Chinese Game Ranking: Who Can Continue to Traverse the Cycle?

China's game industry, which started from scratch, has grown into the world's largest game market in just 20 years.

At the beginning of the new century, Shanda introduced "Legend" and NetEase launched "Journey to the West", and a new era began. Starting from the era of imitation, through the local era of the rise of mobile games, now we have entered the era of great navigation to conquer the global market.

During this period, countless products led the way for several years, and the wind was surging; Many game companies have come out with talents, and the eight immortals have crossed the sea, each showing their talents.

After 20 years of industrial baptism, especially in recent years, the industry clearance under the background of policy adjustment and intensified competition, the industry pattern of Chinese games has stabilized, and it is finally time to open the God List.

Supergiants Tencent and NetEase, relying on the status of Internet platforms, have built a moat with traffic, industry and ecology to help the game business, and seek defeat alone; One has been chasing hard for more than ten years with the help of products.

The three giants of A-share games, 37 Interactive Entertainment, Century Huatong and Perfect World, have grown into the leading companies in the industry with the help of the kinetic energy switch of the game industry.

Giant Network, Gigabit, Kaiying Network, Shenzhou Taiyue, NetDragon, Palmfun Technology, Hometown Interactive, Zenyou Technology, etc., as the backbone of the industry, each has its own characteristics.

In this supermarket where opportunities and challenges coexist, what other invisible giants are developing low-key? Which tail companies are mired in a long line waiting to be eliminated by the industry?

In the first half of 2023, the sales revenue of China's game market was 144.263 billion yuan, down 2.39% year-on-year and up 22.2% month-on-month, with obvious marginal improvement, and is expected to gradually enter the recovery cycle. More possibilities are happening.

NetEase catches up with Tencent

Many post-80s and post-90s players may not know that the pioneer of China's online game industry is Shanda Games.

In 2001, Shanda Games introduced "Legend", and pioneered the profit model of free game and value-added service charging, the first point card charging model, and the first sales network with Internet cafes as the core, opening a new era.

Inspired by Shanda Legends, the Chinese game industry began to sprout.

At that time, NetEase, which was listed on the US stock market with email and portal as its main business, was hit hard by the Internet bubble, and acquired Tianxia Technology in 2001 to enter the online game market, and launched "Westward Journey" at the end of that year, which was a hit.

Since then, "Westward Journey" and its derivative "Fantasy Westward Journey" have always been one of NetEase's representative works, laying the foundation for the advancement of this product-based game company.

NetEase's cross-border success has given the first generation of Internet companies insight into the wealth code of online games. Sohu Changyou produced "Dragon Babu", and Jinshan Xishanju, which originally made a single-player game, launched "Sword Warrior Love Network Version".

Tencent, which has accumulated a large number of users through QQ, also urgently needs to find ways to monetize, and launched the Tencent Game Hall in 2003 to test the waters with casual mini games.

No one expected that the two accidents would make a perfect start to the era of double heroes in China's game industry. Over the next 20 years, Tencent and NetEase (09999. HK) has fought openly and secretly in the game market, writing half of the development history of China's game industry.

NetEase takes gaming as its core business and catches up with Tencent with its own strength through continuous product innovation. And Tencent Holdings (00700. HK) has grown into an Internet platform company, which has repeatedly resisted the attacks of NetEase Games with traffic, capital and ecology.

In 2009, Tencent Holdings disclosed the scale of its game business for the first time, with revenue of 5.385 billion yuan and NetEase Games of 3.4 billion yuan, a ratio of less than 1.6 times. In 2014, the year Tencent topped the global game market, the ratio became 4.6.

Since then, the gap between the two companies has narrowed, but NetEase Games and Tencent Games have always been at least one position apart. In the first half of 2023, Tencent's game business revenue was 92.8 billion yuan, and NetEase games was 38.9 billion yuan, with a scale ratio of 2.4.

In the future, for the time being, no one can challenge the position of Tencent and NetEase in the Chinese game market. NetEase continues to bury its head in pursuing Tencent through IP, products and global layout, especially in recent years, to properly solve the sequelae of Blizzard's breakup; Tencent's heavy responsibility has become how to surpass itself and become a better global game boss.

The Big Three of A-share Games

Behind Tencent and NetEase are the three giants of A-share games, 37 Interactive Entertainment, Century Huatong and Perfect World (002624. SZ）。

Shanda Games ignited the fire of Chinese online games through "Legend", spawned the rise of a large number of Chinese game companies, and triggered the first wave of game companies to go public, Perfect World, Giant Network, Sohu Changyou, and Shanda Games have successively IPOs in the US stock market.

A few years later, as the focus of the capital market shifted, the first generation of game giants returned to A-share listings, and Perfect World was the first.

