Covering 60% of the domestic game market, Tencent and NetEase have had a warm winter in 2021

2021 is known as another cold winter in the game industry, and since the end of August, strict anti-addiction measures for minors have been implemented, and the distribution of version numbers has also been heard. As half of the domestic game industry, Tencent and NetEase still account for about 60% of the market share.

In 2021, Tencent's "Glory of the King" and "Peace Elite", as well as NetEase's "Fantasy Journey to the West", the three old games still firmly occupy the top three of the domestic mobile game flow list. In addition, Tencent's overseas revenue has grown rapidly, approaching one-third of its domestic revenue; and NetEase's "Harry Potter: Magical Awakening" released in the third quarter has also become a shot in the arm for performance.

Tencent, which has slowed down, has taken 40% of the share

In 2021, Tencent's game revenue in the local market increased by 6% to 128.8 billion yuan, the game business revenue including overseas game business increased by 11.7% year-on-year to 174.3 billion yuan, and NetEase's game business revenue increased by 15% year-on-year to 62.807 billion yuan.

Gamma data report shows that the actual sales revenue of China's game market in 2021 is 296.513 billion yuan, so it is estimated that although Tencent's growth rate has slowed down, but in 2021, local game revenue still accounts for about 43% of the domestic market share, NetEase did not give local game revenue alone, the share should be close to 20%, the two together occupy about 60% of the domestic game market share.

Games are an important source of revenue for Tencent and NetEase. In fiscal 2021, Tencent's overall game business accounted for 31% of total revenue, while NetEase's game business accounted for 71.7% of revenue.

The stagnation of juvenile anti-addiction and version numbers has more or less certain impact on the two major head game manufacturers, especially Tencent, the operator of "Glory of kings", is on the cusp of juvenile protection, and the slowdown in growth is more obvious.

Affected by the implementation of juvenile anti-addiction since the end of August 2021, Tencent's game revenue in the local market of Q4 increased by only 1% to 29.6 billion yuan, and with the addition of overseas game business, the revenue of Q4 game business was 42.8 billion yuan, an increase of 9.4% year-on-year. In this quarter, the revenue of the financial technology and enterprise services sector surpassed the online game sector for the first time and became the business segment with the largest contribution to Tencent's revenue.

In the fourth quarter after the implementation of real-name authentication and face recognition, Tencent's total game duration for minors decreased by 88% year-on-year, accounting for 0.9% of the total game duration in the local market; the total flow of minors decreased by 73% year-on-year, accounting for 1.5% of the total turnover of games in the local market.

Previously, Tencent's 2021Q2 financial report showed that children under the age of 16 accounted for 2.6% of Tencent's game turnover; while NetEase previously announced in the 2021Q2 conference call that the consumption flow of underage users accounted for less than 1%, which was relatively small.

Tencent said that after the implementation of the protection measures for minors, the reduction of consumption of minors and the focus on research and development resources have affected the implementation of new measures, but it is expected that the impact of uninsured measures will be fully digested in the second half of 2022.

Long-term IP operations and new tourism forces maintain growth

The game industry has not released a new version number for nearly 8 months, but relying on the long-term operation of the old game and the version number inventory, Tencent and NetEase still maintained growth in 2021 and maintained the industry's leading position.

The long-term operation of classic IP is an important advantage for Tencent and NetEase to resist external uncertainties. According to the report of Gamma Data, only four of the top 20 domestic game market flows in 2021 are new games and rank low.

Tencent's "Glory of the King" and "Peace Elite", NetEase's "Fantasy Journey to the West" still occupy the top three in the domestic mobile game flow list, the "Glory of the King" that has been at the top of the list has been released for 7 years, and "Fantasy Journey to the West" has been operating for 20 years.

In the 2021 domestic mobile game flow list TOP20, Tencent and NetEase occupy 13 seats, of which Tencent has a total of 7 games on the list, NetEase a total of 6 games on the list, in addition to the "Call of Duty Mobile Game", "Tianya Mingyue Knife Mobile Game" and "Harry Potter: Magic Awakening" 3 new works in recent years, the rest are old games that have been operating for three years or more.

Gamma data analysis shows that between 2019 and 2021, the proportion of products with an online time of 5 years or more continued to increase, while the proportion of new products continued to decrease that year. After the domestic mobile game market is transferred to the stock market, game products have changed from spelling quantity to quality, and game quality and long-term operation are becoming more and more important for domestic enterprises.

