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Online operators are on top of the game
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China's online game market is set to grow at least 20 percent annually in the next four to five years thanks to the increasing number of players who are spending more on the games.

While the game operators are aggressively marketing their titles, the game market is becoming less concentrated with more companies entering the fray, which may result in an industry consolidation within three years, according to latest industry reports.

The online game market in China generated sales of 12.8 billion yuan (US$1.75 billion) last year, an increase of 67 percent over 2006, according to iResearch, a Shanghai-based IT industry researcher.

"The major drive behind the robust growth is the rapidly increasing web population, while game operators are exploring more ways to dig deeper into players' wallets," said iResearch in a report.

The number of China's netizens grew 53 percent last year from 2006 to hit 210 million by December, which means the country is close to overtaking the United States to become the world's No. 1 by web population size, according to China Internet Network Information Center (CNNIC).

Nearly 60 percent of the web users (more than 120 million) have played at least one title in the past year, with an average of 7.3 hours spent on the online games every week. Twenty-one percent of them even played more than 10 hours a week, according to CNNIC.

At the same time, game companies are trying to attract more players by offering free-to-play games that are gaining in popularity.

It allows the operators to acquire players quickly, who then have to pay for the equipment to advance in the game.

One successful example is Giant Interactive Group Inc, operator of ZT Online which is a game with settings in ancient China and a focus on mythology.

According to International Data Corp, the game was voted the most popular online game in China in 2006, helping Giant Interactive to raise US$887 million in an initial public offering late last year.

Its success also lured other game companies, such as the country's top two online game operators, Shanda Interactive Entertainment Ltd and NetEase.com, to offer their free-to-play titles, or change the model of their previously pay-to-play games.

Giant Interactive ranked No. 3 in China's online game market last year, trailing NetEase's 18.7 percent, according to iResearch. Shanda led with 24 percent of the market.

Giant's rise, together with several other game companies that went public in the past year, has intensified competition and diluted the market.

The combined share of the top three operators last year dropped by five percentage points last year to 58 percent, according to Beijing-based Analysys International.

"More and more game companies are entering the competition on their self-developed titles, usually one or two well received ones," said Li Jiayan, an analyst with Analysys, adding the result will be more mergers and acquisitions in the industry.

Shanda has already launched a plan called Fengyun Project, for which it has budgeted two billion yuan to acquire the newly emerged domestic online games to add to its game pipelines. The requirements: Any game with more than 1.5 million players.

Overseas game companies are also looking for ways to set up their platforms, though current regulations on the Chinese mainland make it difficult for them to operate a game on their own. Among them, GigaMedia, a Taiwan-based game operator, has gained control of Shanghai-based T2CN, while Electronic Arts Inc is still seeking partners to operate its Pogo China portal after a former local partner broke up with it.

"It will be difficult for companies ranking after 20 to survive from this year," said iResearch in its report.

(Shanghai Daily February 1, 2008)

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