In 2022, the game industry will actively assume the responsibility for the protection of minors, the anti-addiction work will achieve practical results, the distribution of version numbers will be normalized, the quantity and quality will be improved, the worries about the restrictions on the version numbers of large manufacturers will be eliminated, and the certainty of supply-side recovery will be greater. In terms of demand, with the transformation of the epidemic prevention and control situation, the mainland will be committed to promoting the overall improvement of economic operation and achieving effective improvement in quality and reasonable growth in quantity. With the above overall trend, the game industry from industry resources to user consumption willingness and ability will be expected to usher in a rebound after reaching the bottom. In addition, the injection of new trends such as light games, cross-platform games, hybrid monetization and the application of AI technology will also add vitality to the development of the game industry.
At the same time, the actual sales revenue of mainland self-developed games in overseas markets has exceeded the scale of 100 billion yuan per year for three consecutive years, and the overseas market is still an important incremental source for domestic game companies, and the competitiveness of Chinese enterprises in the global mobile game market is gradually improving, and the market share of Chinese games in multinational markets has increased. It can be seen that the game going overseas is also an important part of the development of the mainland game industry.
The following will follow the current overall situation of the mainland game industry, conduct an in-depth analysis of the game industry, and specifically discuss the development process of the game industry, regulatory policies in different periods, domestic and foreign market trends, the current policy environment and industrial changes, etc., at the same time, we will make a key analysis of the game industry industry chain, key layout enterprises and industrial development trends, so as to help you more fully understand the current situation and the next development trend of the domestic game industry. (For more investment research content, please follow the public account "Investment Research Front" to join the community and experience more 0 expected poor record information)
01
Overview of the gaming industry
1. Definition and classification
Broadly speaking, game is a social behavior method based on the satisfaction of material needs and following certain rules in some specific time and space range, pursuing the satisfaction of the needs of the spiritual world.
The game industry market space is broad, divided into PC games, mobile terminals and special game equipment according to product types. Among them, PC games are divided into stand-alone games and online games, and online games are divided into client games, web games and social games. In 2022, the actual sales revenue of China's mobile game market will be 209.676 billion yuan, accounting for 75.24%; The actual revenue of the client game market was 55.92 billion yuan, accounting for 20.07%; The actual sales revenue of the web game market was 7.608 billion yuan, accounting for 2.73%, and the mobile game revenue accounted for the main share of the game market. In general, mobile games have low entry conditions and easy operation, console games have high entry conditions and high difficulty to operate, and PC games are somewhere in between.
2. Operation mode
The operation of the game has two business models: independent operation and joint operation, of which the joint operation model can be divided into authorized operation and agency operation according to the role assumed by the company in the joint operation business. Under the independent operation, the development and update of the game, marketing, operation control, server support and payment channel support are all completed by the company itself.
Under joint operation, the developer conditionally cooperates with the platform operator and authorizes the operator to operate the online game products independently developed or authorized by the company on its platform. In this process, the licensor will provide different degrees of operational support (thereby determining the proportion of the flow), including activity design, activity configuration, handling user problems, game version updates, etc., and the agency is responsible for placing the company's game products on the platform for operation, as well as user introduction, operation assistance and other related work. It is worth mentioning that under the joint operation, the process of exchanging the recharge system and virtual currency into virtual items such as game currency is completed by the operation platform, the operation platform and the authorized party establish a billing system and regularly reconcile the accounts, and the player account database is managed by the authorized party, and the authorized party will provide a consumption interface to the operation platform to realize the exchange of virtual currency to game currency or other virtual items on the operation platform.
3. Current situation of the domestic industry market
(1) China's game industry continues to show stepwise growth
The demographic dividend brought by the Internet has provided the first stage of support for the growth of game users, with 670 million game users in China in 2021, an increase of 957%; The market size of China's game industry is 296.513 billion yuan. In 2021, the actual sales revenue of China's game market increased by 17.826 billion yuan compared with 2020, a year-on-year increase of 6.40%, continuing to maintain a relatively stable growth rate.
However, in 2022, the actual sales revenue and user scale of China's game market both decreased year-on-year, reflecting the current situation of the market cooling under the influence of multiple factors such as the epidemic. However, with the normalization of version issuance and the release of favorable signals of consumption recovery under the slowdown of the epidemic, the game industry will usher in a warm wind in 2023.
(2) Mobile games are the main source of revenue for the domestic game market due to their wide audience size and fragmented entertainment characteristics
In 2021, the actual sales revenue of China's mobile game market will be 225.538 billion yuan, accounting for 76.06%; The actual revenue of the client game market was 58.8 billion yuan, accounting for 19.83%; The actual sales revenue of the web game market was 6.030 billion yuan, accounting for 2.04%. The mobile gaming market share is at an all-time high and is the main source of revenue for the domestic gaming market.
In the first half of 2022, China's mobile game market share decreased slightly, accounting for 74.75%, mainly affected by the decline in mobile game revenue and the growth of mobile game revenue.
02
Industry development history
China's game industry originated from end-to-end games and became mobile games, focusing on the reverse "hand-to-end" trend. In the era of mobile games, China's game industry has overtaken on curves, and has successively experienced the dividends of high growth of mobile Internet users and the dividends of mobile game IP to mobile games. At present, all dividends are nearing the end, and in the post-mobile Internet era, the main perspective of game R&D companies is mostly focused on mobile game boutique research and transportation, game overseas and so on.
We divide the development of China's game industry into two main stages: the mobile game era (2000-2007) and the mobile game era (2008 to the present).
Duanyou era (2000-2007): In 2000, "King of Kings" first opened up the Chinese online game market and cultivated the first batch of online game players. Since then, the end-travel market has entered a leapfrog stage of rapid development. Due to the weak R&D strength of Chinese games, game companies mainly introduce overseas boutique games for agency operations, such as "Blood Legend", "World of Warcraft", "Crossfire" and so on. As of 2007, the number of online game players in China reached 40.17 million, and the era of mobile games has laid a huge user base for the Chinese game market.
Mobile game era (2008-present): With the popularity of smart phones, the mobile game category has changed from light to heavy, and has successively experienced the dividend period of high growth of mobile users and the "end-to-hand" period of large-scale transfer of mobile game IP to mobile games, and gradually achieved the curve overtaking of the end-game market.
1. Development history of end tour: mainly agency operation in the early stage, and independent research and development in the later stage
Enlightenment period: Before 2000, mainland online games were in the enlightenment stage. Although the number of online games produced at this stage is small, it has built the prototype of online games and laid the foundation for subsequent development. In 1999, the originator of turn-based games developed by JSS in Japan "Stone Age" was launched, the national server was originally represented by Huayi International, a representative of China's early online games, can be called the originator of Chinese online games, different from real-time battles, turn-based games require players to walk around the map, switch to the battle screen when encountering enemies, and exit the battle screen when one side declares defeat in battle. Today, most turn-based games are built on this gameplay. In June 2000, "King of Kings" developed by Lei Jue was officially launched on the mainland, and the game reached the peak of server capacity one month after its launch, and the number of online users exceeded 10,000, and the number of registrations in November was close to 100,000. As the first online game to open up the Chinese market and achieve great commercial success, "King of Kings" cultivated the first batch of online game players, and since then the Chinese online game market has officially formed.
