China: Gaga for Gaming

By: Doug Hornig | Fri, Oct 29, 2010
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Developing nations are playing technological leapfrog.

In the developed world, when we think of technology, the roots of much of what we do today were born decades, or even a century, ago. While the evolution has been fast paced, the progression from there through today is a straight line from the technologies that preceded them. A television program is still a television program. A phone call is still a phone call. The devices might look different and certainly do more, but the lineage is obvious.

But what happens when your starting point isn't the invention of the phone or the first personal desktop computer? What happens when you start from today?

In many parts of the world, most of the people still have never had a telephone conversation. Phones are coming, inevitably, as cheap technology leads to more widespread access and as global prosperity increases. But in these places, utilities don't bother to string wire from poles to every single home on a block. It simply isn't cost effective given today's technology. Instead, they're putting up wireless towers. The first and only phones their citizens will ever have are cells. Essentially, they've just vaulted over all the intervening technology, and their idea of what a phone call is doesn't involve party lines, rotary dialing, or switchboard operators.

The computer is a similar story. For many people in the developing world, an iPod or a smartphone will be the first computer they ever have. Mobility is baked in; the interface is a touch screen instead of a mouse. They will forever be unencumbered by the antiquated notion of "sitting down at the computer."

The same holds true with entertainment. We're familiar with the progression from staged plays and Wild West Shows to movies, radio, TV, and the Internet. It's logical to us. But hundreds of millions of people in the world are skipping the intermediate stages and jumping straight into the Net. With both feet. Especially in China.

It's not that the Chinese don't have movies and TV. It's just that they won't be going from Ozzie and Harriet to Hill Street Blues to Lost. They have discovered more interesting forms of entertainment. Specifically, online gaming. And more specifically, MMORPGs.

For the rising generation of Chinese citizens - and we're talking one heck of a lot of people - entertainment has been interactive from the get-go.

MMORPG stands for massively multiplayer online role playing game. It's a mouthful to say, but the idea is simple. Game developers create a virtual world, making it as complex, as exciting, and as beautiful as they can. Players log into this world - much like a chat room from the days of AOL, only massively more complex, with 3D monsters and knights - through their laptop and play the game. Typically, it's a game without a specific endpoint; the joy is in the play. And, most important, it's a game that's designed to be shared. The players wandering around in the faux world interact with each other. Joint quests are undertaken, friends and enemies are made, alliances form and dissolve.

In addition, because these games are Internet-structured in real time, they have another monster advantage over traditional games: they constantly change. Developers have no constraints on adding new content, new features, new characters, and new storylines, ensuring that the games can stay fresh for years.

So engrossing is the result that the word addiction is bandied about with some frequency.

The big kahuna of MMORPGs is the U.S.-based World of Warcraft, the most successful such game of all time. WoW, as it's commonly referred to, boasts 11 million users. And it's been around since November of 2004... how's that for longevity? Not only is it still attracting new players, it's retaining most of the ones it already has.

Despite the fact that WoW is very Western in orientation, half (5.5 million) of the players are in Asia. That dwarfs participation among North Americans (2.5 million) and Europeans (2 million), and it's a sure sign of where future growth lies.

Expenditure figures back that up. Chinese gamers spent a whopping $5 billion in 2009 on MMORPGs, while Americans only spent $3.8 billion. France, Germany, and the U.K. combined for less than 3/4 of a billion dollars.

And consider the mind-boggling rate at which the country's citizens are hooking up. At the end of June 2009, there were 338 million Internet users in China. Just a year later, that number had rocketed to 420 million, a 25% increase, with 87% of them enjoying broadband connections. In other words, China has 17% more broadband users than the U.S. has people!

However, although China is booming economically and the Internet is obviously exploding, its citizens still lag the West in earning power. That's had a couple of consequences.

For one thing, it means that the country is largely skipping over the console-based video games pioneered by the U.S. and Japan. Most homes can't afford a Playstation, not to mention the pricey discs that go with it. The Internet, by contrast, is a bargain.

For another, it has forced Chinese companies to the forefront of free-to-play game development.

Most American games employ a subscription-based business model. WoW players, for example, fork over fifteen bucks a month for access to that virtual world. Not much for a teen over here, but more of an investment in China. So most Chinese games are free-to-play. Meaning that you can play all you like for nothing, while the company makes its money by selling relatively inexpensive enhancements (so-called microtransactions). Advertising is also emerging as a supplementary revenue generator.

Because free-to-play means there are no hard subscriber numbers, it's difficult to determine how many gamers there are in China, and guesses vary widely. One 2009 survey pegged the number at 68 million, which is undoubtedly low today. On the other hand, Chinese website cnzz.com recently estimated that 2/3 of all Internet users play some form of online game at some time. That'd be 280 million, which is probably too high.

Wherever the truth lies, one thing is certain looking ahead: for hundreds of millions of people, MMORPGs are going to be the preferred form of home entertainment. And the trend is by no means confined to China alone. Chinese gaming companies are already extending their reach into other developing nations as yet untapped, such as Vietnam and Thailand.

This is one heck of a growth market, offering outstanding prospects for investor profit.

 


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Doug Hornig

Author: Doug Hornig

Doug Hornig
Editor: Casey's Gold & Resource Report
Casey Research, LLC.

Doug Hornig

Doug Hornig joined the Casey team as a freelance writer on the former publication What We Now Know, a perfect fit for someone with his wide-ranging interests.  He wrote nearly 125 articles for WWNK between early 2004 and late 2007. In October of 2005, he assumed editorship of the Daily Resource column, to which was added Casey's Daily Resource Plus in 2007. A steady contributor to Casey's Gold & Resource Report, he also writes the occasional article for International Speculator and other Casey publications.

A former Edgar Award nominee, finalist for the Virginia Prize in both fiction and poetry, and a past winner of the Virginia Governor's Screenwriting competition, Doug lives on 30 mountainous acres in a county that just got its first stop light. He is an admitted political junkie, but hates all political parties. Doug has authored ten books and has written articles for Business Week and other renowned publications.

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