SEOUL/BEIJING (Reuters) - Flush with cash from IPOs and a lucrative online game operating business, Chinese companies are trying to expand into game development, breaking free from their dependence on foreign titles and boosting incomes.
After long relying on foreign hit games such as U.S.-based Activision Blizzard's (ATVI.O) "World of Warcraft" (WOW)
and "Kartrider" from South Korea's Nexon, China now wants to develop its own blockbusters and eventually lead the fast-growing market.
It may be a while before China overtakes South Korea, which dominates Asia's online gaming market, but there are growing signs that Chinese firms such as Netease.com (NTES.O)
and Tencent (0700.HK) are now in a strong position to compete globally and are catching up with rivals quickly.
Successful online games can generate earnings for years from monthly service fees, character customization and other micro-transactions and carry higher margins than classic console games. Developing games in-house
also reduces uncertainties over license contracts and renewals.
"We consider in-house development a sound business model, which brings relatively high margins," said Phyllis Sai, spokeswoman for Nasdaq-listed Chinese game firm The9 (NCTY.O).
The Chinese online game market may have had a late start, but it is growing faster than anywhere else. And China has huge potential with over 55 million online gamers -- overtaking the United States last year as the world's biggest Web user.
Analysts say the global online game market, estimated at about a fifth of the total video game market, is growing by
about 20 percent annually. The Chinese online game industry is forecast to more then treble to $10 billion in 2012, from $3 billion in 2008, according to Beijing-based iResearch.
Despite the robust growth, Chinese companies have been hurt by a lack of homegrown hit titles and their shares have swung whenever licenses for hit games such as WOW exchange hands.
But now Chinese firms have the financial muscle to compete globally, said Lan Hoang, CEO of Aeria Games & Entertainment, which offers Asian games in the U.S. and European markets.
"Although the current offerings are still lacking in quality...with time, we believe they will be strong competitors against current game development companies."
Among dozens of Chinese firms, Netease.com, Tencent and Perfect World (PWRD.O) are seen as forerunners.
NetEase saw its self-developed "Westward Journey Online" and "Fantasy Westward Journey" enjoy explosive
growth since 2002. NetEase shares have risen almost 60 percent this year to a record high in May.
Tencent has grown its game portal service while making money from servicing popular South Korean titles, and Perfect World has been successful with overseas expansion after it adopted South Korea-style development
methods in graphics and game controls.
CULTURAL ADVANTAGE
As the success of an online game depends on content that appeal to players' cultural backgrounds, Chinese developers enjoy a natural advantage at home and in neighboring Asian countries that China has historically influenced.
Article Source: www.reuters.com.
