S Korean game firms want to play in China

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S Korean game firms want to play in China
SEOUL - South Korean online game companies are keen to tap the potentially lucrative Chinese market, but their push is hitting a snag due to state regulation, heated competition and rampant piracy, analysts say.
Despite their efforts to gain a firmer foothold in the fast-growing market, South Korea's top online game maker, NCsoft Corp, and others have seen their market share keep falling since their entry in late 2002.
According to the latest data by the Korea Game Development and Promotion Institute, the market share of South Korean online game products decreased to 45% in 2005 from 51.9% in 2004, the third consecutive yearly fall.
From 2001 to 2005, China's online game-publication industry has grown rapidly, according to figures from China's General Administration of Press and Publication (GAPP).
China's online game market is forecast to rise to US$623 million in 2006 from $403 million last year before soaring to $1.1 billion in 2008. The number of online gamers is expected to exceed 33.6 million in 2006, up 27.6% from more than 26.3 million in 2005, according to the data.
Market watchers point out that the main hurdle to South Korean companies' push is the Chinese government's move to protect its games industry.
"With the market rapidly growing, the Chinese government started to protect its game industry through regulations, putting the South Korean online game firms at a disadvantage," Daewoo Securities analyst Kim Chang-kwean said.
The Chinese government has prolonged the process of issuing licenses to South Korean online-game firms and made it difficult for them to set up wholly owned subsidiaries, forcing them to establish partnerships to operate there, he said.
Kang Lok-hee, a senior analyst at Daishin Securities, echoed Kim's view. "The rule helps foster the Chinese game industry because Chinese firms easily acquire technology through tie-ups."
On top of the state regulation, South Korean companies are increasingly faced with stiff competition from local players.
Chinese online-game companies, including Shanda Interactive Entertainment, have started to come on strong with well-designed games of their own, the latest edition of BusinessWeek magazine reported, citing a report by market research firm IDC.
According to the data by the South Korean game institute, the number of Chinese online games in the market reached 70 in 2005, up 33 from the previous year, while the number of South Korean games stood at 85 last year, compared with 80 in 2004.
"Although the market pie itself has increased, it is not easy for Korean companies to perform better due to a rise in the number of Chinese game producers and foreign players, including US publisher Blizzard Entertainment," said Yun Jin-won, a public relations manager of NCsoft.
The rampant piracy in China has also been dealing a blow to South Korean online-game manufacturers' plans to increase their influence and generate more profits in that market.
"Losses from Chinese knockoffs are significant," said Kim Yu-jung, a public relations manager at Wemade Entertainment, a South Korean game company.
In 2001, Wemade Entertainment formed a partnership with Shanda to handle the online service of role-playing game Legend of Mir II, but the Chinese company released a pirated version with a different name in the market.
Wemade Entertainment filed a lawsuit against Shanda with a Chinese court in 2003, alleging the Chinese company violated its intellectual property rights. The case is still pending, while Chinese authorities are urging an out-of-court settlement, Wemade said.
To overcome such difficulties, analysts stressed, South Korean online-game producers should step up efforts to tailor their future products to the tastes of Chinese gamers to win their hearts and boost market share.
South Korean game firms have so far concentrated on providing multi-player role-playing products such as the Lineage series from NCsoft to the Chinese market, but they need to diversify into casual games such as sports and racing, whose popularity has been quickly rising.
"South Korean firms should focus on developing creative games customized to local people to succeed in China," Kiwoom.com Securities economist Jang Young-soo said. "Understanding the local culture and gamers' changing tastes are essential for their future survival."
Meanwhile, at the fourth China International Digital Interactive Entertainment Forum held in Shanghai late last month, Long Xinmin, minister for China's GAPP, said his country's online-game industry will maintain high-speed growth in the next five years. From 2006 to 2010, that growth will reach 35.5%. Long said. The digital-game industry is improving daily in China, and the market is expanding and becoming one of the most vigorous in the world.
Long pointed out that the interactive-entertainment industry is becoming a new economic sector worldwide, with the industrial scale of the digital-entertainment industry worldwide reaching $222.8 billion. The industry has developed especially fast in Asia. Statistics show that by 2009 the interactive-entertainment market in Asia will be four times the size of today.
Though the online-game industry comes late to China, it has successfully fostered a number of young and vigorous enterprises, such as Shanda. Meanwhile, the industrial scale of online games in China is still expanding, with much more potential.
Statistics show there are 123 million Internet users in China currently, of whom 80% are youngsters, and 30 million are middle- and primary-school students.
To promote development of the interactive-entertainment industry, GAPP will publish policies to encourage more domestic cartoon enterprises to enter the online-game industry.
(Asia Pulse/Yonhap/XIC)