Rapid development period: From 2001 to 2007, China's online game industry developed rapidly and entered a stage of leapfrogging. In July 2001, Shanda Games (now renamed Shengqu Games) operated "Blood Legend", and in December, NetEase launched the massively multiplayer online game "Westward Journey". In 2002, the number of simultaneous online users exceeded 700,000, setting a record for the operation of a massively multiplayer online game in the world at that time. In 2003, NetEase launched "Fantasy Westward Journey", which had more than 310 million registered users, a total of 472 paid servers, and the highest number of simultaneous online users reached 2.71 million, which was the highest number of simultaneous online games in Chinese mainland at that time. In February 2004, Shanda Games' casual game "Paobaotang" had more than 700,000 simultaneous online users, making it the first successful casual online game in China.
In April 2004, Ninth City obtained the exclusive distribution rights of "World of Warcraft" (developed by Blizzard) in China, and in April 2005, the public beta was conducted, and in October, "World of Warcraft" simultaneously exceeded 500,000 people and more than 2.5 million paying players. The introduction of World of Warcraft in the ninth city has played a greater role in promoting China's online game industry. As the highest production level of online games in the world at that time, "World of Warcraft" provided a model benchmark for the development of game plots and interfaces for Chinese online games in the initial stage. In 2006, Century Tiancheng operated the pioneering work of the racing game "Run Go-Kart". In 2007, the public beta of "Crossfire" operated by Tencent. The following year, 7 million registered users and 2.8 million online users reached the following year, becoming one of the important games that helped Tencent's rise. According to the "2007 China Game Industry Survey Report", by 2007, the number of online game players in China reached 40.17 million, the actual market sales exceeded 10 billion, and the contribution to telecommunications, traditional publishing and media, IT and other related industries exceeded 40 billion yuan.
Most domestic game companies mainly operated as game agents in the early stage, and gradually began to develop independent game research and development business in the later stage.
2. History of mobile game development: User dividends have triggered a boom in mini games, and "end changes" upgrades game categories
Enlightenment period: In 2008, with the popularity of iOS and Android, mobile games ushered in user dividends. In the early stage of the mobile game wave, in order to lower the threshold of games and match the immature player group, game manufacturers mainly launched single-player casual games with simple operation.
Rapid development period (mobile user dividend stage): From 2010 to 2013, the mobile game industry ushered in a period of rapid growth, the market scale expanded sharply, and capital began to pour into the mobile game market. Overseas mobile games such as "Angry Birds", "Plants vs. Zombies", "Fruit Ninja" and "Temple Escape" have shown vitality, and the huge user group has promoted the diversified development of mobile games, and SLG, cards, action and other games have emerged one after another. Chinese mobile games are in their infancy, and casual games such as "Fishing Master", "Daily Love Elimination" and "Daily Cool Running" have entered the public's vision, but a single game experience and content cannot form an effective user viscosity, and online games still occupy the main position of the domestic game industry.
Rapid development period (end-to-hand): Since 2013, classic end-game IP has been transplanted to mobile games, and the game genre has changed from light to heavy, and "end-to-hand" has become a trend. The success of "My Name is MT" and "Dota Legend" has gradually taken shape the mobile game model of "pursuing high DAU, high retention, and strong IP". The mobile game market has ushered in a number of popular IPs, such as well-known anime One Piece, Naruto and other adapted mobile games, and with the saturation of anime, novels and other IPs, the transplantation of classic PC games has become a new direction. As NetEase's most well-known high-quality IP, "Fantasy Westward Journey" has 310 million cumulative registered users, and its mobile game "Fantasy Westward Journey" continues the classic gameplay of end-game, and has successfully won the top spot on the iOS best-selling list within three days since it logged on to the iOS platform in March 2015, and continues to dominate the list for 100 days, becoming one of the textbook success cases of "end-to-hand".
After nearly a decade of "end-to-hand" era, most of the well-known end-game IPs have been transplanted. Relying on the development of mobile phone hardware performance and 3D engine software, mobile games have migrated to mobile games on a large scale, and most of the top mobile games also originate from mobile game IP. The unprecedented influence of the terminal game "League of Legends" has successfully given birth to the phenomenal national mobile game "Honor of Kings", which has achieved a monthly turnover of more than 2 billion. It is worth noting that "Diablo", as one of the few remaining super IPs on the PC side that has not yet been ported to the mobile terminal, with the launch of the mobile game "Diablo: Immortal" in the first half of 2022, may also mean that the dividends of the game industry's "end change" are about to run out and come to an end.
03
Regulatory policies at different times
1. Before 2018, the overall supervision of the entertainment industry was relatively relaxed, and games were in a stage of rapid growth
On the financing side, as of January 2017, game companies can be listed on A-shares; At the end of the edition number, the number of editions issued in 2016/2017 exceeded 4000/9000 respectively; On the market side, the growth rate of the domestic game market is about 20%; At the valuation end, the valuation center of the sector exceeds 40X. Since the second half of 2017, the regulatory wind has changed, following the People's Daily Network and Xinhua News Agency in July exposing problems such as distorted history of online games and minors' addiction, in August the State Administration of Radio, Film and Television issued a "entertainment restriction order", and at the end of the year, eight ministries and commissions issued documents focusing on rectifying illegal and undesirable content in online games.
2. From 2018 to 2022, the total amount of games will be regulated, the protection of minors will be increased, and the supervision will be generally strict
On the financing side, no new game companies were listed on the A-share market; In 2018, eight ministries and commissions issued documents to implement the total volume of online games, and the version number was stopped from April to November, and the number of releases in 2019/2020 was more than 1,300; From July 2021 to 2022.3, the issuance will be suspended again, and the number of issuance in 2021/2022 will be less than 700 models; On the market side, the average annual CAGR of the game market from 2018 to 2022 is 5.53%, of which the growth rate in 2020/2022 is greatly affected by the "home economy" and the macro environment; On the valuation side, the valuation center from 2018 to 2022 is about 17.4X.
3. 2023 - the future: the haze of historical issues is cleared, and the upward momentum of the plate is sufficient
Since 2018, the changes in game regulation mainly include two main lines: version control and minors' addiction. Version review includes conceptual orientation, original design, production quality, cultural connotation, development degree and other dimensions, to curb the introduction of copycat games with poor production level, low development degree and no creativity to the market, and increase the proportion of high-quality games in the market. Therefore, the overall reduction in the total number of editions from 2018 to 2022, although suppressing the pace of industry supply release and market scale growth, but also puts forward higher requirements for the R&D capabilities and game quality of game companies, accelerating market clearance and pattern optimization. At the same time, the iOS channel version chaos has been effectively rectified in 2020. Since November 2022, the number of game version numbers issued has increased month-on-month and the pace has accelerated, with Tencent, Netease, Mihayou and other major manufacturers listed, highlighting the positive policy shift and accelerating the pace of work launch.
Minors' addiction has been one of the pain points and regulatory priorities of the game industry for many years, and the "strictest new anti-addiction regulations" landed in August 2021, with remarkable results, according to the Game Working Committee, the problem of minors' addiction to games has been basically solved in November 2022, and more than seventy percent of minors play less than 3 hours a week.
