China scores in online games
battle By Olivia Chung
HONG KONG - China's online-games producers
have managed to turn defeat into victory two years
after they declared war on foreign domination in
an industry that is expected to be worth more than
10 billion yuan (US$1.28 billion) in 2008.
According to US-based market research firm
IDC, China's revenue from online games reached
$817.5 million last year, up 73.5% from 2005.
Bryan Yuan, IDC's analyst responsible for
market research, said China's
home-grown online games performed so well that
they have taken the lion's share in the market for
the first time, defeating their European, US and
South Korean rivals.
"The steady growth
witnessed the revenue for domestic online games
[reach] as high as $529 million in 2006,
accounting for 64.8% of the entire online gaming
market in China. By comparison, the performance of
European and US online games, represented by World
of Warcraft, failed to see any significant
progress, while the market share of South Korean
online games shrank," Yuan said.
online-game titles accounted for 70% of the $290
million revenue in China in 2004, according to
China Game Publishers Association HK, which also
expected sales in the online-games market in the
country to reach 10 billion yuan in 2008.
At present, the most popular games in
China include NetEase's Fantasy Westward Journey,
a game based on the 16th-century Chinese classic
Journey to the West, which has 1.5 million
peak concurrent users (PCUs); Zhengtu Network's
in-house-developed role-playing game Zhengtu
Online, which regularly records 860,000 PCUs; and
Nineyou Information Technology's dancing game,
Audition, licensed from a South Korean game
company, which records more than 800,000 players
at peak times.
They are followed by The9's
World of Warcraft (WoW), developed by US-based
Vivendi Universal subsidiary Blizzard
Entertainment, which has 680,000 PCUs, and
NetEase's Westward Journey Online II, which has
Sze Yan-ngai, convenor of
China Game Publishers Association HK, attributed
the success of domestic online games to the
success of domestic online companies, which have a
better understanding of people's tastes and the
government's regulatory barriers affecting the
import of foreign online games.
online game market was previously dominated by
foreign developers, South Korean in particular, as
China and South Korea have lots of cultural
similarities," he said. "But South Korean games
have been criticized for being manufactured in a
rough and slipshod way."
biggest online-game provider, NetEase.com,
established in 1997, and the second-biggest,
Shanda Interactive Entertainment Ltd, established
in 1999, are mainland operators that focus on
running domestically developed games.
William Ding, NetEase founder and chief
executive, says domestic games based on Chinese
culture are more suited to Chinese customers'
tastes. He said: "For Chinese people, home-grown
games are like tea and the imported ones are like
coffee. Most Chinese will choose tea, I think."
At present, there are about 150 domestic
or joint-venture online-game operators, including
those doing game development and licensing, with
30 allowed to market and distribute online games
developed by foreign and domestic software
As well, the General
Administration of Press and Publication (GAPP),
which regulates China's burgeoning online-game
industry, has implemented policies to help
domestic game producers win a bigger market share.
"Since 2005, only 10-20 foreign-made games
per year have been allowed into the mainland
market, far fewer than the 40 or 50 that were
imported before," Sze said.
He added that
so far this year, only about four foreign-made
games have been allowed to enter the mainland
GAPP also encourages domestic
online-game producers to develop games on
nationalistic themes, expecting 100 games based on
Chinese history and heroes to come out between
2005 and 2009.
Sze said the increasing
licensing prices also make importing foreign
online games a risky and costly business.
"It costs online-games companies several
hundred thousand US dollars to license a game from
an overseas company, in addition to a
revenue-sharing agreement, so domestic online
companies prefer spending the money on game
development, which has led to the flourishing of
domestic online games," he said.
Meanwhile, different corporate management
between domestic and foreign companies has stalled
the development of the latter. For example,
Taiwanese companies Softworld and Softstar, two
major online-game operators in mainland China in
2000, have gradually moved their operation from
the mainland back to Taiwan, Sze said.
However, foreign producers are not so
quick to give up. Some companies, such as the
French firm Ubisoft and US-based Electronics Arts
(EA), which once balked at entering China's
piracy-plagued market, have stepped up efforts to
expand in the country.
Last July, EA
joined Guangdong Tianyue Network Technology
Development to introduce its popular casual game
Pogo to China. EA has also licensed Guangdong
Tianyue to operate a three-dimensional online
racing game called Tales Runner.
Hack, CEO of Los Angeles-based Vivendi Games, was
quoted by China Daily as saying that three of his
company's four units - Blizzard Entertainment,
Sierra Online, and Vivendi Games Mobile - are all
thinking about introducing new games into China.
Hong Kong-listed Finet Group announced on
Wednesday that it acquired Chinese online game
firm Hangzhou Tianchang Network Technology Co for
200 million yuan.
George Yu, chairman and
chief executive of the financial-information
provider, expected Hangzhou Tianchang's income to
reach more than 100 million yuan in 2008 from 40
million this year, given the promising online-game
market in China.
According to IDC, the
Chinese population of online subscribers who pay
for gaming totaled 17.03 million by 2006 and is
forecast to reach 39.46 million by 2011.
Yuan said paid users remain dominant among
online game users and average spending shows an
upward trend. According to results from the IDC
2006 China Gaming Industry Survey, 36.1% of users
paid for online gaming while 25.2% played games
free of charge. Among the players who didn't pay
for the game itself, 22% did not generate any
related expenditures, whereas 13.6% bought
commodities while playing free games.
However, Yuan warned of challenges facing
Chinese online-game companies, which include lack
of experienced programmers and funding.
"The China gaming industry is still young
and many newly recruited programmers lack training
and experience ... Game design and planning are
largely characterized by imitation, which needs
improvement, and fierce competition gives rise to
a high employee attrition rate," he said.
To raise funds, three leading online-game
companies in China - NetEase.com, Shanda and The9
- listed on the Nasdaq stock market in 2000, May
2004 and December 2004 respectively, which earned
revenue of $284.11 million, $60.27 million and
$133.05 million last year.
Chung is a senior Asia Times Online