The spread of the new coronavirus in China is beginning to disrupt the global video game industry even as it receives a boost from the millions of Chinese players who are spending more time gaming while they are confined to their homes to reduce the risk of contagion.
China is key to the game industry’s supply chain with a third to a half of art creation for Western game developers done in the country, according to Jefferies estimates published in a research note on Tuesday.
The deadly coronavirus, which originated in mainland China and has killed 492 and infected more than 20,000 as of Tuesday, forced the central government to extend the Lunar New Year holiday and impose factory and business shutdowns until February 10 at the earliest in an effort to contain the outbreak.
Millions of Chinese employees began working from home on Monday but soon complained about the low productivity of working remotely after a surge in demand crashed office apps across the country.
Jefferies analyst Ken Rumph said many of the major Western game studios, including Electronic Arts, Ubisoft and Activision Blizzard, have operations in China or outsource to Chinese partners for art creation services. He estimates that if the disruption caused by the virus only lasts for weeks the developers could catch up, but not if it extends to months.
“If shutdowns exceed a month or so, game schedules will be delayed. New consoles may likewise suffer supply issues from a prolonged disruption, ahead of their Fall 2020 planned launches,” Rumph wrote in the note.
Domestic publishers will also likely experience delays in game approvals from China’s regulators, said Lisa Cosmas Hanson, president of gaming consultancy Niko Partners.
“China is important for manufacturing of some game hardware and components, and phones, and I think that the entire supply chain of manufactured goods will be impacted – much more than just games,” said Hanson.
Supply chain issues in the gaming sector are part of a wider disruption in the production of tech products, including smartphones, as a result of the coronavirus outbreak. Chinese phone brands such as Lenovo, Xiaomi and Oppo are likely to face operating issues due to manufacturing delays at factories and the temporary closure of retail stores amid the epidemic.
Apple has already closed its retail stores in China and the company is also taking steps to make up for production shortages, particularly in Wuhan, the central Chinese city where the coronavirus originated and home to some of the company’s suppliers, chief executive Tim Cook said on a conference call last week.
In the gaming sector, e-sports tournaments are being cancelled or postponed. E-sports leagues for PlayerUnknown's Battlegrounds, League of Legends, CrossFire and Crossfire Mobile have decided that matches scheduled for February in China will be postponed, citing public health threats.
However, there is an upside to the health disaster as far as the gaming industry is concerned. With the country’s residents confining themselves indoors in lockdowns and mandatory quarantines, they are using their idle time to play more games.
Over the Lunar New Year holiday, a sudden surge in players overwhelmed the servers hosting Peacekeeper Elite, a patriotic version of PUBG Mobile and one of the biggest games in the stable of Chinese tech giant Tencent. The company’s other blockbuster title Honour of Kings made about 2 billion yuan (US$285.7 million) on New Year’s Eve, a record for the hugely popular four-year-old game, according to a report by Sinolink Securities.
Honour of Kings and Peacekeeper Elite, which topped the iOS game revenue charts during the Lunar New week, both achieved an all-time peak for daily active users, according to Niko Partners.
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