Under the background of clarifying historical issues, revaluing the value of the industry, supporting high-quality content, and encouraging technological breakthroughs, the industry sector continues to have sufficient upward momentum.
04
Domestic and foreign market trends
1. Domestic market: high-quality products in the stock stage are king, and supply and demand can be expected to pick up
In 2022, the market size decreased year-on-year for the first time due to the superposition of multi-dimensional factors. According to the latest "2022 China Game Industry Report" released by the Game Working Committee, the actual sales revenue of China's game market in 2022 will be 265.884 billion yuan, a year-on-year decrease of 10.33%, the main reasons for the decline include: demand side, the macroeconomy is still in the recovery stage, and users' willingness to pay and payment ability are weakened; On the supply side, the industry has insufficient confidence in market development expectations, leading enterprises are cautious in establishing projects, small and medium-sized enterprises are difficult to obtain investment, and the number of new game products launched is small; On the operational side, affected by the domestic epidemic, game companies are facing many challenges and their development is limited.
The improvement of the fundamentals of the domestic game industry in 2023 mainly depends on: on the demand side, the increase in user ARPU value, driven by the recovery of consumption and the launch of new games; On the supply side, the number of blockbuster masterpieces online has increased; On the operating side, the model of cost reduction and efficiency increase has gradually matured, and hybrid monetization has also provided more possibilities for the industry.
(1) Demand side: The user scale and length are close to the steady state, and the ARPU value increase is the key
The scale of domestic game users has fluctuated slightly around 665 million people for three consecutive years, basically reaching a steady state. In terms of usage time, even considering the stay-at-home economy effect caused by the epidemic in April and December, the total usage time of users throughout the year only increased by about 2% year-on-year, the increase was relatively limited, and the traffic dividend gradually disappeared; For example, during the Spring Festival in 2023, the turnover of domestic mobile games increased by 9.7% year-on-year, but due to the weakening of traffic dividends, the average daily active user scale of the whole network only increased by 2.3% year-on-year, while the download volume of domestic mobile games fell by 19.7% year-on-year, indicating that the turnover growth mainly came from the recovery of old games and the improvement of ARPU value.
The recovery of consumption and the launch of masterpieces will promote a significant increase in ARPU. Historically, game user ARPU mainly depends on consumer confidence and the number of masterpieces online. In 2022, the average consumer confidence index dropped from 121.2 to 95.0, and only NetEase's "Diablo: Immortal" was a new game among the top 20 domestic IOS streams, consumer confidence and the number of masterpiece launches fell to the lowest level in nearly 7 years, and the average actual sales revenue of a single user fell by 10% year-on-year. With consumption recovering and the big game gaining momentum, gamer ARPU is expected to usher in a strong rebound in 2023.
(2) Supply side: With the increase in the quality of the version number, a number of new games are ready to go
In 2022, the number of new products is small and fails to strongly support the market, especially the number of new product output of leading enterprises decreased by 41.8% year-on-year (IOS end), and the products that provide the main revenue for the market are still old products that have been online for many years, and some products gradually enter the life cycle recession period, occupying a large number of users, but it is difficult to provide effective increments for the market scale, which in turn will affect the decline of the market size of the industry.
With the increase in the quality of the edition since November 2022, a number of new tours that have been reserved by large manufacturers for a long time are ready to go. For example, Tencent's 300+ team of 300+ people has developed the open-world game "Dawn Awakening: Life" for more than 3 years without deleting the file test on February 23, the IP-supported "Age of Exploration: Overlord of the Sea" will be paid for testing in March and April, and "Valorant" with outstanding overseas performance is expected to be launched before the summer; Mihayou's "Honkai: Star Dome Railway" is expected to go live on April 26; 37 Interactive Entertainment's "Little Ant Country" will be launched in 2022, and the blockbuster self-developed women's national style MMORPG mobile game "Fu Shake a Dream" has started testing on February 16; Reservations for Kaiying's ancient healing card casual mobile game "Returning to the Hidden Mountain Residence Map" and the H5 game "Dragon God Hachibu no Westward Journey" adapted from the popular anime have been opened; Perfect World is adapted from Mr. Jin Yong's national martial arts work "Dragon Babu 2: Flying Dragon War Heaven" was tested on February 23. In general, the works of large manufacturers are rich in reserves, and the prelude to product debut has been opened one after another, and the future performance can be expected.
(3) Business side: hybrid transformation is expected to become a breakthrough for product diversification
Due to the advertising model, buyout system, etc. relying on the in-depth development of some fields, users are accustomed to, such as casual games to promote the development of advertising monetization, console games to promote the development of buyout system, etc. Therefore, if a single model is replaced by multiple monetization methods such as in-app purchase payment, advertising monetization, buyout system, and membership subscription, there is a possibility of increasing revenue for game companies under the condition that the market scale declines and the pressure on corporate survival increases. Haibi's game "Bullet Case Attack Team" has achieved better results in both advertising and in-app purchases, and has become a representative product of hybrid monetization.
2. Overseas market: the epidemic correction growth is under pressure, and the game has a broad space to go overseas
The epidemic has receded and corrected, optimistic about long-term growth. According to Newzoo, the global gaming market generated $184.4 billion in revenue in 2022, down 4.3% year-on-year. After comparing with the pre-epidemic institutional forecast in 2019, the actual market revenue of the game market in 2020-2021 is higher than the pre-epidemic forecast, and the 2022 is slightly lower than expected, indicating that the sales revenue in 2022 will decline year-on-year, mainly due to the revision of the rapid growth under the epidemic in 2021 and 2020, and the global game market is expected to maintain a steady growth trend in the future.
In addition to the correction effect of the epidemic, the global recession and game blockbuster bounces are also the reasons for the year-on-year decline in global game market revenue. According to the global composite PMI index, the global economy showed signs of recession in 2022, but there was a rebound trend in early 2023, and the prosperity may pick up throughout the year. In addition, a number of game masterpieces in 2022 bounced tickets, including Bethesda's "Starry Sky" and "Red Sky Island", Ubisoft's "Avatar: Pandora's Border" and "Prince of Persia: Sands of Time Remake", Nintendo's "The Legend of Zelda: Tears of the Kingdom", Warner Bros. Games' "Hogwarts Relics", etc., the delay in the launch of game masterpieces has also led to a decline in the total sales revenue of the global game industry, but most of them are currently scheduled to be launched in the first half of 2023. The gaming market is expected to pick up.
Short-term challenges remain unchanged, and the space is vast, and China's games are making great strides to go overseas. In 2022, the actual overseas sales revenue of China's self-developed games will be US$17.346 billion, down 3.7% year-on-year, and China's mobile games have entered a mature stage from a high-speed growth stage in overseas markets. Despite changes in the overseas market environment, some overseas countries have strengthened their supervision of imported games, geopolitical and international conflicts, global inflation, exchange rate fluctuations and other issues, which have brought new challenges to mainland game enterprises going overseas. However, the influence of Chinese game manufacturers overseas is still growing. Among the top 100 mobile games in the United States, Japan, Britain, Germany and other markets, more than 40 works are the works of Chinese companies, and this number is still increasing. In November 2022, Securities Daily published an article entitled "Games Going Global is an Attack Instead of an Escape", encouraging Chinese game manufacturers to strengthen their "attack" mentality and transform their first-mover advantage into leading strength; In February 2023, Ao Ran, executive vice president and secretary general of the Phonological Association, said that the long-term trend of games going overseas has not changed. Therefore, the mainland is still in the golden stage of the game going to sea. With the improvement of product research and operation capabilities of overseas enterprises, the emergence of innovative and integrated gameplay under the background of crowded tracks, and the opening up of growth space in emerging markets such as Latin America, Africa, and the Middle East, in the future, games are expected to continue to be an important carrier of Chinese culture going abroad, and stride forward in the international market with deeper dimensions and more ways.
