PALO ALTO, U.S. -- The U.S. this year will surpass China as the largest gaming market by revenue for the first time since 2015, partly thanks to Beijing's freeze on new game approvals last year, according to a recent report.
The 2019 Global Games Market Report, released by gaming analytics company Newzoo on Tuesday, predicts the U.S. gaming market will generate $36.9 billion in revenue in 2019, up 21% from last year. China, on the other hand, is projected to book $36.5 billion in gaming revenue this year, down from $37.9 billion in 2018.
"A nine-month freeze on game approvals during 2018 in China left its mark on the domestic games market," said Tom Wijman, senior market analyst at Newzoo.
In March 2018, China halted approvals for the monetization of new gaming titles amid a reshuffle of the country's content regulatory agencies and criticism of games with violent content being "poisonous" to young people.
During the freeze, gaming companies could continue filing applications and distributing new titles, but they were not allowed to make money from those games through, for example, in-app purchases.
Application processing was not resumed until December, which meant Chinese publishers could not monetize any new games throughout most of 2018. This had a significant impact on the country's largest publishers, and an even worse one on small and midsize publishers in the country, according to Newzoo.
Tencent Holdings reported a 32% net profit drop in the fourth quarter of 2018 and its slowest annual profit growth in 13 years for all of 2018. The company is waiting for approval of some of its most highly anticipated mobile games, including "Fortnite," which slowed the revenue growth in smartphone games, Tencent's largest single revenue generator.
"More than any other segment, the mobile game segment depends on a steady string of new releases to keep players engaged," Wijman said.
Industry analysts estimate that more than 7,000 games are still awaiting approval in China, and regulators stopped accepting applications for new games in February this year to work through the enormous backlog.
The impact of this freeze will continue to be felt throughout 2019, according to Newzoo. But the research company estimates China will reclaim its position as the No. 1 video game market by revenue in 2020 after the effect of the approval freeze wears off.
In 2019, the global games market is estimated to generate $152.1 billion in revenue, a 9.6% year-on-year increase. The Asia-Pacific region is expected to generate $72.2 billion, accounting for 47% of total global game revenues, making it the largest gaming market by revenue for the second year.
But growth in the region will slow in 2019 compared with a year earlier due to the China licensing freeze. North America will become the fastest-growing market region this year with 11.7% growth, driven by a strong year in the U.S., the report said.
The U.S. market benefited in recent years from the success of console games, which will account for over 50% of all revenues there this year, Newzoo estimates.
"The current generation of console will have its two best years in 2018 and 2019 off the back of a consistently strong lineup of new releases, a growing user base thanks to the hype surrounding Battle Royale, and the Nintendo Switch outperforming expectations," Wijman said.