A 40-Billion-Yuan Business and the World's Biggest Market: China's Mobile Games

366 million players, 68,000 developers, 400,000 games and a 40-billion-yuan market. How much of it came from you?

On the subway at rush hour, at a crowded bus stop, you can easily spot people with their heads down over a mobile game. Their fingers race across the screen to line up matching tiles, or drag a fighter plane out of the enemy's fire, and their faces change with every turn of the game...

These little games make the commute less dull. Because they are short and quick, many people who never played games have become players. And because of social networks, with their sharing and rankings, gaming is no longer a solitary pleasure.

Available anytime, playable anywhere, shareable with anyone: gaming has never been so free and casual, and the change is creating a huge consumer market.

According to the latest forecast from Newzoo, a Dutch games research firm, China's mobile game market will reach US$6.5 billion (41.3 billion yuan) in 2015, overtaking the United States as the world's largest.

Last week Niko Partners, an Asian market research firm, released a new games market report. By its count, too, China will be number one in the world.

Over the past four years, China's mobile game market has leapt from 6.2 billion yuan to 27.5 billion yuan. As an ordinary smartphone user, you may not realize how much of that came from you.

If games had something like Alipay's annual spending report, yours would make rich reading: you sliced 8,645 watermelons, landed 56 eight-fruit combos and got blown up 283 times; you crushed 13,288 pigs with birds, badly injured 4,978 more, and 97 times flung a bird straight into a ditch; your win rate at Dou Dizhu (Fight the Landlord) reached 33%, but your fingers and eyes are not what they were, so in Temple Run you beat only 3% of your friends, and you have never left the bottom of the Tiantian Ai Xiaochu leaderboard. We suggest you give up match-three games and buy a phone with a bigger battery......

Behind these games stands China's mobile game market, which has grown sixfold in four years. It is bigger, and richer, than you think.

Sixfold in Four Years: The Best Time for Mobile Games

If one word had to sum up China's mobile game market in recent years, it would be "fast."

In 2011 the whole Chinese mobile game market took in only 6.24 billion yuan. Last year the figure was 27.49 billion yuan, and this year it is expected to grow by more than 14 billion yuan, to a staggering 41.6 billion yuan.

Household names such as Angry Birds and Plants vs. Zombies had appeared as early as 2009, and in 2012 Supercell released Clash of Clans, one of the most successful mobile games in the world. Yet China's mobile game market was only just starting to pick up speed.

Back then, countless Chinese developers tried to copy the success of Clash of Clans, and all of them failed. Clan-war games appeared under every possible name, such as Chai Na Buluo and Pocket War. None of them lasted.

In early 2013 a startup, Zhuoyue Technology, released a mobile game called My Name Is MT. While everyone else was imitating American strategy games, it looked instead to Japan's card-battle games.

Plenty of people accused it of copying World of Warcraft, but no one at the time could match its monthly revenue of 55 million yuan. My Name Is MT single-handedly established card games in China's mobile market.

On the 2013 App Store top-grossing chart, My Name Is MT held the number-one spot for 267 days. Not even Tencent's WeChat games or NetEase's Fantasy Westward Journey later broke that record. To this day, card games are the most numerous genre in China's mobile game market.

My Name Is MT and the games that followed it arrived at just the right moment. From 2011 to 2013 the number of smartphone users doubled, from 220 million to 440 million. And according to the China Internet Network Information Center, the number of people playing games on smartphones grew even more startlingly: from 89 million in 2012 to 310 million in 2013, a rise of 248.5%.

Over the past few years, many people bought their first smartphone and then, for the first time, tapped open a game on it.

Social networks made games popular and turned users into players

The surge in players owes a great deal to social networks. Just as Facebook once set off a wave of web and social games, WeChat became the door through which many people found mobile games.

In the second half of 2013, WeChat had 190 million monthly active users and more than 400 million users in total. Like Line in Japan, Tencent saw how directly and effectively a social app could put a game in front of its users.

In August 2013 the tile-matching game Tiantian Lianmeng launched on mobile QQ and WeChat, Tencent's first step into WeChat games. Then came the "Tiantian" series everyone knows: Tiantian Kupao, Tiantian Ai Xiaochu... For a while it seemed every friend on WeChat was playing them, eagerly checking the daily rankings and trying to beat one another. Word spread from one person to ten and from ten to a hundred, until whole families were playing.

These Tencent games, distributed through WeChat, still appear on the charts today. Tiantian Ai Xiaochu and Quanmin Tuji, flagships of Tencent's "Tiantian" and "Quanmin" series, showed everyone how much traffic matters to a mobile game.

