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Online gaming growing fast in China, study says
By Dan Nystedt

Revenue from China's online gaming market reached US$298 million in 2004, up 48 percent from a year earlier, and could quadruple by 2009 as Internet access becomes more widespread in the region, according to market researcher IDC.

The rapid growth in online gaming has also created opportunities for other industries, IDC said, including domestic game development and the creation of gaming applications for mobile phones, since China is the world's largest cellular phone market.

"Rapid Internet development has fueled the growth of online gaming, which has impacted various sectors like telecom, Internet, computer, software and consumer electronics," Grace Zheng, a senior analyst at IDC, said in a statement.

Online gaming revenue in China is set to reach US$1.3 billion by 2009, or growth of nearly 35 percent annually, IDC said. The figure includes monthly, weekly and pay-per-use charges for online gaming. It does not include the sale of "virtual" gear for game characters, such as weapons and clothing, a fast-growing business in China.

IDC crowned "The Legend of Mir II," a game from South Korea that requires users to band together and fight off monsters as they try to rebuild human civilization, the top revenue generator. Shanda Interactive Entertainment Ltd., which markets and operates Mir II in China, saw its own game, "The World Of Legend," take the number three spot. South Korean-made games dominated the top ten list.

Young people between the ages of 19 and 30 accounted for more than three-quarters of the estimated 20.3 million people playing games online in China, according to IDC. Multiplayer games were most popular, it said.

Bill Bishop, chief executive officer of Chinese game developer Red Mushroom Studios, said one of the fastest growing areas of revenue for online game companies in China is the sale of virtual gear for game characters.

Unlike U.S. consumers, who may pay $50 or more for a game, consumers in China, where software piracy is rampant, are unwilling to pay high prices for games, Bishop said. Therefore, companies have had to be creative in finding new sources of revenue. Selling virtual items has grown into a major market, and players even sell such items to each other to move through a game faster. "There's really a sort of mini-economy growing up around this stuff," Bishop said.

One of the hottest new games aimed at consumers willing to pay for virtual goods is "O2Jam," a karaoke game that lets players create their own cartoon character and pay real money in return for clothing and other items for the character, said Shang Koo, editor at Pacific Epoch, a research company focused on China's IT industry.

The spread of broadband has been one big factor driving change in China's online gaming business, Koo said. In households with broadband, parents are using the Internet for card games and mah-jong when their kids are away from their computers, he said.

Meanwhile, the mobile gaming market has become the "secret weapon" for many developers and operators in China, IDC said. Faced with huge potential, industry players including game developers, operators and handset vendors are developing initiatives to take advantage of the expected growth, IDC said.

Mobile phone makers such as Motorola Inc. and Nokia Corp. are working to improve handset performance to handle gaming functions, while local portals like Sina Corp.'s Sina.com have expanded into mobile gaming and launched special gaming channels and columns for their sites. China's largest gaming vendor, Shanda Interactive Entertainment Ltd., even acquired Digital-Red Mobile Software Co., Ltd., a Chinese mobile device-based game developer.

Other research groups have painted an even rosier picture of China' s online gaming market than IDC.

San Francisco-based Niko Partners LLC predicts China's online gaming market will reach US$2 billion by 2009, up from US$467.8 million last year, and grow at an annual rate of 34 percent per year over the five year period.

IDC is owned by International Data Group, the parent company of The Industry Standard.

Posted April 4, 2005 02:54 PM |