May 14, 2004 5:16 AM PDT

Online-game developers eye China market

LOS ANGELES--China is still the mysterious East, at least if you're trying to sell computer games there.

A panel of gaming and Internet industry executives at this week's E3 game trade show here agreed that China is a potentially huge market for online computer games, but one that's hindered by a maze of regulatory, cultural and business factors.

China has largely missed out on the first few chapters of the gaming boom because of economic limitations. Few of the country's 1.4 billion citizens can afford a game console or a PC. At the same time, widespread piracy has resulted in few companies wanting to release game software in Chinese. The problem has also led to the limited distribution of Western movies, music and other entertainment.

Online gaming represents a new type of opportunity, however. As in other parts of Asia, online games are typically played in Internet cafes, alleviating the need for people to invest in expensive hardware. And because game software is typically given away to induce players to sign up for a subscription-based online account, piracy is much less of an issue.

"You can't just translate Western games and dump them into China. You've got to get local to have big success."
-- John Needham, CFO,
Sony Online Entertainment

China currently has an estimated 68.3 million Internet users, according to studies by research company Parks Associates, and 14 million of those regularly play online games.

Yet getting into the market is a multifaceted challenge for Western game developers, partly due to a mix of bureaucratic barriers that make it difficult for any foreign company to do business in China. "It's a set of intricate filing and approval requirements you have to deal with," said Joon S. Oh, director of business development for FGOG, a Shanghai-based game developer. "Maneuvering these approvals and licenses is a big reason why foreign companies need a good local partner."

Government censorship imposes further restrictions for any content that pushes cultural or political boundaries.

"Chinese developers usually have a very good grasp of what the government will let them do," said Michael Tong, executive director of online-gaming service provider NetEase. "Porn you cannot do. Violence is less of a problem."

Western game developers who want to adapt their wares for China also face a growing push to develop homegrown content. "Major Chinese companies are trying very hard to make their own games," said Eric Kwan, business planning manager for Korean game developer ActozSoft. "There's still room for licensed games to succeed, but each company is trying to do its best in the Chinese market."

For Western game makers who do try to penetrate the Chinese market, it takes more than translating text into Mandarin to succeed. Games have to reflect local tastes and sensitivities that most Western developers aren't familiar with.

Sony Online Entertainment met widespread apathy in China last year when it tried to import "EverQuest," the most popular subscription-based online game in North America.

"What we learned is you can't just translate Western games and dump them into China," said John Needham, chief financial officer of Sony Online Entertainment. "You've got to get local to have big success."

That means having a strong local partner to clue a company into potential issues it may never have considered. One of the mistakes the EverQuest team made, Needham said, was keeping the same interface, more or less, as the American game has. Chinese games need to have a more-streamlined control setup, so all major tasks can be accomplished with the PC's mouse.

"The game has to be Internet-cafe friendly, and people are smoking all the time in those cafes," Needham said. "You have to set it up so they can play the game with one hand on the mouse and one holding a cigarette."

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Chinese Gamer International, a leading online game developer and the first game developer listed on the stock market in Taiwan, will launch it's popular "Chinese Hero Online" game in China in Q2. The company expects the release to provide a lift to its 2010 revenues. www.ordercomputer.com
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