Perfect World Games was founded in 2004 and landed on NASDAQ 3 years later. In 2008, Perfect World Film and Television was established, and in 2014, it was listed on the backdoor of Jinlei shares to become Perfect Global, and the actual controller of the two listed companies is Chi Yufeng. In 2015, Perfect World Games was privatized, and the following year it was injected into Perfect World to form the current Perfect World.

As the largest film and game complex in China at that time, Perfect World took "film and game linkage" as one of its core strategies and became the boss of A-share games at that time.

If Perfect World succeeds in the top-level operation of IP, then the successor Century Huatong has brought the capital operation to the extreme.

From 2014 to 2019, Century Huatong (002602. SZ), successively acquired four game companies of Qiku Network, Tianyou Software, Diandian Interactive and Shengyue Network, becoming the A-share game boss at that time.

Diandian Interactive once occupied the top of China's game overseas list; Shengyue Network is the grand game of the year, and now it has been renamed "Shengqu Game".

In recent years, it has been the turn of Sanqi Interactive Entertainment (002555. SZ) up.

In the transition stage from end game to mobile game, page game, a short and fast game mode, rose rapidly, helping 37 Interactive Entertainment complete the original accumulation.

After the backdoor listing, 37 Interactive Entertainment gradually completed the transformation of mobile games, and grew into a new generation of A-share game bosses with outstanding product strength. In recent years, the company's overseas business has performed well, strengthening this position.

In recent years, the game industry has undergone several rounds of adjustment, and the Big Three have experienced ups and downs, but no one can shake their status in the A-share game sector.

The waist has its own characteristics

If a market wants to develop healthily, the head must be hard enough and the waist must be straight enough.

After the super game giants and A-share head enterprises, the backbone of China's game industry can be described as diverse and distinctive.

Their list includes but is not limited to: Giant Network, Gigabit, Kaiying Network, Shenzhou Taiyue, NetDragon, Palmfun Technology, Hometown Interactive, Zenyou Technology, etc.

Shi Yuzhu, a deep player of "Legend", found a loophole to cheat, and as a result, his account was blocked, and he invested in "Journey" in a fit of anger. This product was publicly tested in April 2006, and in 2007 it became the third online game in the world with more than one million simultaneous online players.

With this product alone, Giant Network was listed on the New York Stock Exchange at the end of 2007, becoming the largest Chinese private enterprise in the United States at that time.

In recent years, Shi Yuzhu, who has a huge asset scale, is obsessed with capital operation. Giant Network business relies on eating old books, resulting in years of silence.

However, once Shi Yuzhu puts aside his obsession and leads the company to polish its products, even if he can only continue to hype the residual value of Zhengtu IP, it is enough to drive the company's business to resume growth.

Gibbit, which has repeatedly created the myth of game stock profitability, is similar to Giant Network, relying on one or two products for many years, resulting in a decline in profitability. However, the overall performance is relatively stable and still not to be underestimated.

The most surprising thing is the Kaiying network. The company's founder, "game genius" Wang Yue, was suspected of securities manipulation, which affected listed companies, causing a thunderstorm in performance, and once fell into the brink of life and death.

Wang Yue passively withdrew, Kaiying Network returned from hell, and the new helmsman took this listed company, reinvested in legendary games, quickly boosted performance, made a net profit of more than 1 billion yuan last year, and made a profit of 724 million yuan in the first half of this year, unexpectedly ranking in the top three of A-share games.

In the game industry, everyone may not know Shenzhou Taiyue, but they should be quite familiar with its game business subsidiary Shellwood Games. Shellwood Games focuses on overseas markets and has been at the forefront of China's game overseas list for many years, with a net profit of more than 500 million yuan in the first half of the year.

NetDragon and Palmfun Technology are both established game giants, while Hometown Interactive and Zenyou Technology are vertical gamers focusing on the chess and card market.

In addition, there are some unlisted game companies, which are not obvious in the industry, but are strong. For example, the New Third Board-listed company Zhixingtong is attacking the greedy game of Hong Kong stock listing, and TOEIC Network, which has repeatedly attacked IPOs.

Tang Binsen, the founder of Zhixingtong, founded Genki Forest after selling the company to achieve financial freedom; Many people only know the slag and do not know that its creator is greedy for games; More people, because of the various bizarre rumors of the owner of TOEIC Network, ignore that this company once made 1 billion a year.

Of course, some of the former backbones of the game industry, after internal adjustments, did not focus on the game business, even if it is still strong. For example, Kunlun Wanwei, owned by unicorn catcher Zhou Yahui, and Yao Kee Technology, which transformed IP operations.

List of the lost

In the overall upward Chinese game market, the head is leading, the waist is stable, and the tail clearing is also accelerating.

From 2014 to 2016, this round of capitalization of game companies brought the number of listed companies in the A-share game sector to dozens of companies, and if you include those companies that have some game businesses and concepts, as well as the Hong Kong stock game sector, it is estimated that there were nearly 100 companies at its peak.

Just five or six years later, the number of listed game companies has fallen by nearly half.

