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The first quarter is usually the peak season for the Chinese online gaming market thanks to the Chinese New Year holiday, and major publishers—namely Tencent and NetEase—introduce content updates and relevant events to accelerate the growth of in-game spending and active users. However, the coronavirus outbreak in 2020 has made the holiday season more significant for the online gaming market. The Chinese government shut down Hubei province and encouraged people in other regions to cancel travel plans as much as possible, while the seven-day holiday was extended to nearly three weeks. Some public areas, such as shopping malls, theme parks, and internet cafes have closed down since Jan. 25, and major events were cancelled as well. All of the restrictions and closures will last indefinitely.
People have to stay at home to avoid being infected, and this has affected the whole online entertainment industry, including video streaming and online gaming, in the short term. As a result, major publishers have rolled out marketing activities to attract gamers.

PC gaming: Ramp-up in Q1 but negative impact for long term

Some publishers have extended their current promotions to Feb 10 or introduced daily login awards to maintain user retention. Also, some games have introduced special events related to this coronavirus spread to encourage players. As a result, some legacy games such as Dragon Nest via Shengqu Game and Moyu via NetDragon have enjoyed a user surge after a long-term stagnant performance.

 Generally, the extension of the holiday helped to boost user engagement of legacy titles and increase in-game spending. Tencent focuses on the mobile gaming sector, and so other publishers try to take advantage of this and consolidate their flagship titles’ positions in the Chinese PC gaming industry. We are likely to observe an uptick in the PC gaming market in Q1, but it is unlikely to reverse the overall declining trend.

Also, esports events have become a major growth driver for PC games in China and the impact of coronavirus has led to the cancellation of all championship events in February and March, including League of Legends Pro League and Overwatch League esports matches. The new dates for these events are uncertain at this stage, but we expect the disruption to continue until May or June. Some countries stopped issuing visas and initiated strict immigration control for Chinese people, and this will impact the Chinese leagues’ attendance in championship events held in other countries.

Tencent remains core to the Chinese esports industry across the whole ecosystem. The cancellation of major esports events is likely to impact the company’s esport strategy in 2020 as Tencent plans to launch new events for its flagship titles. Recent small-scale online championship events might become complementary to sustaining the video streaming platform, but the long-term impact depends fully on the control of the virus.

Mobile gaming: Flagship titles achieved record active users

Because of the holiday extension and travel ban, players are stuck at home which increases their play time and frequency. Lilith Game started large-scale promotions for its new launch, AFK Arena, via online channels, such as Weibo and Tik Tok, which had a clear impact on downloads and daily active users initially. Although it’s not confirmed by Tencent, some local media reported that Honor of Kings achieved new record of DAUs at 150million with daily grossing peak reaching RMB 2billion, whilst Peacekeeper Elite achieved DAUs of 100million with daily grossing at RMB 500million.

Honor of Kings launched a secret in-game store with special skins on Chinese New Year Eve and one of the most popular skin sets achieved sales of 10 million within 24 hours. Tencent also enhanced optimization for Peacekeeper Elite’s team-based mode with dedicated maps. This content update obviously contributed to the spending and active user peak, in addition to the impact of coronavirus. We expect high teens growth for both Honor of Kings and Peacekeeper Elite in terms of revenue and downloads in January.

Console gaming: Slight uptake of sales during holidays, but manufacturing impact is uncertain
Console hardware from both official sales channels and the grey market saw a sight uptake during the holiday period, and console gaming software enjoyed an increase as well. From user feedback, the travel ban due to coronavirus remains the main driver for hardware and software consumption particularly when Sony and Microsoft have not presented any strong marketing activities. However, the increase is limited, as console gaming is still niche in China and most importantly package delivery is limited during the period. The sales surge of the Chinese version of Switch in Q1 is likely to become mitigated by the delays in the delivery industry.

The coronavirus might also impact the manufacturing of game consoles. Delays in returning to work and factory protection policies could influence the production capability of game consoles and peripherals, because parts of the supply chains for major gaming consoles are in China. However, the impact is uncertain at this moment, and is fully dependent on the on-going control of this virus.