China’s internet cafes are coming back, thanks in large part to Tencent

Photo credit: JoopDorresteijn.

Step out of the sunlight and into the darkness. Cigarette smoke trickles lazily upwards from a few dozen ashtrays. Greasy faces scrunched with focus float ghostlike in the darkness, seemingly unattached to the bodies that lie behind wide computer monitors. Dig your cash out of your pocket, pick a number. Round the bend and walk down the row of gamers squatting in their chairs, clicking furiously. Welcome to the internet cafe.

That’s a world that would be intimately familiar to anyone who spent time in China’s tech or gaming world during the early 2000s, when interest in the internet was high but private ownership of devices like mobile phones and computers was relatively low. But rising living standards and safety concerns took their toll. One survey found that 10,000 such businesses closed between 2011 and 2012 alone. By 2013 it seemed clear that internet cafes in China were dying.

Yes, China’s internet cafes are growing again.

But a surprising new report from analysis firm Niko Partners suggests that the industry has made a turn. In 2015, China had 146,000 internet cafes with 20 million daily users, and both of those numbers are now increasing year-on-year. Yes, China’s internet cafes are growing again.

What’s the culprit? In a word: competitive gaming. Niko Partners founder Lisa Cosmas Hanson says that internet cafes are back “because of demand for a social setting to play team-based games such as League of Legends and the desire to watch professional live or televised eSports tournaments alongside other gamers.”

The Tencent connection

If team-based multiplayer games and eSports are responsible for the resurgence of internet cafes in China, then it’s not unfair to suggest that Tencent has played a big part in bringing those darkened halls back into the gaming mainstream.

According to Niko Partners’s report, Tencent accounts for 32 percent of the PC gaming industry’s revenue, and a lot of that comes from its most popular games, team-based competitive multiplayer titles like CrossFire and League of Legends. Not coincidentally, League of Legends and CrossFire are also among China’s most popular eSports to watch. Tencent is bringing people into the internet cafes in droves to both play its games and to watch video streams of other people playing its games.

Tencent, of course, is not wholly responsible for China’s competitive gaming scene. Other multiplayer and competitive titles, including Hearthstone, Dota 2, and CS:GO are also popular in China, and are published by different companies. But at present none of those games really compete with Tencent’s for the top title. League of Legends has been China’s favorite game for years, and CrossFire has consistently been in the top three. None of those other games rank that high.

A promising future?

Photo credit: Nan Palmero.

Internet cafe owners have a lot to thank Tencent for right now. But in the long term, they’re likely to owe their success to a whole other industry: VR. Earlier this year I wrote that arcades and internet cafes were likely to make a comeback in Asia, as gamers will want to get in on high-end virtual reality experiences without paying the heavy up-front costs required to buy a system like the HTC Vive. Niko Partners’ report echoes this, suggesting that VR and AR will become a growth driver for internet cafes in China beginning in 2017 or 2018.

Mobile gaming is growing in China, but internet cafes apparently needn’t worry, because PC gaming is growing too. Niko Partners’s report says that the market will grow by US$5 billion over the five years between 2015 and 2020, reaching US$20 billion in total value by the end of this decade.