China’s video game economy a bright spot even without Pokemon

Bloomberg

If you want an example of China’s rising consumer class, take a look at the burgeoning demand to play video games. Sales will jump an average 7.4 percent a year from 2016 to 2020, according to PricewaterhouseCoopers LLP. That’s higher than the 4.8 percent rate forecast for the industry worldwide, PwC said in its global entertainment and media outlook.
While in absolute terms games contribute a tiny sliver of gross domestic product, they’re part of the bigger tectonic shift led by consumers who are cushioning the drag from a factory slowdown. China’s gaming population was an estimated 534 million players last year — that’s one out of every 14 humans. Boosting the world’s third-largest video game market — after the U.S. and Japan — are sales of streaming video games and e-sports competitions this year, PwC said. In other words, gaming is increasingly social, not solo.
The rising popularity of competitions helps the appeal of both PC and mobile games in China, which boosts advertising revenue and will enlarge the “fan economy,” PwC analysts said in the report.
Games should get a lift from government policies that favor boosting innovation as well as generous spending for state-run firms to boost wireless network speeds, Wilson Chow, the Shenzhen-based industry leader for tech, media and telecom in China and Hong Kong at PwC, said in an interview. Tencent Holdings Ltd. also will speed up the development of the country’s game industry, he said. China’s largest internet company is leading an $8.6 billion acquisition of Finnish gamemaker Supercell Oy.
By 2020, China’s gaming sales will climb to $12.85 billion, up from $8.98 billion last year, PwC estimates, outpacing a global revenue increase to $90.07 billion from $71.27 billion in 2015. Shanghai, Beijing and Guangdong are the main hubs of video game publication, according to PwC. While Pokémon Go has just landed in Hong Kong, the location-based augmented reality game isn’t available in the mainland because it relies on Google Maps, which China’s internet censors block. So the gaming market won’t get a lift from Pikachu chasers just yet.

MOVE OVER, POKEMON
The smash hit game that uses augmented reality technology to capture animated figures has investors eyeing other opportunities in sports, medical and design apps. “What we are most positive on is the creativity,” William Fong, the portfolio manager of Baring China Select Fund, said in a phone interview. “What we’re seeing on the streets is still the very beginning.”
The technology for virtual and augmented reality can be used in sports training apps where a computer can analyze your golf or tennis swing, or in surgical procedures, Fong said. There are already apps where you can change the color of the wallpaper and move furniture around on interior design sites, or try on different glasses on a picture of yourself.
While there’s lots of excitement about the technology, betting on any one company or one theme would be a mistake, Fong said. “The VR industry is still developing.” Canalys’s Jason Low says examples of the technology in China include: Virtual property viewings from developers such as Vanke, Wanda Group, Greenland Group and Poly Group Hotel rooms and virtual traveling experiences from eLong and Homeinns Planned enhanced product functions from e-commerce providers such as Alibaba VR theme parks by Shanda Group and Huayi Brothers.
Social networking companies like Tencent and Facebook may integrate VR content and games to social networking platforms to increase users, said Low, a Shanghai-based analyst. The real value of virtual reality will be in the ideas behind software and content, rather than hardware, according to Richard Clode, co-manager of Henderson Global Investors’ Global Technology Fund.
There will be “near-term excitement” for stocks such as headset makers HTC and Himax, Clode said. Over time, the hardware specifications will improve and VR headsets prices will decline, he said. On the software side, Baidu, Alibaba and Tencent have more options “because they have so much money,” making it difficult for smaller Chinese technology companies to compete, Clode said.