Making a play for China's online games

The booming online games market in China is creating new opportunities for market players but those that aspire for a slice of the lucrative pie need to get their business model right, according to a new report.

The report,The video games market in China: Moving online, produced by KPMG and the Telecoms Research Project Corporate (TRPC) in Hong Kong and Singapore, noted that growth in the number of online game subscribers is now paralleling that of the Internet and mobile markets.

KPMG, citing a 2007 report from Xinhua News Agency, said China's online games market was worth about US$970 million, with over 36 million gamers. Made-in-China online games accounted for US$20 million in export revenues, and also commanded a 65-percent share of the domestic market.

Peter Lovelock, TRPC's director and deputy director of the Telecoms Research Project, pointed out that China had been a major consumer of online games from countries such as Japan and Korea, but was now in a "path of production".

"The market is developing rapidly in China and there is ample room for further growth and development," he added.

Another significant trend highlighted in the KPMG report is the increasing use of mobile devices to engage in online multiplayer games.

The emergence of online games played on mobile devices, particularly multiplayer games, is an important trend that could potentially lead to higher mobile network usage, said Irving Low, head of information, communications and entertainment practice at KPMG.

The first multiplayer mobile role-playing game was launched in early 2005, and such games have been well-received, according to the report. KPMG said the growth in network operator revenues as a result of mobile multiplayer games, will be far greater than those realized by SMS and ringtone downloads.

While the outlook for China's online games industry appears rosy, KPMG said market players that aspire for a slice of the lucrative pie need to get their business and pricing models right.

New entrants in particular, could move away from the mainstream to focus on untapped segments of the market, as a way of capitalizing on the growth. Nintendo, for example, designed Wii games that appealed more toward females, parents and others who are typically non-gamers as opposed to going after the hardcore games community.

KPMG said market players that work out the right business model could stand to be well-rewarded. Singapore-based Low predicted that more mature online games companies would achieve a price-earnings (P/E) ratio of about 13 to 15 for 2009. Generally, a higher P/E ratio means that investors are anticipating higher growth in the future.