05
Current policy environment
At present, the policy trend of the game industry has warmed up significantly, and the social value of the game industry has gradually become prominent. From the policy level, the development of the industry is good. Let's break this down in more detail.
1. A number of recent events indicate that the trend of the game industry may have warmed significantly
People's Daily Network released a commentary article on November 16, 2022, saying that games have been inseparable from cutting-edge technology since their birth, and the game industry has also helped many industries release new momentum in the digital economy. For the video game industry, a more objective and diversified understanding should be given. In January 2023, the number and quality of edition numbers continued to increase, and many key products of major manufacturers such as Tencent and NetEase obtained version numbers, and a number of core products are expected to become annual hits; In December 2022, the imported game version was reissued again after one and a half years, and the policy supervision showed signs of further relaxation; The Game Working Committee also issued a report that the problem of minors' game addiction has been basically solved.
2. The scientific and technological significance and social value of the game industry have been affirmed
People's Daily Network released a commentary article on November 16, 2022, saying that game technology has played an important role in helping the development of advanced technologies and industries such as 5G, chip industry, and artificial intelligence, and game technology has also become an important tool to promote the digital transformation of different industries, move towards digital-real integration, and build digital twins. Games have become an industry of great significance to a country's industrial layout and scientific and technological innovation.
Game technology not only promotes the development of the game industry, but also brings significant positive externalities to many technical fields. The report "Game Technology - New Technology Cluster in the Process of Digital and Real Integration" released by the Chinese Academy of Sciences mentioned that game technology is gradually being applied to digital cities and industrial design and other fields by virtue of its technical characteristics such as interactivity, high simulation, strong immersion and fine rendering, and artificial intelligence, computer graphics and other technologies that accompany games, as well as game engines, virtual humans and other technologies born in games, have now become an important underlying technology of digital and real integration. Game technology has a significant traction effect on chip research and development, especially on GPU, and game technology has become an important experimental and evaluation scenario for key technologies such as 5G, and the characteristics of game virtual-real interaction are highly overlapping with XR's underlying technology. According to the report of the Chinese Academy of Sciences, game technology has contributed 14.9%, 46.3% and 71.6% to the chip industry, 5G high-speed communication network industry, and AR/VR industry, respectively.
Game technology also has a broad space for play in other cultural industries, and game technology has gradually been widely used in cross-border applications. Games can provide concrete immersive training scenes, and the digital scenes formed by them have gradually developed cross-border application exploration in culture, medical treatment and other fields. In the field of cultural heritage protection, the "Tencent Interactive Entertainment × Digital Dunhuang Cultural Heritage Digital Creative Technology Joint Lab", jointly built by the Dunhuang Academy and Tencent, combines laser scanning, photo reconstruction technology and game engine related technologies to restore the details of the murals and cultural relics of the Tibetan scripture cave with millimeter-level accuracy 1:1. In the medical field, a number of application cases have emerged in different fields such as assisting in the diagnosis of children's eye diseases and mapping three-dimensional connections of the brain.
Games have great potential in enhancing the influence of Chinese civilization communication, and games still have broad prospects for going overseas. Games can become a network tool for Chinese cultural inheritance and exchange and innovation, and play a more important role in enhancing the influence of Chinese civilization and promoting Chinese culture to better go to the world. The cultural industry, including games, is not only the carrier of Chinese cultural dissemination, but also one of the main export products.
3. Tencent, NetEase and other leading manufacturers have approved version numbers and imported game version numbers, releasing positive policy signals, and it is expected to resume normal distribution in the future
The June, July, August and September 2022 editions will be issued on June 7, July 12, August 1 and September 13, 2022, with an interval of about one month; The October edition has not yet been issued; On November 17, 2022, the State Press and Publication Administration issued 70 domestic online game edition numbers, many of which were obtained by listed companies such as Tencent and NetEase (including their affiliates); On December 28, 2022, the State Press and Publication Administration issued 84 domestic online game version numbers and 44 imported online game version numbers, the number of domestic version numbers hit a new high in 2022, and the imported game version number was also resumed after 1.5 years; on January 17, 2023, the State Press and Publication Administration issued 88 domestic online game version numbers, this edition number distribution involves the key products of a number of game manufacturers, Tencent, Netease, A-share listed companies have obtained a large number of version numbers, including Tencent "Dawn Awakening", NetEase's "Against the Water and Cold Mobile Game" and many other key products with high turnover expectations of listed companies are expected to become annual hits, or indicate that the attitude of regulators towards game manufacturers has further warmed. The recent increase in the number of domestic version numbers and the resumption of the issuance of imported version numbers indicate that the policy has further relaxed the game industry and has a strong driving effect on the future product rhythm and performance expectations of game companies.
4. The problem of minors' addiction to games has been basically solved, and policy risks have been further eliminated
On November 22, 2022, the Game Working Committee of the China Phonological Association, the China Game Industry Research Institute and Gamma Data jointly released the "2022 Progress Report on the Protection of Minors in China's Game Industry", which shows that the total game time and consumption turnover of minors have been greatly reduced, and the anti-addiction system has covered more than 90% of underage game users. Niko Partners reported that after the introduction and implementation of the new anti-addiction regulations in 2021, more than seventy percent of minors played less than 3 hours a week.
06
Industry transformation
1. Bottlenecks in the production of games in the past
(1) The process is complex, highly industrialized, and limited by the impossible triangle
Traditional game production has only two impossible triangles in "quality, speed, cost". Under the premise of ensuring the quality of the game, there are only two paths to choose from game production, one is that a large number of developers make a game at the same time, and the management and development efficiency of large teams is low, and the development cost is bound to increase; The second is to streamline team members, and the production cycle is as long as several years or even more than ten years.
Usually, the development time cost and monetary cost of high-quality 3A masterpieces are high. Taking Red Dead Redemption 2, which sold more than 46 million copies, for example, the game has more than 28 square miles of maps close to the real scene and 1,000 NPCs, and even with more than 1,200 full-time developers, it took 8 years to complete and cost nearly $300 million. Star Citizen, which has fewer dedicated developers than Red Dead Redemption 2, has been in development for 10 years and is still in alpha testing, and it is expected that it will take a long time to fully go live.
(2) The production cost of excellent mobile games is close to that of 3A end games
Mihayou's Genshin initial development cost of $100 million: According to Sensor Tower, since its global release on September 28, 2020, Genshin has accumulated global sales of more than $4 billion, and in 2022 (January 1 to December 20), Genshin's total revenue ranks among the third highest mobile games in the world, behind Tencent's Honor of Kings and PUBGM. Mihayou disclosed that Genshin's initial development cost reached $100 million.
