Premium mobile games poised to rule the industry, new report forecasts

Newzoo's forecast aligns with major trends in gaming right now.

A player competes in the mobile battle royale title Free Fire on an Android smartphone.

Premium mobile games like battle royale hit Free Fire have become the dominant moneymakers in the industry.

Photo: Nasir Kachroo/NurPhoto via Getty Images

More than half of the $175 billion game industry will come from mobile games this year, forecasts market intelligence firm Newzoo in its annual industry overview in collaboration with Arm. And those mobile games will increasingly be high-fidelity, cross-platform games based on major franchises typically at home on consoles and PC.

Newzoo expects this shift to be responsible for the biggest transformation in the game industry over the next five years or so. Since 2017, when Newzoo first began analyzing the global game industry, "the mobile game market has experienced tremendous growth across the globe," and "mobile gaming continues to outperform PC and console as the biggest gaming platform," writes Tianyi Gu, Newzoo's market lead for telecom and mobile services.

In 2020, close to half of all game revenue came from mobile. In 2021, Newzoo expects that figure to rise from 48% to 52%, with mobile accounting for $90.7 billion. "With the rising trend of cross-platform games and established PC/console franchises coming to mobile, mobile gamers are increasingly looking for core gaming experiences on the touch screen," Gu said. "The growing appetite from consumers has pushed high-fidelity mobile games to the next level, thus demanding powerful mobile devices to support premium gaming experiences."

A chart showing what portion of the $175 billion game industry consists of mobile, console and PC revenue. The game industry is estimated to generate $175 billion this year, with mobile accounting for more than half for the first time. Image: Newzoo

Newzoo's forecast aligns with major industry trends in gaming right now, in particular the push to bring traditionally big-budget console and PC franchises to mobile. Electronic Arts is currently beta testing a mobile version of its battle royale hit Apex Legends and just in the last six months spent a combined $3.5 billion on mobile developers Glu Mobile and Playdemic.

Activision Blizzard's Call of Duty Mobile, in collaboration with Tencent's TiMi Studios, has been a huge hit, while other Tencent mobile-first games like Honor of Kings have become the envy of the industry. Riot Games last month said it would bring its new PC tactical shooter Valorant to mobile devices before it releases console versions.

But perhaps the most telling mobile success story has been PlayerUnknown's Battlegrounds, which became a smash hit on PC before competitors copied its core features. Then, after teaming up with Tencent, PUBG Mobile became the lifeblood of the series and one of the most successful mobile games on the planet.

There are a few reasons why big game publishers are flocking to mobile, and all of them have to do with the immense revenue potential of the platform. Newzoo's report says 94% of global gaming fans play on mobile, compared to about one-third on consoles and less than half on PC. Mobile is also the fastest-growing platform since 2018, jumping from about $63 billion in revenue to nearly $91 billion.

Another big factor is the consumer appetite for what Newzoo calls "high-fidelity" games, as well as how much money those games can generate relative to the kind of casual fare one might typically have found on smartphones five to 10 years ago. Although it's not exactly clear how Newzoo defines a high-fidelity game, it says these experiences are ones featuring cutting-edge graphics and a depth in gameplay consistent with a console or PC title.

In China, those types of games now make up 70% of the top 200 highest grossing iOS games. In North America, that figure is just 33%, though growing incredibly fast. In 2016, Newzoo says just 6% of the highest-grossing iOS games in North America could be considered high-fidelity. In Europe, the dynamics are almost identical to those of North America, meaning there's an obvious growth opportunity for more polished, better produced mobile games that rival.

The obvious way to do this is to bring established franchises to mobile for the first time, as we're seeing with many of the shooters and battle royale titles currently on mobile or with plans to release on smartphones soon. "The rise of cross-platform play is also playing a big part in removing barriers between devices, and it's worth noting that big franchises often need to be accessible on mobile to truly become global successes," Gu writes.

A PUBG Mobile player in India competes in the battle royale game, which recently relaunched in the country under a different name. PUBG Mobile has become one of the most successful mobile games in the industry, after the series initially became a hit on PC. Photo: Soumyabrata Roy/NurPhoto via Getty Images

The other emerging business strategy, Newzoo says, is to combine established franchises with novel genres and use mobile as a testing ground. "At the same time, mobile developers are learning from PC/console by introducing complex and immersive game genres to the touch screen, such as MOBA, strategy, racing, shooter and battle royale," Gu explains. "In fact, with mobile gaming's impressive growth in the past decade, a variety of genres have become more widespread on mobile than on PC/console."

Pokémon Unite, an upcoming 5v5 strategy game coming to the Nintendo Switch and mobile, combines the multiplayer online battle arena (MOBA) genre with the brand appeal of Pokémon. It is, unsurprisingly, developed by Tencent's TiMi Studios, ensuring the game is both built with TiMi's expertise (TiMi developed Honor of Kings, the world's most popular mobile MOBA) and guaranteed to have a strong presence in the China market.

Newzoo says the rise of cloud gaming and 5G connectivity will also help boost mobile over the next few years. The report estimates revenue from cloud-gaming platforms, including subscription revenue and in-game purchases, to grow from about $1.5 billion this year to $5.1 billion in 2023. Newzoo also estimates that the number of 5G-ready smartphones will grow from about 18% this year to 43% in 2023, ensuring a smoother and more performant cloud gaming experience.

"As the games market embraces a platform-agnostic future, enabled by cross-play and cloud gaming, consumers are increasingly looking for immersive and mid-core gaming experiences on the go. The continued proliferation of smartphones and internet access in growth markets will bring more players to the fold as well, leading to 3.2 billion mobile gamers by 2023 based on Newzoo's forecast," Gu concludes.

While China is ahead of the curve with regard to the trajectory of mobile gaming, "emerging markets and Western countries will play an increasingly important role in driving the growth of high-fidelity or next-gen mobile games," Gu adds. "In particular, the West is likely to follow China in shifting tastes more toward mid-core and core games as the young mobile-first generation matures."

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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