China's video game sector headed to next level

More choices for consumers, high-quality products likely to buoy local developers

Late last month, word broke that China Mobile Games and Entertainment Group (CMGE), one of China's largest developers and publishers of mobile games, had attached itself to some of the hottest properties in Japanese animation.

Specifically, CMGE announced on July 29 that it had obtained non-exclusive authorization from Toei Animation Co Ltd to create mobile games based on One Piece and Ikkyuu San. This news was followed Thursday by the announcement of an exclusive strategic partnership between CMGE and GREE, the operator of a Japanese social networking platform, to co-develop China's first official mobile game based on the Naruto series.

Entering into such arrangements with the legitimate rights holders' of these properties is a wise move by CMGE. Given the ongoing development of China's booming video game market, the tastes and habits of local gamers could soon reach a new stage. As interest wanes in cheap knock-off games, studios that produce high-quality licensed games based on popular franchises could be setting themselves up to score with consumers.

Indeed, the rapid growth of China's video gaming market is creating opportunities all around. So far, client-based online games (such as World of Warcraft and NBA2K Online, for example) have been the biggest winners, taking the lion's share of the $13 billion in revenue that flowed into China's gaming industry in 2013, according to figures presented last December at the China Games Industry Annual Conference.

While mobile gaming revenue accounted for just $1.8 billion of last year's overall take, this figure nevertheless represents a substantial rise from the $150 million revenue inflow recorded in 2010 by IBI Research. Looking ahead, the spread of smartphones and next-generation mobile services plans could support equally meteoric growth rates for many years to come.

China boasts the largest mobile market in the world, with over 1.27 billion subscribers as of June, according to Reuters reports citing figures from the country's three State-backed telecoms operators. Of this total, 485 million were 3G subscribers, while just 13.94 million subscribed to 4G service. As more consumers switch to smartphones which can support mobile games, the country's mobile game playing population will surely grow as well. Indeed, experts estimate that China had 89.1 million mobile gamers as of 2012, up from 30.2 million in 2010, an increase made possible by the rapid uptake of smartphones.

Meanwhile, the Chinese government's recent loosening of a 14-year ban on home video game consoles is also expected to bolster local interest in gaming as big names like Sony, Nintendo and Microsoft bring their popular gaming platforms to local shoppers. If these high-tech consoles gain traction among local players, Chinese developers will be forced to improve their own games in order to stay competitive. And with many of these consoles functioning as home entertainment centers, it's possible that their reception within local households could lead to a broader acceptance of video games in general.

As the market grows and consumer choices mount, local game designers and publishers will have to keep up with the changing demands of local players. By and large, Chinese consumers are becoming not only more affluent, but also more sophisticated and discerning when it comes to their purchasing decisions. The same trend will, sooner or later, surely affect video game sales as well. Over the coming years, as gaming choices spread and the indigenous gaming culture develops, buyers will likely turn away from poorly produced, unlicensed games that only reference popular franchises as a way to make a quick profit. Studios that take action now to produce high-quality games - whether they feature original premises or are based on existing intellectual properties - will be well placed to score with local players.