Market Spotlight: Chinese Online Gaming

By RACHEL METZ AP Business Writer

NEW YORK — Fueled by rising Internet access and an increasingly diverse user base, the Chinese online gaming market is booming, and analysts think steady growth will keep it healthy for years to come.
About 43 million to 45 million people currently play multiplayer online games in China, said Pali Capital analyst Tian X. Hou.
These make up the vast majority of China's online gaming space, while casual games, which are more individual-focused and simpler, make up the rest.
Revenue from online multiplayer games has grown over 25 percent annually in the past few years, Hou said, and the games are on track to bring in $1 billion in China this year.
Andrey Glukhov, an analyst with Brean Murray Carret & Co., thinks China's total online gaming market could grow to about $2 billion by 2010.
"The established players in this market generate very, very, very nice cash flows," Glukhov said.
Companies _ some of whom license and run games, some of whom develop and run their own, and some of whom do all three _ are also betting growth will continue. Since July, Chinese online gaming companies Perfect World Co. Ltd. and Giant Interactive Group Inc. have joined a swelling crop of companies like The9 Ltd. and Netease.com Inc. that are trading publicly in the U.S.
The number of games has risen, too, and Susquehanna Financial analyst C. Ming Zhao said those developed in the country have started to dominate.
"The imported games, their market share is smaller and smaller," Zhao said.
There are plenty of potential customers in China to stoke this growth. According to Hou, a little less than 12 percent of people in China have stable Internet access, but she and others expect this number will rise and more consumers will join the fray.
Analysts attribute online gaming's rise in China to other factors as well, citing a lack of entertainment options and a culture that values group entertainment and mental challenges.
The relative cost of these games is also a factor, even as disposable income is growing in China. Many Chinese operators run free-to-play games, which mean users pay for things like items within a game that enhance and expand the experience. A user might spend $40 on a year's worth of online gaming, Hou said, rather than spending hundreds on a console system and games to go with it.
"From a cost and benefit point of view, online games have a better payoff," she said.
And while online game companies still have plenty of room to grow in China, many of these companies are expanding outside the country as well.
One aiming at the U.S. market is CDC Corp.'s online gaming business, CDC Games, which launched CDC Games USA in August.
Hou thinks American entertainment and gaming companies would be well-served by cooperating with Chinese gaming companies.
Referring to companies like Netease and Giant Interactive, Hou said, "we should really expect them to come to the U.S. one day."