Chinese Carriers To Team Up Again, This Time In Mobile Gaming

In a bid to get a slice of the booming mobile gaming market in China, the country’s three major telecom operators- China Mobile (NYSE:CHL), China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) – will now be teaming up to help developers get their mobile games released in the market. As part of the initiative, the companies plan to jointly help publish 100 mobile games in the first year, with a target of RMB 1 million ($160,000) in annual sales from each game title. ^[1] This joint effort by the carriers, following their discussions for a joint telecom infrastructure company last week, can be seen as an attempt to cater to the changing customer needs and business dynamics of the telecom industry, as well as plan effective ways to monetize new channels. This also represents the growing importance of Internet data for the carriers’ top lines over traditional revenue sources such as voice calling and text messages.

The Chinese mobile gaming market is expected to overtake the U.S. market in early 2015, with total spending expected to touch $3 billion by the end of this year, according to a report by Superdata Research. ^[2] The Asian giant has seen a rapid rise in mobile Internet penetration with the growing acceptance of low-cost smartphones. This, coupled with the easy accessibility (mostly as free downloads) of casual and mid-core games, is leading to a rapid increase in the number of users playing games on their smartphones. According to the state-affiliated China Internet Network Information Center, the number of users playing mobile games increased from about 76 million in 2012 to over 215 million by the end of 2013. Considering that there are presently more than 1.2 billion wireless subscribers in China with over 460 million using 3G/4G, there is still a lot of room for growth. The carriers are likely to gain from the sale of games, advertisements and in-app and in-game purchases by users. The telcos could also earn revenues by building an effective distribution channel for third-party mobile games and applications (apps) where they could get a cut of total app sales.

Overall, this looks like a smart move by the carriers to tap into a lucrative market, but it remains to be seen whether they will be able to compete with mobile gaming heavyweights such as Tencent’s WeChat, Apple‘s (NASDAQ:AAPL) App store or the several Android app stores available in the country.

See our complete analysis of China Mobile | China Unicom | China Telecom

Overview Of China’s Current Mobile Gaming Market

In line with their international counterparts, an increasing number of Chinese users are willing to pay to play games on their mobile phones. There is a gradual acceptance of the ‘freemium’ model, whereby subscribers can download games for free but have to pay for certain in-app purchases to proceed/succeed in the game. Tencent’s WeChat revolutionized the market last year when it introduced a gaming hub to its popular messaging app, providing its 355 million global subscribers (including 205 million Chinese users) easy access to a wide range of casual, mid-core and core games. In the three months ending October 2013, WeChat’s first five games were reported to have been cumulatively downloaded a staggering 570 million times. ^[3] The strengthening of mobile payment methods and improved safeguards also helped build user participation. Owing to the aforementioned factors, the average revenue per paying user (ARPPU) in China increased from $26.72 in Q1 2013 to $32.46 in Q1 2014. In comparison, ARPPU in the U.S. improved from $19.52 to $21.60 during the same period. ((REPORT: China $3B mobile game market is about to overtake the States, Superdata Research, May 5 2014 ))

Although the ARPPU and user base in the Chinese mobile gaming market are growing faster than its U.S. counterpart, it is difficult to compare the two regions in terms of distribution platforms. Unlike the U.S. which is dominated by Google Play, Apple’s App Store and Facebook, the Chinese market is cluttered with numerous local distribution channels such as WeChat, 360, Baidu, UC and Wandoujia (Google Play is unavailable in China). The entry of the major wireless telecom providers in the mobile gaming market could help it transition to a a more organized structure. ^[4]

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1. China’s three carriers team up to make a push into mobile gaming, The Next Web, May 5 2014 [↩]
2. REPORT: China $3B mobile game market is about to overtake the States, Superdata Research, May 5 2014  [↩]
3. First 5 games for Tencent’s WeChat messaging app hit 570 million downloads in just 3 months, The Next Web, November 28 2013 [↩]
4. CMGE: How to Survive in the Global Mobile Games Market, PR Newswire, May 12 2014 [↩]