CITIC Securities released a research report stating that the gaming industry in 2025 is experiencing robust growth driven by strong demand and supply, with continued upward momentum expected in both market activity and profit margins next year.
On the supply side, an increase in game license approvals (up 23% YoY in the first 10 months of 2025) supports future revenue streams. Major players like Tencent (00700), NetEase (09999), and miHoYo are rolling out new games at a rapid pace, while mid-sized developers are innovating with hybrid genres (e.g., SLG + puzzle, creative card games, and emerging female-oriented titles). The weakening bargaining power of distribution channels and AI-driven marketing efficiency are further boosting profit margins. Additionally, AI is now widely integrated across game development and operations, as evidenced by company financial reports, enhancing efficiency in both areas.
Key insights from CITIC Securities include:
1. **Sustained High Growth and Rising Profit Margins** The gaming industry has maintained strong momentum in 2025, with the market expanding nearly 20% in H1, building on a base of hundreds of billions in revenue. The surge is attributed to increased at-home leisure time and rising demand for online entertainment, driving China’s self-developed online games to grow 30% YoY to ¥120.1 billion. While blockbusters like *Genshin Impact* contributed to growth in 2021, user growth plateaued (0.22% YoY), and shorter at-home periods slowed market expansion to 8.30% in H1 2021. Subsequent declines in H1 2022–2024 were due to factors like youth gaming restrictions and license controls.
2. **Supply-Side Expansion** - **License Approvals Doubled in Two Years**: From January to October 2025, 1,441 domestic and imported game licenses were issued, up 24% YoY (1,354 domestic, +26% YoY). Monthly approvals peaked at 166 in August, the highest since the license resumption in April 2022. Import licenses averaged 10 per month, with approval frequency increasing from bimonthly to monthly. - **Faster Approval Process**: The review cycle has shortened to under three months, thanks to streamlined procedures and reduced backlog. Policy support has also warmed, with national and local initiatives promoting cultural exports, tax incentives, and simplified approvals.
3. **Demand-Side Resilience** - **Time Allocation**: Games cater to diverse time needs, from 5-minute mini-games (e.g., WeChat mini-games) to 1-hour+ immersive experiences (e.g., *Black Myth: Wukong*). Hybrid genres like MOBA (*Honor of Kings*), FPS (*Delta Force*), and strategy (*Three Kingdoms Tactics*) dominate different playtime segments. - **Monetization Flexibility**: Games cover a wide price range, from daily ARPUs under ¥1 (puzzle/casual games) to over ¥10,000 (*Three Kingdoms Kill* premium items). H1 2025 per-user gaming revenue rose 13% YoY to ¥248, driven by increased playtime and budget allocation.
4. **2026 Outlook: More Supply and Genre Innovation** - **New Titles**: Licenses issued in 2025 (e.g., *Delta Force*, *Supernatural Squad*, *Staff & Sword*) will fuel 2026 releases. Companies are focusing on high-quality projects, with Tencent and NetEase leading in RPG (*Below the Others*), open-world (*Infinite*), and female-oriented action (*Code: Bang Bang*). - **Profitability Boost**: Strong H1 2025 performance (revenue up 22–29% YoY, net profit up 49–112%) has enabled higher R&D investment. Firms like ST Huatong and Giant Network are scaling teams, with R&D spending up 45%+ QoQ in Q3.
5. **Industry Shifts** - **Marketing**: Traditional user acquisition is declining in favor of content/community/livestream marketing (e.g., *Eternal Disaster*’s 3B-view TikTok campaign). TapTap and Huya’s outperformance reflects this shift. - **Distribution**: Legal rulings (e.g., *Fortnite* vs. Apple) challenge traditional app store revenue splits (30–50%). TapTap’s zero-commission model is gaining traction, as seen with *Supernatural Squad* and *Staff & Sword* bypassing Android stores. - **AI Integration**: AI aids asset generation (ST Huatong: 60–80% efficiency gains) and localizes tools (Perfect World’s AI agent platform).
**Risks**: Weak IP protection, slow AI advancement, R&D hurdles, delays, rising marketing costs, talent attrition, and regulatory changes.