Chinese Internet Firms Propel Growth With Online Games
Behind a recent surge in Chinese Internet stocks is a new strategy: selling online games.
Highflying Chinese Web portals such as NetEase.com and Sohu.com tanked with the dot-com crash, but launched a spectacular comeback last year on the strength of selling text-messaging services. Those services, called SMS, for short messaging service, allow customers to send news, messages and pictures to cellphones through the portals.
But now SMS may be playing second fiddle to sword fighting. This year, the prices of several Chinese Internet stocks have surged on the back of new revenue from selling online games. Earlier this month, for example, NetEase was up 53% year-to-date on the Nasdaq Stock Market, though that had dipped to 44% by Wednesday's close. American investors excited about China have made them some of the best-performing stocks on the Nasdaq.
As some of these stocks launch skyward for the third time in their short lives, it's natural to wonder whether these gains, too, will be short-lived. "It's almost too hot," says Jing Huang, managing director of China for Softbank Asia Infrastructure Fund, an early venture-capital investor in market leader Shanda Networking. "Making money in very [large] scaled operations from gaming is not easy," he says.
But there are some solid trends behind the sudden stock moves. Internet usage grew 40% last year as more Chinese seek out new forms of information once banned. And broadband penetration -- critical for playing games -- is still quite low at only 17 million accounts for 80 million Internet users, offering China the opportunity to grow while markets such as South Korea have hit a ceiling.
Many of China's online denizens aren't slacking office workers but kids who, because of Beijing's one-child policy, are frequently looking to entertain themselves at Internet cafes or home. Some 53% of Chinese Internet users are under age 24; in the U.S., only 29% of users are 18 to 29.
Online games, in which players subscribe to an Internet service that simultaneously delivers a game to thousands, are a natural because they don't require users to have an expensive console. Last year, 15 million Chinese subscribers spent $160 million to play against real-life friends in virtual games, according to IDC analyst Jun-Fwu Chin. In 2008, he expects 54 million subscribers, who will spend $823 million.
Further, online game companies have already proven they can make money by selling subscriptions for pennies. On April 2, Shanda -- owned by one of China's richest men, Tianqiao Chen -- filed to have an initial public offering on Nasdaq, as Shanda Interactive Entertainment, that it hopes will raise $200 million. The company reported net income of nearly $28 million for 2003.
Chinese portals are under pressure to shift to games because they are worried about depending on revenue from the phone networks that deliver the SMS content they sell. "SMS is dramatically slowing down, and games offer a much closer link to the subscriber," said Dylan Tinker, director of Internet research at UBS in Hong Kong.
That's a lesson the portals learned in August, when China Mobile Communications withheld payments from them, demanding that they stop sending vulgar jokes and pictures through the network.
So the portals pressed the accelerator on selling games. Already in the fourth quarter of 2003, games accounted for 44% of revenue at youth-oriented portal NetEase -- more than SMS or advertising, for the first time. "Games will definitely continue to contribute the majority of our income," said NetEase Executive Director Michael Tong. (NetEase announced in March that the U.S. Securities and Exchange Commission intends to file a civil lawsuit against it over the company's restatement of its 2000 results.)
Not all portals have been able to convert community members into paying gamers. Most gamers still prefer to play in Internet cafes, where they use software pre-installed on the computers by providers such as Shanda and NetEase. Without that reach, portals Sina and Sohu both had game flops last year. Their communities have older users looking for news and fashion information, not games.
As competition grows, the attractive economics of early stage online gaming may fall apart. Margins will erode because of the costs of marketing and programming more lavish games.
"Competition between games with China historical swordfight content is intense" and game providers need "clear segmentation strategies," warns DBS Vickers analyst Wallace Cheung.
That puts companies into a Hollywood-type environment in which they are forced to spend big bucks to develop blockbusters -- and flops can become financial catastrophes. Not all the Chinese companies are ready for those risks.
Four of China's top five online games last year were developed by and licensed from Korean companies. But those licenses are growing increasingly expensive.
So market leaders have started making their own games, even though developing unproven new titles is costly and risky. NetEase has spent up to $2 million to develop each of two in-house games it currently offers, and it has three more in the pipeline. Shanda has launched three in-house games.
But developing games isn't entirely like Hollywood. NetEase's Mr. Tong says that online games are easier to fix than movies if audiences don't respond. "We can always patch in new content and new functions," he says, noting that the company did that in January 2002 for its "Westward Journey" title.
The Beijing government will make it easier for Chinese developers this year, adopting policies to promote the industry, including one that imposes tight quotas for imported games.
While online games are largely piracy-proof because users make so-called micropayments each time they use the service, online providers still face a problem with hackers. Teams of amateur programmers have developed special "hooking" programs to change the game environment or run the games for free on private servers.
