More buy-ups expected in mobile game market

China's mobile game industry will see more acquisitions while increased capital injection continues rising the market's entrance barrier, according to PricewaterhouseCoopers (PwC).

"No doubt, acquisition is the most efficient way to increase market share in a fast growing industry," said Sandy Xu, PwC China Entertainment and Media Partner.

"The acquisitions will benefit not only the platforms but also the developers. We will see more platforms to invest in early stage game developers or form strategic alliance with them," Xu added.

The mobile game market is estimated to post a compound annual growth rate of 11.8 percent over the next five years if the user base stays stable, according to PwC.

Alibaba has recently bought a stake in a U.S. mobile-game publisher, according to a Wall Street Journal report. Its main rival Tencent holds a leading position in China's online games market.

For Internet companies like Alibaba, they can compete in the mobile game market with advantages such as huge user base, convenient payment channels and safe data environment.

"However, companies need to understand that their own user bases sometimes do not target users of the other sectors in the mobile Internet industry," said Vincent Cheuk, PwC China Technology, Media and Telecom Partner.

"New entrants like Alibaba should introduce better service or better revenue-sharing arraignments to attract game developers and users to move to their platforms," Xu said.

As a surge of investment has greatly increased the valuation of domestic game companies, many Chinese companies have began acquiring or signing licensing arrangements with overseas game firms, which appear to be better deals.

The acquisitions of foreign game developers also help Chinese game companies enter overseas markets and introduce foreign elements in games offered in the Chinese market, Cheuk said.

However, mobile game companies still face challenges in financing and IPOs.

"Revenue recognition is an issue of widespread concern during a mobile game company's merger and acquisition or its IPO process," Xu said.

"Given that mobile games involve virtual item transactions, common issues include when revenues are recognized and whether they should be reported on a gross or a net basis."

Meanwhile, the buy-up may extend to smaller game workshops as mobile game companies find it increasingly difficult to recruit experienced programmers and art designers.

Many experienced programmers now tend to start their own businesses by setting up game studios rather than work for large organizations.

Recently, lots of large game companies established investment funds to buy minority stakes in start-ups, according to PwC.