Aggressive China online game firms eye global crown

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(Agencies)
Updated: 2009-10-27 15:00

Armed with cash from recent listings, Chinese online game makers are gearing up to play in Western markets, challenging industry leaders Electronic Arts（EA）and Activision Blizzard on their home turf.

Having prospered at home, companies such as Changyou and Shanda Games want to take a page from China's export machine in sending their wares abroad.

Changyou, which raised $120 million in an April Nasdaq IPO, is in the final testing stage for its martial arts multiplayer online game, Dragon Oath, for the US market, making a commercial launch in end of 2009 or early 2010 probable. The company began testing the game in Europe in August.

Many US gamers still prefer consoles such as Microsoft's Xbox and Sony's PlayStation to online play.

However, analysts said a slow but sure shift toward online gaming, which allows for flexible formats, multiple players and can be played at any Internet terminal or mobile phone, is taking place and will benefit Chinese online game developers.

"The Western markets are changing, it is a console-driven market but I think MMOs (massively multiplayer online) games are the next wave," said Atul Bagga, an analyst at research firm ThinkEquity.

"EA and Take Two Interactive are strong on the console side but online gaming is a very different animal."

With more than 50 million online gamers, China is expected to corner more than 40 percent of the global market by 2011, according to research firm Samsung Securities.

Where Asian game operators have a head start is in their micro-transaction business model where gamers pay nothing for the game itself, but pay small fees each time they want to buy an upgrade, be it a map or a weapon. This differs from the current business model in the US and Europe which is subscription based.

Analysts said Chinese computer game firms such as Changyou and Percent World have the operational expertise and business model to take on global rivals. In September, Shanda Interactive spun off its gaming unit, Shanda Games, to expand overseas.

The US console market makes up about half the gaming market, with console software set to rake in an estimated $26 billion in revenue in 2009, according to Samsung Securities and UBS.

The online game sector is growing rapidly, with revenue expected to grow 21 percent to more than $13 billion in 2010, while revenue from video games fall 5 percent, according to Samsung Securities.

Perfect World derives about $2.5 million from its US operations every month, Bagga estimates, and trades at a relatively modest 12.9 times its 2010 earnings, according to data from Thomson One Analytics.

Changyou trades at 9.6 times, while Shanda Games and NetEase trade at 11.1 and 13.1 times respectively, versus the industry average of around 16 times.

Shares of Changyou and Perfect World are up about 120 percent and 170 percent respectively, while EA and Activision Blizzard shares are up 23 percent and 41 percent respectively.

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