China’s Online Gaming Industry's Demographic Battle

I thought the following article by Russell Flannery was thought-provoking and a bit surprising actually, as it suggested the slowing or even stalling of the game industry in China. I certainly hope it's a temporary stall, because for my long-term career it is one of my goals to bridge the Asian and Western gaming markets, starting with China.

The article shifts to how games are developed in China. A lot of the times they are blatantly copied. I've seen it first-hand. It's unfortunate, but that's how they develop a lot of products, and not just with computer games. Walk any of the major market centers and someone will flash you a handful of copied operating system software packages for a "new laptop" he also wants to sell you.

Russell points out several options the Chinese game industry has to grow, including expanding into the TV/Film industry, as well literature-based projects. In the end, it will depend on how the Chinese game industry adepts to its current problems of piracy and respect to original IP. If they can succeed in creating a long-term solution that is foreign-business friendly, the industry will take off.

China’s online gaming industry has exploded into a multi-billion-dollar business in the past few years, fueled by growing numbers of young Internet users. Yet growth appears to be slowing. iResearch, one of China’s top Internet market research companies, says revenue growth industry rose only 8.8% in the second quarter of this year, down from about some 30% for all of last year. What’s ahead for the industry? Forbes talked to Xufeng Zhao, a senior analyst at iResearch. Excerpts follow.

Forbes: China’s online gaming industry industry has been enjoying double-digit growth for many years. Will it continue?

Zhao: You can look at the industry outlook from several points of view. Technologically, China is behind other countries. Marketing is about average. Companies’ understanding of customers is relatively low. Therefore, a reason why the industry has been growing has been because of growth in the population of online game players.

But that isn’t going to be growing as fast. Mao Zedong once talked about “glorious mothers,” and encouraged a lot of births. That has helped to increase China’s population from 400 million to more than a billion. Starting around a decade ago, it created a great opportunity for the online game industry, as children became old enough to play. Demand has been great, and companies didn’t need to think too much about content.

Now, those same people that had time to play games for so many years are older. They are getting married, and having kids. They’re under a lot of pressure. You need time to play games, and they don’t have time. My husband loves to play games, but he has no time. Even if the ads for these games are great, people don’t have time. The number of younger players isn’t likely to replace the number of older people that played a lot but no longer have much time. Growth in the industry is going to be slower.

Q. What companies are going to outperform?

A. We have to think of things in terms of first-, second- and third-tier companies. The third tier is companies that just copy others’ games. If you spend 500,000 RMB for a game, I’ll copy you and spend 50,000 RMB. It doesn’t take much money. Second-tier companies are thinking about their own brand, and whether they want to spend to have their own influence. First-tier companies have their own games and integrated production.

Q. Which companies in China are better positioned to succeed?

A. Companies that can integrate from games into other types of entertainment and platforms will perform best, but nobody knows the best way to do it. Disney has had success, but the starting point for companies here is different. Shanda has made many investments, and is trying. But will they succeed? It isn’t inevitable that they will.

Q. Companies such as Perfect World have been talking about expanding into films. What are the prospects?

A. Revenue for online gaming companies right now totals around 20 billion yuan annually. For films, it’s a growing but relatively small number. I’m not saying that gaming companies can’t make money from films but it will be relatively small and it will just be a way for them to package their games and other content.

Q. What will come of efforts by companies such as Shanda to create a literature business?

A. Whether any literature is successful will depend on how it’s ultimately packaged. It’s not only the value of any literature itself that involved. If Shanda only generates money from one-at-time sales, then it will be a failure. The greatest value from literature is that it is an invisible asset. The real question is how you can later integrate it into your production chain. How can you create more value from something that starts out as a book? So for Shanda, what I can say at least for now is that they are trying to do that — integrate. They are ahead of others.

Chinese Gamer Focus Group Findings

Nike Partners released a focus group finding last week that mirrored a lot of what I suspected was inevitably going to happen in China, not only in the communities that traditionally have been hardcore and more communal in general, but what's also been happening in the United States for years now.

