Top 25 Public Games Companies Earned $50 Billion in H1 2018; Growth Rate Lowest in Four Years
The top 25 public companies by game revenues, tracked as part of our Global Games Market Report subscription, generated a combined $50.0 billion in H1 2018, an increase of +12% compared to H1 2017. This is the lowest year-on-year growth of the first half of the year since 2014.
H1 2018 revenue growth was primarily driven by the top 10 public companies, which grew at an average rate of +16% year on year. The top five companies grew even faster: +23% year on year. Due to the strong performance of the top five companies, their share of total revenues of the top 25 companies increased from 52% to 57%.
Both Q1 and Q2 this year showed average growth below last year’s, a sign of the challenges the industry faced in 2018 to date. Our recent article has more details on some of the games market’s recent triumphs and challenges and how they affected our revenue forecasts.
In the top 25, there were 13 companies that reported double-digit growth, as well as six that reported double-digit declines, highlighting the volatility of today’s games market. Nevertheless, the top six companies were unchanged from the same period last year.
China-Focused Companies Feel the Effects of the Country’s Game License Freeze
Despite recent policy changes in China, Tencent remains the undisputed number one in the top 25. However, the Chinese company’s Q2 earnings marked the first time in more than five years that it did not report double-digit year-on-year growth. Still, H1 revenues increased +20% year on year to $10.2 billion, driven by a strong first quarter. Tencent’s Q2 revenues increased +7% year on year, compared to +33% year-on-year growth for Q1. The challenging regulatory environment in China prevented Tencent from publishing and monetizing new games, including the popular PUBG Mobile.
On the other hand, Tencent’s main competitor in China, NetEase (#6), reported a decrease in revenues for H1. Due to its dependence on domestic revenues, we expect its domestic earnings will continue to decline in the second half of 2018. In fact, the second half of 2018 will be challenging for all companies that earn most of their revenues from China, as we expect the full impact of the government’s license freeze will become more apparent. For more on China’s recent, industry-disrupting policy changes, read this article.
Console Publishers Exceed Expectations, Partially Offsetting Mobile’s Reduced Growth
It was an incredible first half of the year for most console publishers, especially for the platform holders. Sony (#2), Microsoft (#4), and Nintendo (#9) all reported more than +20% growth year on year. Together, the three companies accounted for $10.8 billion in console revenues. Digital revenues, which include subscriptions to PlayStation Plus and Xbox Live, were an important growth driver. Nintendo’s efforts to grow its digital revenues are slowly but surely bringing results, representing 24% of its half-year revenues.
Third-party games made up the bulk of Microsoft’s growing digital revenues. Digital sales, in general, are a major growth driver for the American company, and revenues from Xbox Live and the Xbox Game Pass are also on the rise. Microsoft recently announced that Game Pass will be available on PC in the future, which will add a further boost to its revenues. What’s more, the company has been doubling down on its studio acquisitions recently, and multiple rumors point to additional high-profile acquisitions in the coming months, likely meaning more first-party console exclusives going forward.
Sony’s and Nintendo’s performances can mainly be attributed to a strong line-up of first-party titles. The PlayStation 4 enjoyed the release of first-party heavy-hitters God of War and Detroit: Becoming Human. For Nintendo, fan-favorite Donkey Kong Country: Tropical Freeze was released on Switch, while last year’s popular first-party games, such as Mario Kart, Mario Odyssey, and Zelda, continued to sell well. Looking ahead, Nintendo will continue to rely on its tried-and-true first-party franchises, with new Pokémon and Super Smash Bros. titles launching in H2 2018. We also expect digital revenues to increase for the company, given the recent release of its Switch Online service, which gives consumers access to Nintendo retro titles.
Following the retro trend, Sony announced the launch of the PlayStation Classic, a miniature version of the original PlayStation, which includes 20 pre-installed games. We expect this to further bolster the impressive revenues generated by the release of Marvel’s Spider-Man, which Sony revealed was the fastest-selling first-party game in PlayStation history.
EA (#8) and TakeTwo Interactive (#14) reported lower H1 revenues due to the lack of major launches, but both will almost certainly be offset by great performances from titles released during the second half of the year. In fact, TakeTwo recently announced that H2’s Red Dead Redemption 2 had the “single-biggest opening weekend in the history of entertainment”, grossing $725 million globally in just three days.
Mobile Market Presents Challenges for Many Publishers
Slower mobile game revenue growth directly impacted app store owners Apple (#3) and Google (#7), which grew +18% and +15% year on year, respectively. North America and Japan were major revenue drivers for Google. For Apple and Google alike, non-game app revenues grew faster than mobile game revenues in H1 2018.
Activision Blizzard (#5) reported that its mobile division King had record-high H1 results, but a downward trend is visible after it peaked in Q4 last year. NCSoft (#17) and new entry IGG (#25) are two of the strongest growing companies at +84% and +42% year on year, respectively. Both companies generated most of these revenues through a single, strong-performing mobile game: Lineage M for NCSoft and Lords Mobile for IGG.
Several Japanese mobile game publishers in the top 25, including Mixi (#19), DeNA (#23), and multi-platform publishers Square Enix (#16) and Konami (#20), reported a continuous decline of revenues and were unable to turn around poor results from the first quarter. On mobile, these companies typically rely on their current top titles. Revenue growth for these games, however, has slowed down or even decreased.
This article was originally published here on November 8, 2018.