On July 25th, the Game Working Committee of the China Audio Digital Association released the "China Game Industry Report from January to June 2024", revealing the domestic game market situation in the first half of this year. The report points out that the revenue of the domestic gaming market reached 147.267 billion yuan in the first half of the year, a year-on-year increase of 2.08%, and the market growth trend is stable.
Source: "Report on China's Game Industry from January to June 2024"
In the context of sustained recovery in the gaming market, the performance of top manufacturers has shown differentiation. According to Tencent's (00700. HK) financial report, Time Finance found that in the first quarter before the launch of the "DNF" mobile game, Tencent's gaming revenue was 27.64 billion yuan higher than that of the second ranked NetEase (09999. HK), the largest quarterly difference in the past year, accelerating its lead in the industry.
Last year, NetEase achieved a significant increase in overall revenue with its second tier games such as "Egg Boy Party" and "Reverse Water Cold Mobile Game", surpassing the 100 billion mark. However, the performance of evergreen games led by "Fantasy Westward Journey" has declined, resulting in a widening gap in game revenue with Tencent. Meanwhile, Tencent's two perennial games, "Honor of Kings" and "Peacekeeper Elite," continue to maintain their top 2 status. New games such as "Fearless Contract," "Ark of Destiny," and "Nikki: Goddess of Victory" have driven Tencent's growth in both domestic and overseas markets.
Morgan Stanley expects Tencent's gaming revenue to grow by 10% year-on-year in the second half of the year, driven by new products such as the DNF mobile game. Considering that Tencent Games has a larger base, if this trend continues, it means that Tencent Games will further expand its leading advantage.
Tencent's recovery: New games exceed expectations, evergreen games and new frontline teams make efforts
In the first half of this year, Tencent's "Dungeon Fighter: Origins" (hereinafter referred to as the "DNF" mobile game) was undoubtedly the most outstanding new game, firmly occupying the top spot on the bestseller list after its launch. According to estimates from Bank of Communications International, the mobile game "DNF" is expected to generate a revenue of 1.6 billion yuan within 11 days of its launch in May, with the first month's revenue expected to exceed 3 billion yuan; Morgan Stanley has given a more optimistic forecast, stating that the total revenue of DNF mobile game in its first year will reach as high as 10 billion yuan.
According to third-party monitoring agency DianDian data, as of June 30th, the estimated revenue of the 41 day old mobile game "DNF" on the App Store has reached 1.971 billion yuan, ranking fourth in the top 10 revenue streams of China Mobile Game App Store in the first half of 2024. The top three are Tencent's "King of Glory", "Peace Elite", and "Battle of the Golden Shovel".
Thanks to the unexpected performance of the mobile game "DNF", Nomura Securities believes that Tencent Games' local market revenue in Q2 this year is expected to increase by 9.6% year-on-year, driving double-digit growth in game revenue.
Image source: Dot data
In addition to the outstanding performance of new games, the stability of Changqing Games and the rise of new front-line teams are another decisive factor in Tencent Games' growth.
According to the "2024 China Evergreen Game List" released by Time Finance and DianDian Data, a total of 28 games made it to the list. The inclusion criteria for this list are games that have been online for more than three years and have an estimated revenue on iOS that ranks among the top 50 games in China.
Tencent is currently the manufacturer with the most evergreen games on the list in China, with a total of 9 games under its umbrella. In terms of quantity, Tencent alone accounts for over 35%, including "Honor of Kings," "Peace Elite," "CrossFire Mobile," "Naruto," "QQ Speed," "QQ Dance," "Call of Duty Mobile," "Love of Light and Night," and "FC Soccer World." Among them, "Honor of Kings" and "Peace Elite" are the only two games with estimated iOS revenue exceeding $400 million in the first half of the year. If calculated by revenue, the estimated revenue of these 9 games on iOS will reach 1.735 billion US dollars, accounting for over 60%.
