Kings and dragons drive Apple in China, even as iPhone sales stall

Apple has a new driver of growth in China: animated dragons and warring royals. As sales of its iPhones slip in a fiercely competitive market, the company is seeing stronger growth in its services business; from lucrative app sales to iTunes and digital payments. Driving this growth are online games available through its China App Store, such as current hits King of Glory, Fantasy Westward Journey and Nest of Dragons.

These apps are taking on increasing significance as Apple looks to revive growth ahead of the 10-year anniversary of its first iPhone later this year, reports Reuters. China drove around half the revenue growth for Apple’s App Store last year. The company posted a surprise dip in iPhone sales in the first quarter, and revenue from Greater China dropped for a fifth straight quarter, by 14.1%. The iPhone has lost market share in China under competition from local rivals Oppo, Vivo and Huawei. It ranks fourth with around 10%.

Services, however, were a bright spot. “We had extremely strong services growth during the quarter in China,” CEO Tim Cook told analysts after the results were announced on Tuesday, adding the segment posted “double digit” growth. Revenue from Apple’s China App Store was more last year than that of China’s other app stores combined, according to app analytics firm App Annie. Apple takes a cut of all spending on or within apps via its store. But, as services sales rise, Apple faces new risks. China is tightening regulation of cyberspace, including online media, live streaming and gaming. On Tuesday, tighter rules were put in place for online news portals and network providers, the latest step in President Xi Jinping’s push to secure the Internet and maintain strict Communist Party control over content.

In April last year, Apple pulled its iBooks and Movies from China just weeks after they went live, citing regulations. Earlier this year, it also removed the New York Times app from its China App Store after a request from the authorities. Last month, Beijing’s cyber authority said it would call on Apple to answer violations it made in hosting live-streaming apps banned by the government. Apple’s gaming app business has also experienced setbacks due to tightening regulations. Rules introduced last year require a strict and lengthy licensing process for introducing games to Chinese app stores, barring developers outside China who don’t have a local partner.