Market Analysis: Online Games, Serious Money

cctv.com 09-29-2003 11:32

Today, Chinese teenagers aren't the only group devoted to online games, which cut across age groups, genders and professions in China. In only three years between 2000 and 2002, online games have developed into an industry with a market size larger than that of Chinese movies. In today's Market Analysis Segment, we will examine the latest developments in China's online game industry, and see what opportunities are left for domestic and oversea game corporations.

What are these people obsessed with in this ordinary Internet caf茅? They're playing online games. Online games made their d茅but in China in 2000, and immediately swept through China's large and medium-sized cities. Currently, particularly the younger generations in these cities are willing to fork out the cash for these new types of entertainment.

Chen Xiadi, Game Player, said, " I spend almost USD 120 every month. Playing online games can help me relax. Most of my friends play online games together.

Chen Ming, Internet Caf茅 Owners, said, " I think the number of online game players has been increasing in recent years. However, when I set up my Internet caf茅, only a few netizens were familiar with online games. However, since 2001, all game operators have been fighting over this market. Therefore, the number of players has doubled. "

The popularity of online games in China results mainly from the rapid development of China's telecom industry, the nation's huge netizen population, and the increasing numbers of Internet caf茅s.

Facts & Figures about China's Online Games Market

1, Netizens: 68 m

2, Frequent players: 17m

3, Weekly time consumption: 8.6 hours

Source: China Internet Network Information Center

The latest Internet development report released by the China Internet Network Information Center shows that the nation's netizen population has reached 68 million, 25 percent of whom frequently play games on the web, each spending 8.6 hours on average every week.

Yang Zheng, Vice President of Sina.com, said," I think there are two reasons that online games can develop in China. From a lifestyle perspective, Chinese people are getting richer; they need more activities and products to entertain themselves. Beside that, the rapid development of dotcom companies has also fostered China's online game industry."

There is no doubt that a new Spring is coming to China's online game sector. And this is also contributing a great deal to related sectors.

China's Online Game Sector's Contribution to Related Sectors (1 billion RMB)

1, Media and press -1.82

2, IT hardware -3.28

3, Telecom -6.83

Source: International Data Corporation

Currently, increasing numbers of China's protocols have switched their focus to the online games business, because it is becoming a new source of profit. Take NetEase as an example, the online game business makes up 30 percentof its yearly earnings.

Michael Tong, Executive Director of NetEase, said, "the growth in online game business is definitely very strong. If someone would be able to set up the right franchisee, then it will mean lot money in the future.

Attracted by the high returns, various types of investments have flooded into China's online games market. But, the overheated investment climate also raises the question of whether China's online games market will follow the lead of the burst bubble of China's dotcom companies between 2000-2002.

Recent Investments in China's Online Games Market

1, A JV set up by Sina.com and NCSOFT

2, Investment of US$ 40 m by Soft bank in Shanda Networking

3, China Telecom sponsored 21CN.com to launch online game channel.

Timothy Chan, CEO of Shanda, Networking, said, "I think the bubble in China's online game industry is different from that of the dotcom period. Because at that time we didn't really know why users should have to pay. But the current bubble can be only explained by the fact that supply is beyond demand."

Michael Tong, Executive Director said, " There is bubble that isn't similar to the dotcom's bubbles at all, because we are generating revenue and cash flows. There are strong cash flows for this business. The bubbles will be some of the weaker companies go down or bought by the stronger companies to relaunch the game."

Beside the bubble phenomenon, the issue of piracy is the biggest concern for most investors in China networking industry. Because of its individual features, there is no piracy problem in China's online game industry. However, some risks still do exist.

Despite the risks in the market, the opportunities are abundant, especially for western game corporations. Up till now, only two kinds of games have been imported from western companies, and both have failed in the Chinese market. China's online game market is dominated by South Korean games mainly consisting of role-play games or RPGs.

Kevin Bae, Manager of Marketing Service of Ncsoft, said, " South Korean has many historical similarities with China, specially in the area of culture. Games are very much culture driven. The cultural element is the most important for the companies who want to enter China's market. Localization is another important thing to consider.

Xie Wen, CEO of Homeway Information Technology Co., Ltd, said, " the market is still pretty new, immature and a lot of open fields waiting for products. In term of strategy, culture, history, educational games, there is a plenty room to grow. "

In the next three years, the market will balloon by an average of 50 percent annually, and will eventually grow to one billion US dollars in 2006. Whichever way you look at it, the game operators and providers are on fertile ground, ripe for development.

Editor:Zhang Wenjie  Source:CCTV.com