Tencent's "Dawn Awakening: Life" as a quasi-3A mobile game with a development team of 300 people: Tencent Photon Studio Group's self-developed new product "Dawn Awakening: Life" will open the unlimited number and no deletion test in February, and the number of reservations on the whole network has exceeded 70 million, and the work is developed by a 300-person R&D team.
(3) The process is complex and the elements are complete
The game production process is complex, and the design and development process is the most critical. The production of games generally includes four links of "product project establishment - target planning - design and development - release and operation", and the production cycle is generally measured in years, and the complexity and time cost of the production process far exceed other content in the entertainment media field. In the production process of the game, the design and development link determines the degree of implementation of the plan, which greatly affects the quality of the game and the player experience, which is the most critical part.
Games are the most complex form in the entertainment and media industry, and the constituent elements encompass all forms of content in the entertainment media sector. The game contains text, images, sound effects, music, 3D models, animation, movies, code and other types of resources, covering all forms of content in the entertainment and media industry.
2. Generative AI deeply empowers game change
(1) Generative AI will affect game production and is expected to break the impossible triangle
Games are the most demanding form of real-time interaction in the entertainment and media industry. Games emphasize real-time experiences of player interaction, require immediate feedback, and are the most complex of all forms of entertainment. The complex elements of games and the high production threshold also determine that the impact of generative AI on game production is the combined force of other entertainment and media fields, and the opportunities created are also the largest.
The productivity gains brought about by generative AI will break the impossible triangle of game production. Generative AI can continue writing based on existing text, generate speech based on text, generate music according to theme, generate images based on text, generate three-dimensional models based on two-dimensional images, generate code based on text, etc., which greatly improve the productivity of game planning, audio, art, programming and other links, greatly reduce game production costs, and break the impossible triangle. Taking the two-dimensional game concept art as an example, it takes weeks for traditional original artists to complete the design draft according to the planning content, while using generative AI only need to enter keywords to obtain a large number of first draft designs, which can be screened and modified later, and the time is reduced to several hours.
(2) Generative AI breaks through the limitations of professional technology and experience, and greatly lowers the threshold of game production
The comprehensive complexity of the game determines that the game development has a high professional technology and experience threshold, and the importance of capital investment and the accumulation of traditional AI algorithms is reduced. Taking ByteDance as an example, ByteDance established a large and medium-sized game R&D team in 2018, and the company's advantages in recommendation algorithms, user data accumulation, funds, traffic channels and other aspects failed to replicate the success of Douyin and Toutiao in the field of game production, even if tens of billions of funds were invested, although the "Sea King Blood Route" with a good performance was launched, but there was still no self-developed S-level game launched. We believe that the main reason is that the company entered the game market in the later stage, lacked managers and technicians with rich experience in game production and technical expertise, and it was reported that the company tried to build a game platform with technical advantages to accelerate game research and development, but its developers were not familiar enough with the game, resulting in the middle office biased code thinking, which was inferior to NetEase's editor in terms of convenience and use effect.
Generative AI production of game content is very low and does not require a large number of professional and technical personnel, greatly reducing the threshold of game production, micro-game production studios entering reality, and shortening the game production cycle. Generative AI production game content has the characteristics of one-time development and debugging, which can be reused for many times for a long time, and there are professional generative model development companies to provide B-end products, which will transform the designer's creativity into the first draft of the design, greatly reducing the time and money cost of content production, while reducing the demand for professional and technical personnel, and the micro-game production studio has become a reality. The five-person studio Innersloth developed Among Us, which has sold more than 20 million Steam players and about 500 million players worldwide. As generative AI continues to evolve, the number of micro-game production studios and the scale of games they are able to develop will continue to rise.
(3) Game innovation: AI-generated content reduces costs and increases efficiency, and production capacity is improved to realize existing creativity
The innovation of games is manifested in many aspects, mainly limited by two factors: creativity and capacity. Planning is the starting point of the game, art design is the key to the game image and picture, game innovation depends on the creativity of planning and artists, and from creativity to finished products through a long development process, production capacity is also a key part of limiting game innovation.
Generative AI improves productivity to break through capacity limitations and realize game innovation: On the one hand, AI generates 3D models to help flight simulators achieve 3D high-definition global maps: Microsoft's flight simulator program began in 1976, has been working towards high-definition, 3D, global maps, the latest version through cooperation with blackshark.ai, using AI to generate 3D models from 2D satellite images, built more than 1.5 billion 3D building models, breaking through the limitation of production capacity. The flight area includes the entire planet, more than 24,000 airports, and increasingly rich landscapes of major landmarks and popular cities. On the other hand, AI empowers NPCs to create Genshin high-quality open worlds: open-world games appeared in the 80s of last century, and Genshin used AI to give each NPC different personalities and special abilities, creating a more complete high-quality open world and achieving success.
In the long term, it is expected that there will be personalized games. Generative AI is expected to bring an increase in the number of games and gameplay categories, increase players' choice space, bring a better game experience, and in the long run, there may be personal exclusive games made by players based on their own experience and emotional state, deeply meeting emotional needs, and even individuals can generate directly playable games through one or a few sentences of text.
07
Industry chain analysis
1. Overview of the industrial chain
The game industry chain includes three core roles: developers, publishers, and channel platforms.
R&D provider: responsible for the development and production of upstream games, the structure is generally studio-based, with about 100 people in the console and terminal game teams, and about 30-50 people in the page game and mobile game teams. Depending on whether the developer publishes the game itself, the developer can be divided into third-party developers, which are software developers who are not affiliated with or dependent on a publisher, and independent developers, and independent developers, as well as third-party developers. In general, large game companies have their own game development teams.
Publisher: responsible for game modification, update docking, event operation, docking channels, market launch and other specific work. Through cooperation, distributors can bear product R&D costs and distribution market risks, support the continuous advancement of R&D, support excellent R&D providers, and support the output of high-quality products. At the same time, publishers can rely on their own channel resources and distribution capabilities to provide products to more and more suitable users, and provide users with perfect user services in terms of network and customer service.
Channel vendor: a platform company in general. Each type of game has two channels, online and offline, but the corresponding game of each type is different, and it is the most stable "sitting and collecting money" link in the industry chain. Online channels include various online stores, marketplaces and official websites; Offline channels include retail stores, Internet cafes and some pre-installed channels; In addition, there are carrier channels, including carrier market, SP business and flagship store.
2. Upstream
The upstream of the game industry chain is game developers, representing manufacturers such as Tencent Games, NetEase Games, Perfect World, and 37 Interactive Entertainment. The cost of the pipeline is 15%-35%, mainly from the labor cost of the R&D team, server costs, and possibly the outsourcing cost of professional work such as motion capture, dubbing, and soundtrack.
3. Midstream
The midstream of the industry chain is a game publisher, representing manufacturers such as Tencent Games, NetEase Games, CMGE, etc., with a turnover of 35-50%. The gross profit margin is about 50%. The cost is mainly advertising and marketing investment, bandwidth, network management, customer service and community service specialists.
The trend of integration of research and operation in the game industry is obvious, and the boundary between the upper and middle reaches is becoming more and more blurred. As game developers become more aware of self-developed games and may be able to develop more unique and effective promotion strategies, more and more mobile game developers are trying to release new games on their own. It is expected that the proportion of self-issued turnover will further increase from 63.9% in 2020 to 76.6% in 2025.