According to observations from Time Finance, Tencent's investment and long-term operational capabilities in Changqing Games are significantly ahead of other manufacturers. For example, after undergoing adjustments, the revenue of "Peace Elite" has resumed growth in March this year; According to Sensor Tower data, "Peace Elite" saw a 28% year-on-year increase in revenue in May. As a game that has been online for over 6 years, its operational ideas and capabilities to return to a growth track are also worth learning from for the gaming industry.
It is worth noting that a batch of new games from Tencent Games have taken up the banner of growth in the local market, including games such as "Battle of the Golden Shovel," "League of Legends Mobile," and "Dark Zone Breakout," which have the potential to become evergreen games. Among them, "Battle of the Golden Shovel" is the biggest dark horse. Sensor Tower data shows that the game's revenue in the first quarter of this year increased by 96% year-on-year, achieving double-digit growth for four consecutive quarters. In the first quarter report of this year, Tencent cited third-party data and pointed out that "Battle of the Golden Shovel" had become the third highest grossing mobile game in China in the first quarter, after "King of Glory" and "Peace Elite".
Is differentiation the way out as competition intensifies at the top?
In fact, the aging of evergreen games and the lack of connection between new games are challenges that many other game developers need to face. In the first half of this year, NetEase adjusted the gameplay of its "Fantasy Westward Journey" PC game, which had been online for over 20 years, resulting in a decline in its PC game revenue. The market expects this impact to continue in the second half of the year.
In addition, the martial arts MMO game "Shooting Eagle" launched by NetEase at the end of March fell below market expectations and dropped out of the top 200 on the bestseller list in June. According to DianDian data statistics, in the first half of this year, the three major categories of MMORPG, 4X Marching Battle (SLG), and Open World RPG all experienced a month on month decline in revenue on the App Store, with MMORPG experiencing the most significant decline. This to some extent indicates that the gaming market is shifting towards low spending games, such as the recent release of "Three Kingdoms: Conquering the World" on Bilibili, which achieved a win-win situation for user reputation and commercialization by actively "reducing spending and liver", sparking a new trend in the SLG category.
Image source: Dot data
NetEase founder Ding Lei once stated in his 2023 financial report that the past year has been a milestone year for NetEase Games in terms of category innovation breakthroughs, and its game product line has become more diverse and abundant.
Among them, the registered users of "Egg Boy Party" exceeded 500 million, and the peak DAU during this year's Spring Festival exceeded 40 million, becoming the game with the highest DAU in NetEase's history. But how to maintain the continuity of active users and game duration is a challenge facing Egg Party. According to QuestMobile data, the daily active users and game duration of "Egg Boy Party" both showed a significant decline after the Spring Festival, with a decrease of nearly three-quarters from the peak during the Spring Festival. As a result, the revenue of 'Egg Boy Party' also showed a significant decline.
Entering the second half of the year, Tencent and NetEase are facing both direct competition in product reserves and the emergence of their own innovative products. Tencent will release new games in the second half of the year, including "Need for Speed: Assembly", "World Origins" (both of which were launched in July), "Delta Action", "Star Dawn", "One Piece: Ambition", covering shooting, action, SLG and other categories.
NetEase's products launched in the second half of the year include "Seven Day World" (launched on July 10th), "Eternal Tribulation Mobile Game", and "Yanyun Sixteen Sounds" PC game. Among them, "Eternal Tribulation Mobile Game" is widely regarded, with over 40 million player bookings. After its launch on July 25th, it ranked third on the bestseller list and will be one of NetEase's most important products in the second half of the year. Goldman Sachs believes that "Eternal Tribulation Mobile Game" and "Dawn of the Stars" will be differentiated competition, and this category has enough market space to accommodate both games.
For Tencent and NetEase, the two top players, as the domestic gaming market enters the stock stage, the intensification of competition between the two will be inevitable. But healthy competition is an important force driving innovation in gaming gameplay and categories. The competition between Tencent and NetEase has to some extent opened up a new situation for the development of the gaming market and promoted the healthy development of the industry.