 and 2015. The growth rate for 2015 was indeed the lowest since 2008.
Besides stagnant user growth, other headwinds include more stringent regulation on intellectual properties, rising marketing and sales costs, the homogeneity of products (competitors' products getting similar) as well as the growth slowdowns in user number and revenue.
Ways Out of Doldrums: Diversification, M&A
According to Sina, Chinese online game service providers now faced "the most difficult time", even those with strong research and development capabilities have to find new ways out.
For example, Giant network announced in second quarter earnings report that it would re-position itself as an integrated internet enterprise with three core businesses: the online games services as well as the brand new internet financial and medical services. Earlier this year, a Giant Network-led consortium announced a $4.4 billion acquisition of Israeli mobile game services company Playtika.
Even the two front runners are preparing for the market doldrums. Early this year, Tencent bought Finnish mobile games company Supercell for $8.6 billion. With its huge user base and more than 100 billion yuan cash and equivalent by end of June, Tencent is expected to do more overseas M&A to consolidate it lead in online games.
Netease, with its online games development business booming, has preferred diversification. Besides a low-key development of ecommerce on high-value goods, it is also building up overseas networks of game sales and procurement. With 29.8 billion yuan cash and equivalent on hand by end of June, Netease will quicken the pace of diversification and starts to see results a few quarters later.
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