The domestic game industry structure can be divided into three echelons, and the two giants of Tencent and NetEase occupy the main market share. According to 2020 revenue data, Tencent and NetEase mobile games accounted for 56.0% and 19.6% of the market, respectively, and CR2 accounted for 75.6%. According to the caliber of revenue in 2020, China's top game companies can be divided into three echelons: the annual revenue of the game business is more than 100 billion yuan, and there is only one Tencent at present; With an annual revenue of more than 5 billion yuan, it is the second echelon, and NetEase takes the lead; With an annual revenue of more than 1 billion yuan, it is the third echelon, and its share is relatively scattered, including Century Huatong, Perfect World, Gigabit and other companies.
Although the market concentration is high, small and medium-sized R&D companies still have comparative advantages in the sub-categories they are good at, and are expected to challenge the traditional track through category innovation to form differentiation and achieve breakthroughs through subdivided categories. Judging from the new games listed in the top 100 market turnover list Chinese mainland Gamma Data 2021, the number of games in different categories has increased significantly, such as "One Thought Getaway" integrates the gameplay in MMOs into traditional idle immortal cultivation games, and the turnover share of cards and idle games has increased rapidly in recent years.
The advantages of small and medium-sized manufacturers in the subdivision track are more obvious in overseas markets. According to the revenue caliber of overseas markets in 2020, Chinese game manufacturers show stronger decentralization characteristics in overseas markets, with CR4 accounting for about 50%. As the overseas market is cut into many regional markets, the user is diversified, the scale is fragmented, and the culture is diversified, which is difficult to produce explosive models, but also provides more possibilities for small and medium-sized enterprises to deepen their subdivision and break through.
3. Downstream
Game distributors can be divided into hardware app stores (HUAWEI AppGallery, App Store, etc.), third-party distributors (App Treasure, etc.), vertical distribution channels (TapTap, Bilibili), traffic platforms (WeChat, short video apps), and self-operated distribution channels (game official websites).
Due to the mastery of customer resources, game distributors usually have the highest bargaining power in the industry chain, with App Store (iOS at home and abroad) and Google Play (overseas Android) taking a 30% percentage, and domestic Android channels taking up to 50%.
Due to changes in the behavior of users and game manufacturers (users expect one-stop service for game information and downloads, they are increasingly inclined to download games from WeChat, short videos and other platforms, and the frequency of opening app stores has decreased; Boutique game manufacturers are more popular with the tightening of the version number, and the precision advertising system gives manufacturers a new publicity method to replace the traditional app store distribution channels), it is expected that the bargaining power of distributors will continue to decline, driving the proportion of the commission to decline, while the proportion of vertical and self-operated distribution channels is expected to continue to rise. The share of mobile game downloads across vertical and proprietary distribution channels is expected to increase from 40.1% in 2020 to 50% by 2025.
08
Key company combing
1. Tencent: Overseas issuance has begun to show results, and the dawn of domestic version has appeared
Breaking through the two-dimensional shooting category, overseas distribution has yielded results. In December 2021, Tencent Games released its own global distribution brand "Level Infinite", which is responsible for the company's own global product distribution system, including mobile games, mobile games and console products.
Through overseas distribution, the company has initially built its own distribution brand, and the company's release of "Apex Legend" mobile game in May, "Phantom Tower" mobile game in August, and "Nikke: Goddess of Victory" released in November, all of which demonstrate Tencent's ability to integrate global distribution.
From the perspective of product reserves, the company's many global-oriented products are expected to continue to launch, which is expected to drive continuous revenue growth. IN TERMS OF OVERSEAS GAME RESERVES, IT INCLUDES KEY SELF-DEVELOPED PRODUCTS "DAWN AWAKENING", AVATAR IP GAME "AVATAR: RECKONING" AND SO ON. In terms of the domestic market, the company regained the commercial game version in November, the product is "Metal Slugg: Awakening", and continued to obtain the two blockbuster game versions of "Valorant" and "Edge of Rebirth" in December, and we expect that with the normalization of the release of the version number, the company's domestic product supply is expected to improve in the future.
We believe that Tencent's key products were launched less in the first three quarters of 2022, and the game business was under pressure. The main factors include: the quality of overseas distribution products is average, and the key products are only the "Apex Lengend" mobile game; The domestic version + protection of minors has been strengthened, affecting the progress of the company's content output. Domestic and overseas economic growth is under pressure, and there are certain negative factors on the demand side. It is expected that with the normalization of the issuance of the version number, the company's key product R&D and testing will continue to advance, and the subsequent product launch is expected to bring increments, and at the same time, the company's overseas business has made a breakthrough, which is expected to promote the company's performance to continue to grow.
From the perspective of overseas market performance, Valorant has performed well overseas, and on the basis of having a high number of users, MAU and DAU still maintain a growth trend, and with the acquisition of domestic version numbers and the launch of subsequent products, it is expected that this product can bring long-term revenue contribution to Tencent's domestic games.
2. NetEase: short-term end-to-end change of hands increment, long-term based on global research and development
In the short term, the company's end can still provide increments, from the perspective of the company's reserves, the key new products include the "Against the Water and Cold" mobile game and the "Eternal Calamity" mobile game, both of which have excellent performance in the end game. New mobile products are expected to continue to drive the company's short-term growth.
In addition, the overseas version of "Harry Potter: Magical Awakening" cooperated by the company and Warner has started paid testing, which is expected to be officially launched in early 2023, and the company's new open-world product "Sixteen Voices of Yanyun" will also open a trial in January.
From the perspective of the company's medium and long-term growth, the company's global research and development continues to make efforts, and it is expected to produce new global products in the future, driving the company's revenue to further growth. From the perspective of the company's global R&D layout, there are emerging studios in Japan, Canada and the United States, and a large number of first-class game practitioners have been recruited. It is expected that with the release of new products from these studios, the company's long-term growth is worth looking forward to.
Specifically in terms of product side and talent information, according to the game gyro report, Netease established a subsidiary Sakura Studio in Japan in 2019, and its game design team includes Ryosuke Yoshida, the former game designer of Capcom, Tetsuya Akatsuka, former Bandai Namco department manager, and art director Gez Fry, who has worked in Microsoft, Capcom and other companies. In terms of product reserves, according to Famitsu, Sakura Studio disclosed that there are 3 console games under development, one is a "peaceful" open-world game developed using Unreal Engine, which is positioned as a single-player action RPG; The other is a well-known IP new work, focusing on a battle game with a relaxed experience; The last one is a player cooperative battle game with original IP. Later, in June 2021, NetEase acquired the grasshopper studio under GungHo Group to further strengthen its R&D layout in Japan.
In terms of European and American layout, according to the game gyro report, NetEase first established a Montreal studio in Canada in 2019, of which the publisher of Eternal Disaster is NetEase Montreal; In May 2022, NetEase established its first American studio, Jackalope Games, located in Austin, Texas, led by industry veteran Jack Emmert, who has participated in projects such as "City of Heroes", "Neverwinter Nights", "Star Trek OL" and "DC Universe OL", to create MMO projects for PC and console platforms. In July 2022, NetEase established Jar of Sparks Studio in Seattle, USA, which is headed by former Xbox executive Jerry Hook and will create a new generation of narrative-driven action triple-A games. In August 2022, NetEase wholly acquired interactive narrative game developer Quantic Dream, which owns representative products such as "Detroit: Become a Man", "Extraordinary Twins" and "Heavy Rain", and will continue to build triple-A products.
