China is the world’s next video game streaming hub

Business & Technology

Computer gaming is moving to the cloud. Tencent and other Chinese companies look set to dominate the next generation of networked games.

Illustration by Derek Zheng

Cloud computing, which refers to servers accessed over the Internet, has changed the way information is stored, analyzed, and consumed. By allowing anyone with a decent internet connection to enjoy the privileges of powerful computers without the wires, metal, and silicon once a mainstay of office life, cloud computing is well-positioned to disrupt old industries and birth new ones.

Enter cloud gaming, a fast-growing industry where games — particularly elaborate ones that demand significant computation — can be beamed right into one’s phone or computer through the cloud, i.e. a remote server. Although many games are already played on remote servers, cloud gaming would eliminate the need for the users to own high end hardware or download significant amounts of software.

In the past few years, U.S. internet companies like Microsoft, Google, Amazon, and Nvidia have all tested cloud gaming services in a $630 million global industry. Chinese tech giants such as Tencent, Alibaba, and Tik Tok’s owner ByteDance are following suit. Their competing efforts are already leading to a seismic shift in the gaming industry, where games no longer require disks, downloads or clunky gaming consoles; they’ll simply be streamed. The winner will be to video games what Netflix is to movies.

On Friday, Tencent’s research division and Newzoo, a gaming market consultancy, released a report (in Chinese) on “the latest developments in China’s cloud gaming market.” Here are the takeaways:

China is set to become the world’s largest cloud gaming hub. The report concludes that the fledgling industry in China is set to grow at an annual rate of 138% in the next two years, surpassing the global average of 101%.

  • Newzoo estimates that the global cloud gaming market will grow seven-fold in the next two years, totaling to $5 billion.
  • Cloud gaming is bouyed by expanding access to 5G. China is expected to reach 913 million active smartphone users with 5G by 2023, according to the report.
  • This year, an estimated 60 million Chinese will use and pay for cloud gaming services.
  • In China, patent filings on cloud gaming technology surged more than 80% in 2019. The main contributors include Tencent, NetEase, a leader in PC and mobile games, and China Mobile, the world’s largest mobile network operator.

Mobile games are by far the most popular in China.

  • About 70% of China’s $44 billion gaming revenue in 2020 came from mobile games.
  • Even Pinduoduo, the e-commerce platform that recently surpassed Alibaba in monthly active users, relies on mobile games to keep their users engaged on the app.
  • Cloud gaming is a popular solution to the low storage and low computing capacity issues endemic to mobile devices. They allow for elaborate, highly immersive games to be enjoyed right on the phone screen.

Cloud gaming may disrupt internet cafe culture and inspire new living room activities.

  • By eliminating the need for hardware equipment, cloud technology may also disrupt China’s popular Internet cafe culture. In 2016, there were a total of 146,000 Internet cafes across China, roughly 200 per city.
  • The living room, a space that has taken on added importance during the pandemic, is a prime marketing opportunity for cloud gaming. As of March 2020, according to China Internet Network Information Center, 297 million Internet users in China accessed the web through their TVs. Tencent and China Mobile have already begun to develop cloud gaming products designed for television.
  • According to the Tencent’s market research, there are two types of early adopters in the cloud gaming market: “adventurous geeks” (极客尝鲜型) and “hardware seekers” (硬件刚需型). The former are eagerly waiting for the next big thing, while the latter are seeking out hardware improvements and thus may be open to trying cloud gaming alternatives.
  • Ultimately, content is king: The best way to engage users and retain them is to offer good games.

Cloud gaming remains in its infancy despite lots of untapped market potential. So far, without a profitable business model or a serious profit-making cloud game, they serve as a mere alternative rather than a replacement of the existing gaming industry. Yet with heavy investments in cloud gaming infrastructure and numerous native cloud games on the horizon, video game paraphernalia may be a thing of the past.