Profits high from China's online
'opium' By Catherine
Jiang
SHENZHEN, China - Despite a recent
warning by a mainland Chinese Internet and online
gaming authority that the industry will be facing
stiffer government regulations it is clear that
the companies in the sector are on a sustained
climb.
Kou Xiaowei, deputy director of the
audio-visual and Internet publication department
of the General Administration of Press and
Publication (GAPP), recently warned that "although
China's online gaming industry has been hot in
recent years, online games are regarded by many as
a sort of spiritual opium and the whole industry
is still marginalized by mainstream society".
If "marginalized" means being consistently
listed on the Hurun and Forbes lists of richest
Chinese entrepreneurs, that’s probably
just
fine for someone such as Chen Tianqiao, founder
and chief executive of Chinese gaming company
Shanda, and his peers.
Kou himself had to
admit at the same January 2008 online gaming
industry forum, where he issued the stern warnings
about unspecified "tighter regulations", that the
capitalization of China’s nine domestic publicly
listed online game enterprises has exceeded 100
billion yuan (US$13.88 billion).
The
country’s online game market grew by 74.6% year on
year to 11.4 billion yuan in 2007 and is expected
to reach 18.7 billion yuan in 2008, according to
research by Chinese Center for Information
Industry Development (CCID), a Beijing-based
outfit that was the first mainland consulting firm
to be listed on the Growth Enterprise Market (GEM)
of the Hong Kong Stock Exchange.
Much of
the growth has come from the decision of the
largest competitors to push free network games.
NetEase.com, the country's second-largest provider
of online games, recently announced it will launch
a free-to-play game - companies earn their profits
from such games by selling items such as weapons,
rather from the time a fan spends playing.
"NetEase is the last major online game
company in China to move to the item-based model,"
said Richard S Wei, a mainland internet analyst
for JP Morgan, told AFP news service.
"In
the past, we went to the extreme and
overemphasized the time-based game model,''
William Ding Lei, chief executive of Nasdaq-listed
NetEase said in a recent statement announcing the
launch of the free-to-play game Tianxie II. "As
competition in the industry changes, users started
to like the free or item-based game model.''
Sohu.com Inc, China's third-biggest
Internet portal, said this month that
fourth-quarter profit more than doubled after its
new Tian Long Ba Bu online role-playing game
helped attract users. Net income rose to $15.1
million from $6.07 million a year earlier, the
company said. Sales climbed 90% to $65.3 million.
Tian Long Ba Bu players are offered the
martial arts program for free, with income coming
from the sale of items used in the game. Its
popularity has attracted advertising by China
Construction Bank Corp, Volkswagen AG and other
companies to Sohu's site, according to a Bloomberg
report.
In the past two years, all major
new online game releases on mainland China have
been item-based games, according to market
research firm IDC, which found in a recent survey
that most of the mainland's top 10 online games
last year were offered for free.
The
study, which drew more than 260,000 respondents,
also found the most anticipated online games
slated for release this year are item-based games.
"Free games help to significantly expand
and enhance the mainland's online game user base
and drive higher individual spending," said the JP
Morgan analyst in Shanghai.
More than
40.17 million people played online games by the
end of last year, up 23% on a year earlier. At
least half, or 22.36 million, were paying
customers, IDC said.
Average spending on
the free games of two major companies, Giant
Interactive and Shanda is about 100 yuan and 60
yuan per month respectively and higher than the 20
yuan to 30 yuan per month fees NetEase charged for
its time-based games, the JP Morgan analyst said.
One Shenzhen gamer, 28-year-old Dong Jun,
an employee of Digital China Institute, said he
used to spend 400-500 yuan per month on the
immensely popular pay-per-pay foreign-developed
World Of Warcraft (WoW) but has since initially
reduced his expenses with a free game called Chi
Bi – developed by China-based, NASDAQ-traded,
Perfect World. Chi Bi draws on the history,
warfare and turmoil of China’s Three Kingdoms
period (280-220 BC) for its action and appeal.
"With Chi Bi I only pay for upgrades and
not many of them," Dong said. "I quit WoW because
I was spending too much money on it and it was
also ruining my dating life. I like the history
and tradition and action in Chi Bi also. It’s more
familiar."
Another mainland game fanatic,
30-year-old Janson, said he also swore off WoW in
favor of free domestically designed games due to
financial pressure and his professional work load.
"I was paying 200 yuan a month for WoW and too
many hours," he said. "It was affecting my job
performance."
The IDC' survey found that
mainland-developed games were getting more
popular. There were 126 Chinese online game
companies in 2007, 33, or 35.5%, more than 2006.
Of the 76 online games released in the nation last
year, 53 were developed by domestic firms. Total
revenue from mainland-developed games reached 6.88
billion yuan last year, or 65% of the total
market. That total revenue was up 62% from 2006.
Catherine Jiang is a freelance
journalist based in Shenzhen.
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