From a macro point of view, the current game market has entered the stock era from increment, and the core of traffic growth gradually tends to "content product boutique + brand siphon effect". Under the background of this market, integrating into the new wave of the development of digital economy and showing the positive potential facing the future has become the inevitable way out for the development of domestic game industry. This also makes "meta-universe", "going out to sea" and "differentiation" become important keywords for the development of the domestic game industry in 2021.

The entrance of meta-universe

Since Facebook Inc changed his name to Meta and made an all-out bet on meta-universe this year, the global Internet industry has set off a "meta-universe upsurge". Because the core of the meta-universe is a virtual space based on the real world, and the product form of the game is similar to that of the meta-universe.

Therefore, the game is the underlying logic of the meta-universe to build the virtual world, and the meta-universe is also a further extension on the basis of the game. Therefore, the game is also known as the entrance of "meta-universe". Excavating the changes that have taken place in the game industry this year from the perspective of "meta-universe" will help investors to understand the frontier trends of the follow-up development of the industry.

In terms of hardware, the game hardware related to the meta-universe concept is nothing more than AR and VR devices. In recent years, with the gradual improvement of C-terminal acceptance of VR and AR devices, the path of cost reduction has been identified, and the commercial feasibility of metacosmos access equipment is about to be verified.

As a result, the preference for XR devices in investment and financing activities in the game sector has significantly deepened this year. Since the fourth quarter of 2020, a number of VR/AR content and hardware companies have completed large amounts of financing. For the whole of 2021, the industry's large M & An investment showed a rapid growth trend, and ushered in an investment and financing boom in April, August and November.

According to incomplete statistics, there were 29 global VR/AR investment and financing events in November 2021 alone, of which 12 were domestic, of which Kunyou Optoelectronics, which completed nearly 400 million yuan of B+ round financing, ranked first; 17 foreign financing, and Ultraleap jointly led by Tencent Investment, British Patient Capital and China Merchants Bank ranked first with D-round 's US $82 million. It is worth mentioning that last year, the investment and financing amount of VR/AR industry was only 2.1 billion yuan, a total of 54 projects. In other words, the total amount of financing in these three months is higher than that in the whole of last year.

From the point of view of the investment target, with the upsurge of the concept of meta-universe, the game industry, as an important driver of the ecological development of meta-universe, is also focusing on its participation. Many domestic game companies have laid out related fields of meta-universe, and the existing layout is mainly divided into four parts: underlying architecture (such as block chain), back-end infrastructure (such as 5G, cloud), front-end devices (such as AR/VR, wearable devices), and scene content (such as game content).

Statistics show that about 40% of China's listed game companies have different areas of meta-universe business layout, including Tencent (00700), NetEase, Inc (NTES.US), Century Huatong (002602.SZ), Mid-Mobile Games (00302) and China Qingbao (300052.SZ) and other representative game companies, in addition to the content layout, some enterprises also have significant investment in XR, artificial intelligence, cloud field. Zhitong Financial APP observed that among A-shares, game stocks account for about 24% of meta-universe concept stocks, while consumer electronics account for about 19%, nearly half of the total.

In the Hong Kong stock market, Tencent is undoubtedly the investment target closest to the concept of meta-universe. Judging from Tencent's own technical reserve, the data show that Tencent has more than 24000 public patent applications in the field of meta-universe in 126 countries / regions around the world. Among them, invention patents account for 99.74%. Tencent's patent layout in this field is mainly focused on data processing, block chain, server, artificial intelligence, image processing, virtual scene and other professional technical fields.

On the content side, the closest trend between Tencent and meta-universe is that the platform and content business enterprise group (PCG) have successively launched three types of "meta-universe" products: NokNok, a game social product that focuses on pixel style, Q-dimension, which focuses on interest, and QQ channel function, which is being tested internally by QQ.

It is not difficult to see that domestic game enterprises have corresponding development in the two essential rules and computing power of meta-universe, which also means that the application scene of domestic meta-universe will land faster in the future and has a certain investment prospect.

The game "going out to sea" has become an important trend.

Similar to the development of domestic innovative drugs, after the domestic game market is affected by the release of version numbers and the slaughter of the stock market, a large number of game companies begin to seek products to go out to sea, in order to maintain their own upward growth curve by expanding overseas markets.

According to the data of the "White Paper on Global Mobile Game purchases in the first half of 2021" released by AppGrowing, the growth rate of domestic mobile games going to sea has shown a rapid growth trend in recent years, reaching 33% in 2020. The growth of the market has put forward higher requirements for the fine operation of products and data-driven.

According to App Annie estimates, spending on mobile games is expected to exceed $120 billion in 2021. In the first half of 2021, 810 games spent more than $1 million per month on average. It can be seen that mobile games are still a booming market.

In this market, China Mobile Limited games continue to grow and now account for 23% of overseas user spending. On the other hand, the spending of China's overseas mobile game users accounts for the share of the overseas mobile game market, growing steadily at an average annual rate of three percentage points compared with the same period last year.