Findings ranged from the migration of hard-core male gamers to F2P or casual games, as well as increasing boredom of Chinese hard-core gamers with existing MMORPGs such as World of Warcraft or EverQuest. And not too surprising given the increase in wealth of the Chinese, a tendency to play from home on fancy new gaming systems.

Niko outlines four key points that I'll respond to in turn (all of which are really quite obvious and expected without a survey from my own viewpoint):

Why spending per gamer is falling as the number of gamers is rising

The economy certainly has influence, as well as the continued growth in China's population. The migration from monthly (or in the case of the Chinese, hourly) fees to F2P games is surely another cause.

Why online game operators need to heed the success of SNS games

SNS games are being played more often, so online game operators naturally should account for this growth and tweak their services accordingly, if they want to survive and even profit from the transition.

What the differences are in gamer behavior between cities of different tiers

This is perhaps the most complicated of the four. I've been to all the major cities in China, and I have to say that each one is very different in any given category you wish to pick from, including the game industry.

For example, Beijing has a growing but a more classical gamer base, while Shanghai is rapidly becoming the hotbed of the Chinese game industry in both classical and new-age forms. I compare these two cities to Boston and New York, respectively.

What the reality is about Internet café usage

Chinese Internet cafe's are often a mysterious product of a low-income, gamer-rich culture. They are typically hidden away deep within the bowls of major cities, only being found by the hardiest and most desperate gamers out there.

I happened upon a few by accident and came across a rather low-key atmosphere. Everyone essentially kept to themselves, even though they were right next to each other. I would compare it to attempting to setup a game LAN party in your mother's basement, while your mother is home. It can be fun, but is obviously limiting.

With incomes gradually rising in China, I can only surmise that Internet cafe usage will steadily decline. However, I make some reservations on this, understanding that the density of Chinese cities afford a new way of looking at how one spends time outside of the home, irregardless of what is available in that home.

You can find the Niko press release on Gamasutra here:
http://www.gamasutra.com/view/pressreleases/61821/NIKO_PARTNERS_RELEASES_2010_CHINESE_GAMER_FOCUS_GROUPFINDINGS.php

Chinese Board Gamers

I usually write on this blog during the weekends, so it came as a bit of a surprise when I was searching for work related information related to Petroglyph's recent board game releases, when I discovered that Asians, especially Chinese, were quite the board gamers also!

There were several articles discussing how even hard-core computer gamers are ditching Internet Cafes and home computers and turning toward "Board Game Cafes". Think a bunch of tables with board games in a cafe and you get the idea. I picture it like my grandparents bingo halls, but a notch more "new-age".

While the Chinese have always had a fascination for classic board games such as Mahjong, Xiangqi (Chess), Go, and many others, they have taken interest in newer board games, including Petroglyph's own 'Panzer General: Allied Assault'. They are particularly interested in our fantasy version, Guardians of Graxia.

While in Shenzhen, I spent many hours stopping at board games being played randomly along the street and asked to join in. If you're interested in learning what Chinese gaming culture is about, you don't need to go to stuffy Internet Cafes. Sit down with a group of board gamers and you'll learn a lot more than you may expect.

Real names in China's online world

Who would have thought that the Chinese government would eventually require everyone to use their real names? Well, at least it's a surprise when it comes to requiring gamers to log into online chat rooms with them, officially starting August 1st. A few weeks ago we had a similar requirement in the United States, albeit briefly, by Blizzard. Outcry by forum users about their naming policy almost sent the entire industry into a war for a brief moment, but then cooler heads prevailed and Blizzard receded their policy.

So why is China pushing so hard on its policy, which in some cases has actually be in effect for months now? Population. China has an online video game user population of over 265 million, approaching that of the population of the entire United States. Revenue for online games grew by over 100 percent last year alone. With problems of population grow in all sectors, the government has found it much easier to control its citizens online if they, naturally, knew who they were. The crux of the problem though is identifying everyone.

It's meaningless to put into policy a system that can be easily circumvented by a quick change of ones name. One day I could be John, the next, Lee, and the next, Kent. Fortunately, China has little concern in implementing a state identification system. Once fully in place, real name policies will become the norm, and then policing of online games can begin. The question to ask is, it hasn't been needed in the United States, so really, why is it seemingly needed there?