Why China’s mobile gaming explosion isn’t really about mobile games

By most standards, 2014 was a banner year for mobile gaming in China. The size of the industry itself doubled, with more than 300,000 people now working at over 5,000 mobile development companies (there were fewer than 3,000 at the end of 2013). Correspondingly, mobile gaming revenues went through the roof in 2014, reaching more than RMB 27 billion (US$4.3 billion) and shattering 2013’s revenue numbers. For the first time ever, mobile games in China took in more revenue than web-based browser games.

But China’s mobile gaming market isn’t quite as hot as it would appear at first glance.

While there’s plenty of money in the industry, most developers aren’t seeing much of it. Revenues may be at an all time high, but reports suggest that as few as 3 percent of China’s domestically-developed mobile games actually make a profit. The vast majority – 92 percent of them – lose money.

So the domestic mobile gaming industry is growing like a weed, but nobody’s actually making money. How can that be? Simple: China’s mobile gaming growth is just a reflection of the broader trend of smartphone proliferation. Is it any surprise that mobile games have outstripped browser games in a country where more people have smartphones than have desktops or laptops? Is it any surprise that mobile gaming revenues have jumped in a country that shipped 100 million new smartphones per quarter last year?

A Netease Games editorial puts it in blunter terms: China’s mobile gaming growth is “a parasite” that has been riding the growth of the larger mobile industry.

China’s smartphone market is expected to continue expanding for at least the next few years, which means mobile gaming numbers are likely to grow, too. But developers are already discovering that as more of China’s consumers get over the initial thrill of being able to play games on their phones, their standards rise.

Making games that are profitable, long-term hits is only going to get harder as consumer standards rise and as the game catalogs of app stores continue to expand. And given that it’s already extremely difficult to make money off a mobile game in China, that’s not a great sign.

In short: don’t be swayed by the impressive industry growth figures. Mobile gaming in China is getting bigger, but that doesn’t mean that life is getting easier – or more profitable – for the country’s mobile developers.

(Note: this article reflects my own opinion, but it was inspired by this Chinese-language editorial on Netease Games).