Tencent Holdings (NASDAQOTH: TCEHY) is the world's largest video game company, with a massive catalog of PC and mobile games that alone accounted for 15% of the gaming industry's global revenue in 2018.
The tech behemoth -- which also has a powerful presence in the worlds of social media, music streaming, e-commerce and web portals, among many others -- was able to maintain its leading position in video games despite a government crackdown in China, its most important market. In an effort to combat what it views as a dangerous trend of video game addiction, Beijing imposed a nine-month regulatory moratorium on new games, and declared that children under 12 years old in China would not be allowed to play video games for more than an hour a day, while minors 12 and older would be limited to two hours.
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Those policy moves dragged on Tencent's revenues, which in the first quarter grew at their slowest pace in over four years, but analysts expect the gaming giant to see its popular titles begin generating more money in the back half of 2019.
A massive global market
Tencent's global leadership is not surprising since it dominates in China, the biggest single video gaming market. According to data from Newzoo, 619.5 million people in China played video games last year, and they spent $37.9 billion on them, 60% of which went to mobile games.
By comparison, in the U.S. -- the world's second-largest video gaming market -- 178.7 million players spent some $30.4 billion, which means that they spent almost three times as much per capita as their Chinese counterparts.
Despite Tencent's commanding position, which it has held for six years running, the video game market is rapidly expanding, and Newzoo says the top 25 companies in the industry account for 80% of its $134.9 billion in total revenue. But the power is really concentrated in the hands of just a few companies: The top six outfits generated almost half (49%) of all revenue.
Based on Newzoo's analysis, here are those top six companies in order of video game revenue generated in 2018:
New outlets coming
If both maintain their current growth rates, Sony will overtake Tencent as the most lucrative gaming company in a couple of years. Meanwhile, though video game revenues at Apple and Alphabet significantly lag behind the two leaders (Apple slipped behind Microsoft this year) both are actively expanding their efforts in the market, which could soon push them up the list.
Later this year, Apple will launch Apple Arcade, a video gaming subscription service that will be accessible across iPhones, Macs, iPads, and Apple TV. Its more than 100 titles will include Sonic the Hedgehog, as well as games connected to Lego, the Cartoon Network, and other brands. Pricing has yet to be announced.
Similarly, Google is launching a video game streaming service this year called Stadia that will also be available across smartphones, PCs, tablets, and smart TVs. It will offer instant access to games, with no need to download or install any software. And in a clever touch, Stadia will be linked to YouTube: If you're watching a video of someone playing a game, you'll see a "play now" button that will allow you to instantly start a game too.
Google has also launched a new in-house game development studio, Stadia Games and Entertainment.
Get in the game
Right now, video games are riding an unrelenting wave of growth. With popular variants like esports gaining greater traction, and tech giants expanding the number of ways players can experience video games, this appears to be a market that is far from peaking -- which means there remain plenty of opportunities for investors to profit from this industry.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Apple, Microsoft, and Tencent Holdings. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.