Mobile games are not technically hard to make. The advantage of the established giants lies not in having better teams that make better games, but in letting the vast number of smartphone users easily see, learn about and download those games on their phones.

Without a Strong Distribution Channel, Buy Something Already Famous

But not everyone has a social platform like Tencent's to bring in users. Fortunately, besides building your own social platform and app store, there is another way to get your game noticed: make something players already know.

Look at the recent top-grossing charts and you will see that, apart from Tencent's WeChat-promoted games, the other big category near the top is adaptations of every kind.

Hua Qiangu, the hit of the moment, is one example. A novel adapted into a TV series and then into a mobile game, it has more than 10 million active users and makes 200 million yuan a month. Nothing explains "the value of an IP" better.

Last year was called the first year of brand-based mobile games. According to the Green Book of Trends in China's Mobile Game Industry, published last year by 360 Mobile Assistant, the largest mobile app distribution platform, more than half of the mobile games released in the second quarter of last year were tied to an existing "brand." Novels, anime, films, TV series and even games on other platforms all served as sources.

All last year, developers large and small were buying established brands that could be turned into games. Those with money spent it: Sohu Changyou paid 150 million yuan for the game rights to the Chinese animated series Qin's Moon and more than ten Jin Yong novels, and built many large mobile games on them, including Demi-Gods and Semi-Devils. Those without money looked for works whose copyright had expired, so Three Kingdoms and Journey to the West became the best options for anyone who couldn't afford Naruto or One Piece. For a while, "XX Three Kingdoms" games popped up everywhere.

But a good brand only gets you a head start. How fast you finish still depends on the game. At the end of last year, the highest-ranked mobile game based on an online novel was Record of the Wilderness, at number 107, a poor showing for a novel read more than 100 million times. Only if you pick a good source, make a good game and get players to pay willingly has the money been well spent.

Pick the right genre and the right audience, and players are more likely to pay

Getting Chinese players to pay is not easy.

China has more mobile game players than any other country. According to the latest China Game Industry Report, China had 366 million mobile game users by the end of the first half of the year, about twice as many as play PC client games, and the number is expected to reach 420 million by year-end.

Yet a Newzoo survey shows that the average Chinese player spends only US$10 a year on games, about one-eighth of what an American player spends. There are many players, but few willing to pay.

Mobile does somewhat better. Divide the expected 2015 revenue of the whole market by the expected number of mobile game players and the average spend comes to about US$13 per player. More than 46.6% of players pay for mobile games, and 4% spend more than 3,000 yuan a month on them.

The games industry calls these big spenders "whales," a term taken from the English "White Whale." In China, mobile game whales spend far more than American players, though this partly reflects the fact that console games still dominate in Europe and America.

Likewise, where Western players love strategy games (such as Clash of Clans), Chinese players prefer role-playing games (RPGs). On both Android and iOS, players are very willing to pay for them, with average monthly paying rates of 3.9% and 4.4% respectively. Strategy games stress mechanics and long hours of play; RPGs stress content: lavish graphics, rich stories, appealing themes. That is what Chinese players love and pay for.

It is also why women love mobile games. The share of women among mobile players grows every year, and in categories such as puzzle, simulation and educational games, women outnumber men. Among players aged 36 to 55, women are the majority. Don't underestimate the "aunties": when they are not trading gold, they are keen mobile gamers. And the aunties have money (could it really come from trading gold?): among players who spend more than 5,000 yuan a month, women outnumber men 1.3 to 1.

Which companies make the most money in China's mobile game market?

Where does the money players pay go? A string of company names probably comes to mind, but the answer may not be quite what you expect.

On App Annie's July ranking of mobile game publishers by revenue, Tencent came first, as expected. Tencent's mobile game revenue in the second quarter of this year was 4.5 billion yuan. Growth slowed because it released few new games in the first half, but after July The King of Fighters '98 Ultimate Match, a game Tencent newly licensed and published, paid off quickly: released in mid-July, it was tenth on the monthly top-grossing chart by the end of the month.

Tencent has its own "Tiantian" and "Quanmin" series, newly licensed games such as Legend of Mir and The King of Fighters, and its own channels: QQ, its browser, Yingyongbao and WeChat. It owns the whole chain, from development and publishing to downloads, and so it is the most profitable game company.

NetEase, by contrast, has no app platform of its own, but its strength in development and publishing has kept it second among companies by App Store revenue. It launched its first major self-developed mobile game, Mini Westward Journey, only in April 2014, but a willingness to take its time produced Fantasy Westward Journey, which has held the top of the grossing chart for more than three months since April.