In the first half of this year, the spending of overseas users of Chinese mobile games increased by nearly 47% year on year. In the regional head market, China Mobile Limited's performance is also impressive, such as a total of 8 games entered the top 30% of the list in the United States in the first half of the year. Latin America and Japan have also become a new focus for Chinese companies, with an increase of more than 20 per cent compared with before the outbreak.

Judging from the data in the second half of this year, in terms of overseas manufacturers and products, Miha Tour returned to the top of the list of overseas issuers. According to sensor tower data in November, the overseas revenue of "original God" mobile increased by 60.5% compared with the previous month; Tencent "PUBGMobile" accounted for 21.8% of the income from Turkey, surpassing the United States for the first time to become the highest income market; Xinxin Network re-entered the Top30, mainly from the Southeast Asian market income contribution. Pupil technology "Mobile Legends" continues to improve market revenue in Indonesia and Malaysia, driving manufacturers to rank into TOP10.

For the whole year, the actual sales revenue in the overseas market of China's independent R & D games reached US $18.013 billion in 2021, an increase of 16.59% over the same period last year, although the growth rate decreased by about 17% compared with that in 2020 when the epidemic was severe. However, the average growth rate of the share of games going to sea in China has increased steadily in the past five years.

Among the major game companies going out to sea, the main investment targets of A shares are: Panax Notoginseng Mutual Entertainment (002555.SZ), Perfect World (002624.SZ), Thunder games and roaming networks (002174.SZ) under gigabit (603444.SH). It ranks 4th, 18th, 22nd and 23rd respectively on the list of Sensor Tower Chinese games going abroad. The main investment targets of Hong Kong stocks are Tencent, IGG (00799) and Heart Company (02400).

Differentiation of channel and content

When the increment of game users slows down, it means that it is difficult for the whole market to have new incremental space, and the stock competition has become the mainstream of the market. Judging from the current market situation, the development of the game industry has been in a gradual trend.

Data show that the number of game users in China has maintained steady growth in 2021, reaching 666 million users, an increase of 0.22% over the same period last year. At the same time, the actual sales revenue of China's game market in 2021 was 296.513 billion yuan, an increase of 17.826 billion yuan over 2020 and an increase of 6.40 percent over the same period last year.

Under the background of the increasingly fierce competition in the stock market, the content begins to have a certain say, which also drives the channel and content to differentiate in the domestic game market.

Zhitong Financial APP observed that in September this year, the century trial of "Epic VS Apple Inc" ushered in preliminary results. According to the verdict, Apple Inc (AAPL.US) will no longer be allowed to prevent developers from directing users to use third-party payments from December 9 this year. This means that there is a breach in Apple Inc's 30 per cent tax policy. Since then, on a global scale, the relationship between channels and manufacturers is being reshaped, and manufacturers are no longer subject to the traditional inclined sharing mechanism, such as 37-7, 50-50, and so on. This year, the cut of some channels has dropped to 20% and 30%.

From a macro point of view, the current game market has entered the stock era from increment, and the core of user traffic growth gradually tends to "game content boutique + platform brand siphon effect". With the rising cost of game development and the formation of a new generation of manufacturers and channels, the era of content-oriented games has come.

Therefore, in the current node of the transition from "channel is king" to "content is king", Heart TapTap, an outlier in the domestic Android distribution channel, has received more attention. Different from Apple Inc's compulsory cut and the "50-50%" policy adopted by the domestic hard-core alliance, the core operation strategy of TapTap is "zero share of non-intermodal transportation". Compared with other channels that rely on the draw model, the biggest difference of TapTap is that it does not do game intermodal transport business and only charges advertising fees.

Zhitong Financial APP learned that at present, the number of monthly active users of TapTap has exceeded 25 million. In addition, high verticality, activity and high quality have always been the core features of TapTap users, which further magnify the video content delivery value of TapTap, which also makes Xinxin a good investment target in the field of distribution channels in the era of high-quality games.

In terms of game content, the advantage subdivision track is becoming an important breakthrough for the major game enterprises to develop into high-quality products.

From the point of view of the market audience, the demand for segmentation is in a stage of continuous generalization and expansion. if the manufacturers' products can seize different degrees of innovation opportunities, they can accurately subdivide the racing enclosure on the track. Use a new product to establish a new integration of the product and theme, and tear a hole in the category influence of the old product.

Since the beginning of this year, Tencent, NetEase, Inc, and Perfect World, three manufacturers who play an important role in the domestic game market, have launched a new round of intensive reserve products, and a total of nearly 100 new games will be launched gradually in the next two or three years. On the whole, the basic sets of these three future products show the characteristics of a full range of products and excellent products, including the open world, second dimension, female orientation and other sub-categories.

As mentioned above, the current game live broadcast market has entered the stock era from increment, and the core of traffic growth tends to be "content product boutique + platform brand siphon effect". The "meta-universe", "going out to sea" and channel content "differentiation" reflect that the current game industry is actively looking for three major directions to achieve a breakthrough from the stock market, and investors may be able to find a weather vane for in-depth investment in the game industry in the future from these three keywords.