On the one hand, the user dividend of the game industry ended, and the scale of Chinese gamers last year was 664 million, a year-on-year decrease of 0.33%; In the first half of this year, it returned to weak growth, up 0.35% year-on-year to 668 million.

In addition, the adjustment of industry policies not only strengthened the supervision of game categories such as chess and cards, but also directly hit Lianzhong and Boyaa Interaction; It also promotes the survival of the fittest in the industry by controlling the issuance of version numbers.

The stock era + stricter supervision has made the competition in the game industry unprecedentedly fierce. Both visible and invisible hands exert force, creating a situation of big waves and sand.

In recent years, at least 7 A-share game companies such as Fukong Interactive, Great Wall Animation, Agras, Chenxin Technology, Youjiu Games, Yingzhong Internet and Julong have been delisted.

In the thunderstorm of the game industry in previous years, some companies also maintained their listing status, but after the game business shrank, they turned back to the original main business or continued to expand other businesses. Including Tom Cat, Tianzhou Culture, Huicheng Technology, Zhejiang Shu Culture, Juli Culture, Baotong Technology, etc.

At present, there are many A-share game companies that are still in a business crisis, including Caesar Culture, Electric Soul Network, Zhongqingbao, Fuchun and so on. If you include the game companies with declining businesses in Hong Kong stocks, the length of this list may increase several times.

Of course, there are also some game companies, temporarily trapped, but the industry foundation is strong, in recent years trying to boost performance and return to glory. For example, CMGE and Nomad Network.

CMGE, an old game giant, a masterpiece "Immortal Sword". In recent years, the business has been sluggish and has fallen into losses, and now the game business is fully "fairy sword", and it also relies on this classic IP to open brand authorization, and is involved in film and television, VR, meta-universe, real-life entertainment, etc. Despite the reversal in the first half of the year, there is still some distance from the stability of the fundamentals.

The most unfortunate thing is the nomadic network. Under the leadership of game genius Lin Qi, the company was listed on the back door 5 years after its establishment, and once ranked among the top four A-share games with a net profit of 1 billion yuan.

However, when Lynch's curiosity was occupied by three-body IP, film and television and other businesses, the listed company fell into a downturn.

Just as Lynch was about to lead the company to start a business again, like Shi Yuzhu, a vicious event caused by internal contradictions ended the revival of the small giant.

Nowadays, the biggest attraction of the Nomad network, in addition to self-developed games, is the association with the three-body IP.

Who can cross the cycle?

There are cycles in any industry, and the gaming industry is no exception.

A short cycle, which can be called a product cycle, is a game company's performance fluctuations caused by new rhythms on the product, which is about 1-3 years.

The input and output of game products are similar to movies, with high investment, high risk and high return. However, whether the movie can succeed at the box office is basically due to a battle; Gaming products are a long-term validation process, and once users recognize their value, the long-tail effect is very obvious.

The most typical case is Tencent's "Honor of Kings", which was launched in 2015 and will still contribute $2.2 billion in revenue by 2022, ranking first in the world in mobile games.

In the medium cycle, the influencing factors are mainly based on the direction of industrial development, supplemented by the policy environment, which can also be called the industry cycle, generally about 3-5 years. For example, in recent years, the hot two-dimensional concept, the trend of going overseas, as well as the rhythm of version issuance and the impact of Internet regulation on the game industry.

In recent years, the overseas performance has played a decisive role in the performance of game companies. Tencent's local business stalled, and it was its overseas business that drove growth; Similar situations are not uncommon in the gaming industry.

The overall fluctuation of China's game industry in recent years is caused by the influence of policies.

Affected by version control, 2018 is a small year for the game industry; Recovery in 2019; In 2020, under special circumstances, the game industry broke out; In 2021, factors such as version control, protection of minors, and Internet supervision were superimposed, and the industry once again entered a relatively sluggish period; After 2022, the issuance of version numbers will restart, and the industry will enter a period of growth recovery, and it will pick up significantly in 2023.

The game industry also has its own long-term cycle, which is mainly manifested in the upgrade of platform media, which can be called the platform cycle, which is about 20 years.

From the early game console, to the popularity of terminal games, the transition of page games, and the comprehensive mobile game, 40 years have gone through two cycles.

The next gaming era should be in the cloud gaming era blessed by 5G (or even 6G), AI, VR and other technologies. At that time, the "oasis" in "Ready Player One", the three-body world, will become a reality in the game.

In order to take the lead in the next game era, head game companies are vying to deploy VR and other related industries, try the use of AI in games, invest in the IDC industry, etc., and some companies are even testing the first form of cloud gaming.

In the context of the upgrading of the game industry, the increase in investment threshold will greatly increase the concentration of the industry. In the next era of gaming, the pattern and composition of the industry will be rewritten.

Who can cross the cycle? Among the existing game giants, which companies in which tracks do you prefer to be more optimistic about?