In publishing, Blizzard's Hearthstone is something of a cash cow for NetEase. NetEase CEO Ding Lei has said China has more Hearthstone users and revenue than any other country. NetEase is still far behind Tencent, but it holds second place securely.

Besides Tencent and NetEase, some companies that seem to have little to do with games are also taking a share of the fast-growing mobile game market. 360, for example.

In the mobile game industry chain, 360's role is that of a channel operator. A developer builds a game and hands it to a publisher to market and release; the game then goes to channel operators, the app stores and download platforms, for distribution. 360 Mobile Assistant, Baidu's mobile app store and Tencent's Yingyongbao all do this, and yes, they are truly annoying, constantly pushing all sorts of games and apps at you.

The biggest of them is the 360 family, which includes 360 Mobile Assistant, its PC manager and app search in its browser. Whatever you think of 360 Mobile Assistant, you have to admit it is now China's largest app distribution channel. According to 360's earnings report for the second quarter of this year, its mobile security products reached 799 million smartphone users, and value-added services from its game platform business brought in US$122 million.

US$122 million is enough to leave behind big companies that specialize in publishing games, such as CMGE and Kunlun. The reason is that channel operators take the biggest cut of anyone in the chain, usually 60% to 70%: of every 10 yuan you spend on a mobile game, about 6 yuan goes to the platform you downloaded it from.

Sure enough, in the internet age, whoever is closest to the user collects the most money.

The biggest market, but an industry with too many problems

Some may wonder why channel operators earn so much. One complaint on Zhihu pins down the bind behind it: "If you asked me to sell dog poop outside a supermarket, I wouldn't do it even for a 99% cut of the profit."

In other words, the cause is that the games themselves are too bad.

In 2013, six new mobile game developers were founded every day on average. Many of them aimed to make a quick buck and leave. They turned out piles of identical "Three Kingdoms" or "ninja" games, left brand-building and everything else to publishers and channel operators, paid a little extra to push their games up the rankings, tricked users into downloading, ideally got them to make a first payment fast, and then walked away.

So professional chart-manipulation firms appeared, pushing those games up the rankings with mass downloads and fake payments. At the end of August this year, Apple once again cleaned up the App Store charts. A large batch of game apps were dropped from the rankings or pulled from the store on suspicion of chart manipulation, among them titles from big names such as NetEase and Changyou.

Even games that earned their place on the charts are not always clean. The Hua Qiangu mobile game is a huge hit, but it has been accused of copying another mobile game, Taichi Panda. The art and story are different, but nearly everything else is copied, from big things such as the interface layout, the tutorial and the progression system to small ones such as character dialogue and in-game announcements. Snail Digital, the developer of Taichi Panda, has sued, but whether it wins is up to the courts.

Another hit, Dota Legends, is more of a Rashomon. First, Dota Legends sued the foreign company Ucool, accusing its Heroes of Charge of copying its game code, and even produced evidence hidden inside the game. Then Blizzard sued Dota Legends in Taiwan for copying its character designs. The mantis stalks the cicada, unaware of the oriole behind it. You don't know whether to laugh or cry.

There is mixed news, too, about IP, once treated as sacred: it no longer works so well. Nowadays almost every film, TV drama and novel is marketed alongside a mobile game. The Empress of China and Black Cat Detective: The Emerald Star both launched mobile games of the same name when they came out, yet before the TV series had finished airing or the film had left theaters, nobody was playing the games anymore. And then there is the Where Are We Going, Dad? running game: how many people downloaded it and deleted it soon after? It now ranks below 1,000th, which is about the same as not existing.

Still, there are good signs. Last month the Chinese indie mobile game Koi broke into the App Store's top 20 downloads, and its fresh art style and gameplay impressed many. Players are growing pickier; a slapdash "Three Kingdoms" or "Journey to the West" can no longer fool them.

More and more big companies that mainly make PC client games are moving into mobile, bringing their habit of pouring effort into a single title. Fantasy Westward Journey proved that a heavyweight RPG can stay popular for a long time. Many mobile adaptations of online games, such as Legend of Mir and Jianxia Qingyuan 3, may bring some stability to this fast-changing market.

As the market grows, better games seem bound to follow. Whether China's mobile game market ends up first or second in the world, what matters most to players is whether it brings us more games worth playing. Especially now that the easy gains from distribution channels are shrinking and users are growing more demanding, the real contest is only beginning.