We expect that the output of global studios will continue to drive NetEase's globalization process, ultimately leading to long-term revenue growth for the company.
3. Sanqi Interactive Entertainment: Rich reserves of new products, performance transformation can be expected
(1) "Dual-core + diversified" R&D layout, the efficiency of buying volume at the issuance end is improved
Since 2020, the company has adhered to the core strategy of "dual-core + multiple", focusing on the development of MMORPG+SLG games, while continuously expanding diversified categories such as cards and simulation operations. Judging from the current performance, the company's transformation has begun to show results, and in recent years, it has successfully launched products with high R&D investment and long operation cycle such as "Eternal Era", "Great Angel Sword H5", "Douluo Continent: Soul Master Showdown".
High-quality products have driven the company's "buying efficiency" to improve, and the issuance side continues to maintain its advantage. We define the ratio of traffic expenses to revenue as "buying volume efficiency", which means the ability of unit purchase expenses to leverage operating revenue. It can be seen that from 2017 to 2021, the company's "buying volume efficiency" has experienced a process of first declining and then rising. From 2017 to 2019, as the Internet traffic dividend gradually faded, the difficulty of acquiring customers increased, and the "buying volume efficiency" continued to decrease, reaching a minimum of 1.74 in 2019. With the launch of a new buying volume system and the reinforcement of its own research and development capabilities, the company's "buying efficiency" has gradually rebounded in the fiercer industry competition.
From the perspective of the company's product launch rhythm from 2019 to 2022, the company's online products in 2022 have decreased significantly, which we believe is mainly caused by the stagnation of product launch caused by the version number, the company's transformation, and the improvement of the single product R&D cycle. With the gradual release of version numbers, the increase of version number reserves and the improvement of the company's own research and development capabilities, it is expected that the company's product launch rhythm is expected to recover.
(2) The product reserve is abundant, and the core focus is on the new MMO of "Douluo"
And from the perspective of company reserves, game reserves are abundant. Through self-research, agency, customization and other methods, nearly 30 products have been reserved at home and abroad, covering different categories such as MMORPG, cards, SLG, and simulation management. These include multi-civilization, magical, fairy, urban, shooting, two-dimensional, female-oriented and other genres, with obvious diversified trends.
Among the 20 products reserved for the domestic market, 7 have obtained version numbers. In August, the company's two SLG products "Hegemony" and "Little Ant Country" obtained version numbers. Among them, "Little Ant Country" has been officially launched on September 24; "Empty Fortress: Set Sail" went live in October; "Three Kingdoms: Hegemony" is expected to be launched as soon as possible after obtaining the version number.
The company has released a total of 16 reserve products overseas, and judging from the ant-themed game "Ant Legion" launched in 2022, the company has further explored the subdivision track and gained insight into user needs, and the products have won the love of European and American players. We expect that the company's overseas issuance technology and experience advantages will provide a guarantee for the success rate of its overseas issuance. From the perspective of category, among the 8 self-developed games released and reserved by the company overseas, MMORPG and SLG categories account for 7.
In terms of product testing, 37 Interactive Entertainment recently launched overseas testing of two SLG products, namely the tribal-themed game "Original Era" and its own explosive match-3 + SLG products of the same type "Puzzles & Chaos", the company continues to make efforts in overseas SLG products, constantly iterating its own products, and is expected to maintain its overseas advantage.
We believe that the company has a rich product reserve, and from the perspective of product release rhythm, the number of product issuances and the number of key products will be significantly reduced in 2022. With the normalization of the issuance of version numbers, the rhythm of product release and testing is expected to resume, and the launch of new domestic products, it is expected that the company's domestic business is expected to return to the growth track.
4. Gigabit: The self-developed product test is good, pay attention to the progress of the launch
(1) Pay attention to the launch of key products such as M66, which is expected to boost performance in the future
According to the company's investor relations record sheet, the company's key self-developed products M66 and other tests performed well, and it is expected to obtain a version number in 2023. In the absence of self-developed new products in 2022, the company's performance was stable, and the revenue continued to increase in the first three quarters, demonstrating the company's growth resilience and long-term operation capabilities. With the launch of key new products, the company's performance in 2023 is worth looking forward to.
(2) Under the talent expansion of the "small steps and fast running" strategy, the company's production capacity is expected to increase
From the perspective of the company's strategic rhythm, the company adopts the R&D mode of "small steps and fast running" multiple tests, with less personnel investment in the early stage of the product, and more testing is used to promote gameplay iteration, but after the gameplay test is mature, the content volume of the product still requires a large number of R&D personnel. The company continued to increase its personnel in 2022, and the number of game developers increased significantly.
According to the company's third quarterly report, the company's average monthly number in the first three quarters was about 1,101, an increase of about 293 over the same period of the previous year, a year-on-year increase of about 36%, of which the number of game business research and development personnel increased by about 162 and the number of overseas operation business personnel increased by about 60.
From the perspective of per capita output, in the past five years, the company's per capita revenue and per capita profit have been on a growth track. We believe that under the "small steps and fast running" model, the company's product iteration is rapid and predictable, so that the per capita income and profit creation remain stable. Under these conditions, the essence of personnel growth is the company's confidence in the subsequent performance of its own products. With the normalization of version issuance, it is expected that the pace of subsequent product launches will return to normal, and the growth of personnel is expected to promote product quality improvement, thereby driving post-launch performance and promoting performance growth.
5. Kaiying Network: management improvement is remarkable, product reserves are sufficient
Management improved, litigation landed, and risk issues were basically cleared. In December 2021, Century Huatong issued an announcement stating that it had obtained the final judgment of the Supreme Intellectual Property Court, determining that the IP authorization of Shengqu Games and Altos "Legend" was legal, and the unauthorized authorization of Yumei Virtue was infringement.
In addition, in September 2022, the company announced the final judgment of the commercial dispute arbitration case between Legend IP and Zhejiang Huanyou, and the disputes related to Legend IP have basically been resolved. Follow-up legendary IP-related cooperation was jointly carried out with Century Huatong. In terms of equity, the company's largest shareholder has been smoothly transformed into the company's current chairman Jin Feng, the impact of the equity auction of the former chairman Wang Yue has basically been solved, and the company's overall risk has basically been cleared.
In terms of its own game products, the company has rich product reserves, and the products planned to be launched are diversified. The products that the company plans to launch in 2022 include four IP tracks, including heavy IP legends, miracle new products, light IP products "The Legend of Sword and Fairy: A New Beginning", literary and comic IP products "Dragon God Hachibu no Westward Journey" and original IP products "Yokai True Story 2". According to the company's annual report, the company has 10 products under research, and its positioning includes providing the company with high turnover, short-term and long-term profits, opening up new tracks, and building brand influence. In addition to mobile games, the company also has an action competitive VR product to strengthen the layout of VR categories.
