China has grown into an enormous market for video game publishers. A market worth about $12 billion in 2013 will double to $23.4 billion by 2018, according to Niko Partners, as Chinese gamers are formally reintroduced to console games after a 14-year ban by the government. (Why? Concerns about the harmful effects of violent games on youth. Paging: Tipper Gore.)
The lengthy ban kept gaming giants Nintendo, Sony, and Microsoft at bay. Now that it's been lifted, they're diving in. Sony Computer Entertainment (not to be confused with the former Sony Online Entertainment) launched its PlayStation 4 console and hand-held PS Vita in January with 70 publishers committed to working on games for China. Titles exclusive to the country include King of Wushu (Suzhou Snail), Mr. Pumpkin Adventure (Shanghai Youju) and One Tap Hero (Shanghai Kena). All were created by Chinese game developers.
The momentum in China means the next big opportunity for game publishers is the rest of Southeast Asia, according to Niko Partners. Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam are expected to generate $784.4 million this year in online game sales and $231 million in mobile game sales—a paltry sum compared to China's potential, but incremental growth fueled by that country.
“The Southeast Asian games market is often compared to that of China, and we can see that it is following behind China by a few years,” says Lisa Hanson, managing partner of Niko Partners. “Gamers in Southeast Asia embrace massively online battle arena games, shooters, and mobile games just as they do in China. However, older Chinese gamers still embrace higher revenue generating MMORPGs [massively multiplayer online role-playing games], a segment that many Southeast Asian gamers shy away from. Therefore, the challenge to developers is to compel an increase in the level of spending on the type of games for which Southeast Asians have shown enthusiasm.”
Within the region, Indonesia, Thailand and Vietnam have become the three most important countries for games revenue, yet each has its own drivers and inhibitors for growth. Niko forecasts that, over the next five years, Indonesia will see the fastest growth in revenue and Vietnam will see the fastest growth in the number of online gamers. Today, there are more mobile gamers (at 119 million) than PC online gamers (97 million) in Southeast Asia, with considerable overlap.
“U.S. mobile and PC games have a good chance of success in Southeast Asia, as long as the game economics are affordable,” Hanson says. “Many people speak English, and with the exception of Vietnam, the content regulatory landscape in the countries of Southeast Asia is quite manageable.”
Mobile gaming has grown sharply over the past two years in the region, Hanson says, as revenue growth in China for mobile gaming has begun to slow. Still, the annual increase in China is impressive, she says. Mobile game sales in China are expected to grow 37% each year for the next five years; mobile game sales in Southeast Asia are expected to grow slightly slower during the same period, at 34% each year. Measure by the number of new mobile gamers and the lead swaps: Southeast Asia will see 25% growth each year through 2018, compared to China's 22%.
Southeast Asia also lacks some hurdles present in China. Developers can access Southeast Asian gamers more easily through Apple's App Store or Google's Play marketplace. In China, Google Play is nonexistent and there are more than 500 app markets for Android games (though the majority of revenue is consolidated among 20). “In Korea and China, mobile chat apps such as WeChat and KakaoTalk have provided a great new channel for distribution of mobile games with a social twist,” Hanson says. “In Southeast Asia these tools have just begun to make an impact on mobile games distribution, and we think there is room for growth as a result of that.”
For a sense of scale, China has more than 24 million online PC gamers—about 78% of the total population of the United States. Southeast Asia has 97 million online PC gamers. Both markets are moving away from gaming in Internet cafés, which is popular, and toward gaming at home as residential broadband connectivity spreads.
The one exception? Multiplayer online battle arena games, or MOBAs, and other competitive games such as League of Legends or Dota 2. "Competitive gaming is a growth driver in Southeast Asia, as it has been in Korea, Taiwan and China,” Hanson said. “There are many tournaments every year, and everyday gamers are fascinated with the professional gamers. In the absence of a ‘Hollywood’ to build movie and TV star personas, professional gamers are given more opportunity to become cult heroes in these countries, which then leads the younger gamers to idolize them and want to play to become like them.”
But it all starts by convincing Southeast Asian gamers to open their wallets as they never have before. “It's not a very high-spending market," Hanson says, "so the challenge to developers is to get the gamers to spend more per month on the games that they embrace."