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Let the Web-based Games Begin

Growing up without brothers or sisters was no problem, according to 23-year-old Leo Yang: he was too busy playing online games to feel lonely or bored.

"Some of my friends played 18 hours a day. They never left their computers, and had their meals delivered," said Yang, fingers flying over a keyboard instructing his online character, a winged blue sorcerer, to whack enemies with a glowing golden staff.

"Games are my main form of entertainment, and a great way to meet people," the young sales executive said at a Beijing Internet café decorated to resemble the City of Zion in the Matrix movies.

Yang, born after China introduced its one-child policy, is just one of the 14 million fans that propelled China's online gaming industry to revenues of 2 billion yuan (US$242 million) last year.

Industry watchers expect the Chinese market to grow 80 percent this year, as economic growth surges and new products are launched.

"China's one-child policy is one of the reasons for the market's growth in China," said DBS Vickers analyst Wallace Cheung. "There are many bored people whose only form of entertainment is online games."

The growth has been a boon to the South Korean companies that control 70 percent of the Chinese market, with titles such as the Legend of MIR series.

One company, Actoz Soft, claims 60 percent of the market.

But China's government is unhappy. Anxious to promote home-grown firms, Beijing is widely expected to introduce measures to prop up domestic developers, further tightening rules already seen as tough on foreign firms.

"I think China wants to grow its own game makers. The biggest threat we might face now is regulatory barriers," said Lee Jin-ho, strategic planning director at Actoz, which earns about 70 percent of its revenues from China.

Cheung agrees.

"There are signs the Chinese government will announce new rules in the first half of this year that will restrict the quota of imported games and give more room to domestic firms to grow," he said.

Despite the government's concerns, Chinese companies do very well selling Korean software.

Local operators, who sign up players, collect fees and run the computers, generally hold on to 70 percent of revenues. About 80 percent of that is profit.

Software developers such as Actoz get the other 30 percent, of which about half is profit.

Leading Chinese operators include website operator NetEase, which also develops its own games; Shanda Networking, which wants to follow NetEase's lead and list its shares on the NASDAQ exchange; and The9 Online.

Sales of online games account for almost half of NetEase's revenues.

Hoping to skirt restrictions and secure steadier revenues, some Korean developers are hoping to strike partnerships with Chinese firms instead of simply licensing their games.

South Korea's NHN Corp. formed a joint venture last year with Hong Kong's PCCW Ltd. to operate online games.

China and South Korea have similar gaming cultures, despite the gulf between them in technological prowess. More than 60 percent of Korean households have the high-speed Internet connections needed for graphically complex online games, compared with just under 3 percent in China.

But Internet cafes have become popular places for socializing in both countries.

Gamers in China and South Korea are also more likely to play online than their counterparts in Europe and the United States, who prefer playing on consoles from Sony, Microsoft and Nintendo.

In China, consoles are also seen as too expensive. Meanwhile, makers such as Sony have been reluctant to launch their products in a market notorious for piracy.

Analysts say both foreign and domestic game providers are increasingly facing the kind of piracy seen in the movie and music industries.

Because the typical online gamers in China are university graduates living in cities with paltry incomes of 2,000 to 3,000 yuan (US$240.96 to 361.45) a month, some of them log onto computer servers that pirate the most popular games, said Michael Tong, executive director of NetEase.

Pirates charge much less than the average market rates of around 5 yuan (60 US cents) an hour, players say. Some even offer games for free.

Tong and his peers, however, do not think piracy is a problem.

"Private servers usually have the capacity for 300 to 500 users. But the attraction of online games is the idea you can play with hundreds of thousands of users," Tong said. "Only the good games get pirated. Rather than hindering our growth, it promotes our games and it's flattering."

The limited number of players does not bother everyone, however. Yang freely admits, "I play pirated servers because they are free."

(China Daily May 8, 2004)

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