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In line with stories, 70% of online game gross sales on the planet's prime market come from China's smaller cities

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Visitors to the booth of Tencent & # 39; s mobile game & # 39; Glory of Kings & # 39; during the China Digital Entertainment Expo & Conference (ChinaJoy) 2020 at the Shanghai New International Expo Center on July 31, 2020 in Shanghai, China.

Zhou you | VCG via Getty Images

SINGAPORE – Video games are booming in China's smaller cities, with citizens accounting for more than half of national sales, according to a recent report from Niko Partners.

"76% of players in China live in Tier 3-5 cities and account for 70% of gaming revenue," said Niko Partners in a summary of its China Gamers Report.

Cities in China are classified according to levels loosely based on population and economic size. For example, places like the capital Beijing and Shenzhen are generally considered to be top-tier cities, while lower-tier cities are smaller.

The country is the world's top games market and will have estimated sales of $ 40.85 billion this year, according to Newzoo.

"We believe that with the smaller levels … more and more gamers are adapting to the use of mobile devices," Lisa Cosmas Hanson, founder and president of Niko Partners, told CNBC in a follow-up interview.

With "fewer entertainment options" in smaller cities compared to their cosmopolitan counterparts in Beijing and Shanghai, "players are spending their time on inexpensive entertainment that can be social."

This could also be due to improved mobile data and broadband infrastructure, added Hanson, as "many Android smartphones are available at lower prices".

In a country of 1.4 billion people, even China's smallest "cities" can each have more than 1 million people.

For video game publishers watching China, the analyst said, "If you really want to get people's attention across the country, Tier 4, Tier 5, these places cannot be ignored."

Different gaming habits

The spending habits of those in China's suburban cities are different from those of their counterparts in larger cities, Hanson said.

For example, she said that many gamblers in China's smaller cities tend to "pause" advertising in their games because they don't mind. They also tend to spend less money on in-app purchases, although the overall spending level remains quite high with "so many people" in the cities.

Citing a study that looked at the differences between players in tier 1 and tier 4 cities, Hanson said that gamers in the smaller cities were "convinced" that free games tended to be promoted or promoted by In – Money making app purchases are cheaper when compared to their premium counterparts, which are charged a higher price upfront.

"They feel like they got a better deal because they feel like they are in control of the spending, but they are actually spending the same or more," said Hanson.

Playing as a "common interest" in China

Aside from peers in their own industry, video games also often compete for time against other entertainment options such as video streaming. Netflix once said it was more concerned about Fortnite than direct competitors like Disney +.

When asked about the potential sources of external competition for player attention in China, Hanson said, "It is a common concern of almost all Internet users in China."

"There aren't 720 million people who spend a lot of money on most other types of entertainment," she said. "It's like the one thing everyone does more than anything."

– CNBC's Evelyn Cheng contributed to this report.

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Katherine Clark