Doug Young lives in Shanghai and writes about tech investment in China for Techonomy and at www.youngchinabiz.com.
A press release from ChinaJoy, China's oldest online gaming show, now celebrating its 10th anniversary, reminded me of how little I've written lately about this once-exciting industry, which has become mostly a bumper crop of companies with poor track records at innovation despite their huge home market. ChinaJoy announced its big anniversary with fanfare, unveiling a new logo and announcing a slate of its latest shows centered on the online game industry. But from where I sit, there's very little to celebrate. The industry posted revenue of 32.4 billion yuan in 2010, about $5 billion, rising a respectable 26 percent from the year before, but still sharply slower than growth rates 5 or 6 years ago when the hype was loudest.
Perhaps the company that best illustrates the disappointment surrounding this sector is Shanda Interactive, which became the sector's first player to go public with its Nasdaq IPO in 2004. The company then spun off its gaming unit into a separate company, Shanda Games (Nasdaq: GAME), and then finally itself went private earlier this year due in part to lackluster investor interest. Since its listing, Shanda Games has failed to attract much investor interest and the stock now trades at about one-third of its IPO price in 2009.
Other hopefuls from the sector included The9 (Nasdaq: NCTY), Perfect World (Nasdaq: PWRD) and Giant Interactive (NYSE: GA), which have all seen similar lackluster performance. One notable exception to this uninspired group has been NetEase (Nasdaq: NTES), one of China's earliest Internet companies, which has actually done quite well in the space due to its strong ability to self-develop games that have found strong fan bases among domestic Chinese gamers. By comparison, Shanda and the others, despite their best efforts, have largely failed to create popular titles and instead rely on licensing games developed by foreign companies for most of their revenue. That model not only yields much smaller profit margins, but it's also dangerous, as companies can quickly lose much of their revenue when a license expires if they fail to renew it. That case was illustrated 2 years ago when The9 saw its business disappear almost overnight when it lost its most popular game, World of Warcraft, after failing to renew a licensing deal with the game's owner, US firm Activision Blizzard (Nasdaq: ATVI).
The9 got a recent lift when it announced a new self-developed title and a global licensing deal, providing a boost to its stagnant shares. But somewhat ironically, the title was developed by a US-based game developer purchased by The9, rather than the company's own China-based design house. For all of these reasons, NetEase may remain the only interesting company in this once-promising space for the near future, though The9 could potentially also rise if its US-based design house can produce more successful titles.
Bottom line: China's online game operators will see little or no growth in the next few years except for the handful that can develop their own successful titles rather than rely on licensing deals.
This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers. Five Filters recommends: Donate to Wikileaks.
0 comments:
Post a Comment