In addition to long-term operations, in 2021, NetEase launched the IP card mobile game "Harry Potter: Magic Awakening" and the buyout-made terminal game "Forever Destroyed", and the two games became popular models last year, helping NetEase's Q4 game revenue increase by 30% year-on-year to 17.4 billion yuan, exceeding the average growth of the industry.

Harry Potter: Magical Awakening quickly topped the iOS best-seller list and remained for a week after its launch in September, and according to Gamma data, although there was only a 4-month flow, Harry Potter: Magical Awakening still ranked 14th in the 2021 flow list, and performed well in the 2021 new tour.

NetEase's studio's buyout-made end game "Forever Doomed" was publicly tested in August 2021, and its sales exceeded 6 million in November, setting a new record for domestic buyout game sales. The game was also included in steam's 2021 Best Games list as a "best-selling game."

The overseas game market has become a new growth point

Since July 2021, there has been no new version number issued, NetEase CEO Ding Lei said on the conference call after the annual report that overseas market development and producer investment is a very firm strategic policy of NetEase, he said, "I hope that in two or three years, we can achieve great success in the development of overseas markets." ”

This is the expectation of NetEase, and it will also be the expectation of most domestic game companies. With the subsidence of the home economy and the peaking of the traffic dividend, overseas has become an important breakthrough direction, and the suspension of the version number has accelerated this trend.

According to the Gamma data report, the actual sales revenue of China's self-developed games in overseas markets in 2021 reached 18.013 billion US dollars (about 114.7 billion yuan), which is close to half of the domestic market share. Gamma data judged that the increase in overseas markets has exceeded that of domestic markets, indicating that the focus of revenue growth in China's game industry has shifted outward.

Going to sea has also become a new growth point for Tencent and NetEase's performance. Tencent announced the annual revenue of games in the international market for the first time in the financial report, and this part of the revenue increased by 31% to 45.5 billion yuan in 2021, which showed that this was due to the strong performance of games such as PUBG Mobile, Valorant and Wild Wild.

Sensor Tower data shows that in 2021, a total of 42 Chinese mobile games in overseas markets generated revenue of more than $100 million, and the total revenue of the TOP30 mobile game products in the App Store and Google Play reached $11.5 billion.

In the TOP30 list of China's mobile game overseas revenue list, Tencent's "PUBG Mobile" and "Call of Duty Mobile Game" ranked second and fifth, while NetEase's "Wilderness Action" ranked seventh, and "The Fifth Personality" and "After Tomorrow" ranked 29th and 30th.

Tencent has performed well in the Southeast Asian market, with a total of three games in the top ten of the Southeast Asian mobile game best-seller list in 2021, of which "PUBG Mobile" ranked fourth, and "Glory of Kings" and "Call of Duty Mobile" ranked eighth and ninth respectively.

NetEase is one of the most successful mobile game publishers in the Japanese market. Sensor Tower data shows that in Japan's 2021 mobile game best-seller list, NetEase's "Wilderness Action" ranked ninth, second only to "Original God". In addition, NetEase's "Tom and Jerry" and "The Fifth Personality" broke into the Top 20 downloads of the Japanese mobile game market.

In terms of going to sea, NetEase revealed that "Harry Potter: Magic Awakening" will be launched in overseas markets in the middle of this year, "Forever Doom" is accelerating the e-sports to the sea, and "The Lord of the Rings" will be launched in Q2 with new versions of Japan, South Korea, Hong Kong, Macao and Taiwan.

Tencent set up an overseas game distribution brand Level infinite at the end of last year to accelerate its going global. At present, the games cooperated and released by Level Infinite include the overseas version of Arena of Valor of The Glory of Kings and the games produced by Tencent Games' Tianmei Studio Group, Photon Studio Group and other third-party studios.

Tencent's management said on a conference call that new areas such as meta-universes and international games are stronger growth engines in the future, and "the game industry is actually the youngest industry." Of all the entertainment industries, it is the most dynamic and the one that can benefit from technological change. It said that the future growth rate of the game is still considerable.

Although there is no news about the version number so far, Tencent and NetEase still hold the version number inventory and will release new games this year. Tencent currently holds the version numbers of the IP "Black Desert" and "Dark Zone Breakout", and NetEase said that it will soon launch the host and mobile game version of "Forever Doom", "Qiannu Ghost Recess", and the big IP "Diablo: Immortal" will be launched in the first half of this year.

Haitong Securities Research Report shows that although the suspension of the version number has a certain impact on the company's short-term operation, in the long run, it has objectively brought about the improvement of industry entry barriers and promoted the continuous development of products to high-quality products. In the future, the market share will continue to be concentrated in the head, and going to sea will become a place of contention.