09
Industry development trends
1. Going overseas is still the key development direction, and the overseas game market still has room for expansion
Under the background of the slowdown in the growth rate of the domestic game market and the relative contraction of the total number of editions, going overseas has become an important growth driver for the game industry. After several years of overseas exploration, many game manufacturers have taken game going overseas as an important future strategy. China's mobile games are strong overseas, overseas revenue and global market share have increased significantly, and it has become the world's largest game overseas country. At the same time, there is still room for growth in emerging game markets, with emerging game markets such as Latin America and the Middle East still bucking the trend despite the global market downturn, and Chinese game manufacturers have accumulated rich experience in successful publishing in emerging game markets such as Southeast Asia.
Domestic game manufacturers are both internal and external to strengthen overseas strength. At the internal level, in recent years, leading game manufacturers have strengthened their self-research strength in global products by building their own game studios overseas, and launched overseas distribution brands to enhance their game publishing capabilities. Externally, even though the overall game market growth is under pressure, game manufacturers are still actively investing in overseas game manufacturers and continuing to deepen their overseas layout.
The ability to go overseas continues to be verified, and high-quality explosive products may continue to enhance the global influence of Chinese manufacturers. Taking Tencent as an example, Tencent's recently launched explosive agent game "Victory Goddess: NIKKE" has greatly increased Tencent's overseas market share. We believe that leading manufacturers with global publishing capabilities, represented by Tencent and NetEase, are expected to continue to receive high-quality global game product supplies and help them continue to explore overseas markets.
2. Multi-platform development technology is gradually maturing, and there is still room for development of terminal games and console games
The development of multi-platform games is mainly based on the following industry trends: the growth of mobile gamers is gradually facing bottlenecks, and PC and console gamers still have room to expand, providing incremental customer acquisition for game manufacturers; Game manufacturers are targeting overseas, while overseas PC games and console game players have a large group, and the layout of multi-platform games by domestic game manufacturers is conducive to the mining of overseas potential markets and players; Some head products such as "Genshin" have opened multi-platform attempts and achieved excellent results, verifying the feasibility of multi-platform. In addition, compared with the channel sharing of mobile Android and Apple, PC and console are mainly based on official channels, and the profitability is stronger than that of mobile games.
Multi-terminal cross-platform games have become a trend, and 17 of the games that received version numbers in 2022 are double-ended version games, a significant increase over previous years, and game manufacturers have taken cross-terminal games as the key layout direction. Unlike the terminal versions of games such as Genshin, which are approved one by one, among the currently issued version numbers, one version corresponding to multiple platform versions of the same game has gradually become the norm, simplifying the cross-terminal game approval process.
3. Game manufacturers increase open world products, or become the direction of a new generation of mainstream game research and development
Open world games are in line with the essence of the game and meet the diverse game needs of players. Open world games contain a wealth of game mechanics, gameplay and various game elements, giving players more freedom and creating a more realistic virtual world for players. Existing open-world games integrate RPG, shooting, simulation management and other gameplay, and traditional game types combined with open world can bring players a new experience. Open world games provide a larger game space to integrate multiple game elements and gameplay, which is conducive to extending the life cycle of the game and expanding the player base of the game.
Open world games are gradually moving from mobile games to mobile games, and successful works such as "Genshin" have further increased the popularity of open world games. Due to the rich game content and complex map design of open-world games, the performance of game terminals is highly demanding. Early open world games with computers as the main game carrier, with the success of open world mobile games such as "Genshin" and "Tower of Fantasy" in many game markets, the feasibility of open world on mobile phones has been verified, a number of open world mobile games have been in the research and development process, and will further open up the market space of this category after launch.
Open world games have a higher technical threshold, in line with the trend of game boutique, and game manufacturers with strong R&D strength may have more advantages in this category. Due to the high degree of freedom of open-world gamers, game manufacturers with strong R&D strength, mature industrial output capabilities and continuous operation capabilities are more likely to stand out in the open world category.
4. The mobile Internet traffic dividend fades, and the trend of quality is unstoppable
In the long run, the dividends of mobile Internet user growth fade, coupled with the increasing demand for high-quality content from players, will promote the trend of game refinement. According to CNNIC, the number of game users in China reached 670 million in the first half of 2021, down 0.1% year-on-year, showing negative growth for the first time. During the same period, the revenue of China's game market reached 147.79 billion yuan, down 1.8% year-on-year, even without taking into account the restrictions on the growth rate of the version, the growth rate of the Chinese game market has actually slowed down. At present, the user migration dividend brought by the mobile Internet reform has ended, and the game industry must pay more attention to the improvement of content quality when the number of users is difficult to further grow.
Specifically, we believe that the current trend of domestic game quality mainly includes the following three contents: R&D investment is improved, and the quality is in line with 3A; The innovative integration of categories and themes is more in line with the diversified aesthetics of players; The willingness of players to pay for high-quality games has increased, prompting the industry to enter a positive cycle.
Domestic high-quality game R&D investment and development cycle continue to improve, and quality requirements are gradually aligned with 3A. The R&D expenses of major domestic game manufacturers maintained a high growth rate, and their central driving companies made efforts in self-research, and the growth rate of R&D expenses remained above 60% in the past four years, and the growth rate in 2020 was as high as 107%. In addition, the R&D cycle of major games of various game manufacturers is also gradually lengthening, and the recent development cycle of high-quality games such as Perfect World "Phantom Tower" and Tencent's "Dark Zone Breakout" is both three years, which can be benchmarked against some overseas 3A games. Mihayou's "Genshin" has been in development for more than 3 years and has an initial R&D investment of more than 100 million US dollars, and the product has received high evaluation and market performance in all markets around the world, ranking third in the global mobile game revenue list in 2021. From the continuous high investment in product research and development of major manufacturers, it can be seen that the quality of high-quality game content has played an increasingly important role in industry competition.
Innovative integration of categories and themes to meet the diversified aesthetic needs of players. In the early days of the development of online games in China, MMO, ARPG combined with fairy and martial arts games occupied the mainstream, although this type of product still has a market today, but basically around the past classic IP for derivative development, long-term operation. With the change of generations of players and the change of aesthetic orientation, many manufacturers have begun to innovate and integrate more different categories and themes, and many high-quality products have emerged in recent years.
Players are willing to pay for high-quality content, forming a positive development cycle. In recent years, game companies mainly targeting young people, such as Bilibili and Xindong, have continued to launch mobile ported versions of high-quality PC/console games in China, such as the Roguelike game "Reborn Cell", the two-dimensional vowel game "Meows Run", and the adventure sandbox game "Terraria". The mobile game version of these games is similar to the original monetization method, requiring users to pay for content, the price is between 20-30 yuan, and the sales have achieved good results: among the paid games exclusive to TapTap, the outstanding "Terraria" / "Human Falling Dreamland" has more than 2.6 million purchases on the TapTap platform, and according to Qimai data, the iOS paid game best-selling list ranks in the TOP5; The TapTap platform of "Tribe and Scimitar", which was launched in early August 2022, has nearly 350,000 purchases, and the iOS paid game best-selling list remains in the TOP10.
Players have a stronger willingness and ability to pay for high-quality game content, motivate manufacturers to continue to output high-quality games, the market environment and game aesthetics will be further upgraded, and the trend of game quality gradually develops a positive cycle.
END
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