And another potential revenue stream -- advertising or product placements inside the games -- remains elusive because the most popular Chinese games take place in historical swordfight or fantasy settings. "Imagine somebody drinking a Coke in 'Lord of the Rings.' That's just not possible," says NetEase's Mr. Tong
网络游戏推动中国互联网企业增长
中国互联网类股近期强劲上扬，而支撑这股涨势的，正是互联网公司实施的网络游戏战略。
中国知名的互联网门户网站如网易(NetEase.com)、搜狐(Sohu.com)等在前几年互联网陷入低潮时也曾遭受惨败，但去年，强劲的手机短信业务(SMS)的支撑使它们出人意料地起死回生。这种服务可让用户通过互联网向手机发送新闻及文字和图片信息。
但是，眼下在互联网行业，短信业务已退居二线，各家公司今年以来又开始在新的领域──网络游戏中展开较量。这一业务不仅给它们带来了新的收入，也大大推高了它们的股价。本月初，网易在那斯达克市场的股价就较年初时上涨了53%，近日虽有所回落，但到周三时，较年初的涨幅仍有44%之多。
美国投资者目前对中国概念股热情甚高，在那斯达克市场表现最佳的股票中，中国股票也赫然在列。
中国网络股这次大幅攀升在它们短暂的历史中已是第三次了，因此，人们自然会想到这样的问题：这轮涨势是否也是昙花一现呢？软库亚洲信息基础投资基金(Asia Infrastructure Fund)中国区董事总经理黄晶生说，这些股票有点太热了。该基金是网络游戏市场领头羊盛大网络(Shanda Networking)的早期风险资本投资方。他说，从游戏业务上赚大钱并不容易。
但是，这股急涨的势头后面有著坚实的支撑因素。随著越来越多的中国人通过互联网获取他们以前用其他方式难以得到的信息，去年，中国互联网用户数增长了40%。而在8,000万互联网用户中，游戏玩家非常必需的宽频网络的市场渗透率还很低，目前还只有1,700万户，与韩国等业已饱和的市场相比，中国的宽频市场显然还有很大的增长空间。
中国的许多网民并非无所事事的办公室职员，而是来自独生子女家庭的青少年，在家或到网吧上网玩游戏是他们最经常的娱乐活动之一。
中国有53%的互联网用户年龄在24岁以下，而在美国，18-29岁年龄段的用户只占29%。
网络游戏大受欢迎的原因是，玩家只要注册到网站上就可以玩游戏了，而无需自己花大钱买游戏机。
据国际数据公司(International Data Corp)分析师Jun-Fwu Chin说，去年，中国1,500万互联网游戏玩家花在虚拟的网上游戏上的钱达到了1.6亿美元。他预计，到2008年，网络游戏用户将达到5,400万，他们在游戏上的花费将达到8.23亿美元。
而且，网络公司还可以凭藉其庞大的用户群来"卖钱"。4月2日，盛大老板、中国"富豪"陈天桥申请将盛大网络发展有限公司(Shanda Interactive Entertainment)在那斯达克公开募股上市，计划融资2亿美元。该公司2003年收入为2,800万美元。
由于担心过于依赖于传送短信所需的电话网络，中国的门户网站都感到有必要转向网络游戏，以拓展收入来源。瑞银(UBS)驻香港互联网研究部门主管戴伦?廷克(Dylan Tinker)说，短信业务已明显放缓，而网络游戏跟用户的联系却越来越密切。
在去年8月发生的中国移动(China Mobile Communications)拒绝向门户网站支付手机短信服务相关费用后，门户网站更加意识到了这一点。当时中国移动要求网站停止向手机用户发送粗俗的笑话和黄色图片。这一事件导致搜狐第三季度收入从前一季度的750万美元大幅下降到270万美元。
在这种情况下，各网站纷纷加大了网络游戏的销售力度。2003年第四季度，主要面向年轻人的网易的网络游戏业务收入在其总收入中占到了44%，第一次超过了短信和广告的收入。该公司执行董事董瑞豹(Michael Tong)说，游戏在其业务收入中的比例还将继续上升。（该公司3月份曾宣布，美国证券交易委员会(SEC)准备就其重新公布2000年业绩报告一事对其提起民事诉讼）。
但并非所有门户网站都能成功地将用户吸引到玩游戏上。多数游戏玩家更喜欢在网吧玩游戏，因为网吧的电脑上有预装的盛大或网易的游戏软件。而新浪和搜狐正是因为没向网吧提供这种服务而导致游戏业务受挫。他们现在的用户上网主要是为浏览新闻、搜索各种时尚信息，而不是玩游戏。
随著竞争的加剧，网络游戏最初阶段具备的经济效益上的吸引力或许也将不复存在。随著营销和制作大量游戏的成本增加，游戏业务的利润将逐渐缩水。
唯高达(DBS Vickers)分析师Wallace Cheung说，以中国传统武侠故事为主的游戏现在互相之间的竞争非常激烈，各家游戏供应商需要有自己的更细化、更特色化的游戏内容。
这种情况在某些方面有点像好莱坞：它们都不得不斥巨资打造自己的能一鸣惊人的"明星"，如果失败，必将带来财务灾难。而并非所有的中国公司都准备好面对这种风险。
去年中国最受欢迎的5部网络游戏中，有4部是韩国公司开发并授权在中国销售的。但现在销售许可权的价格越来越高了。
所以一些一流的游戏供应商开始开发自己的游戏，尽管开发一些新的没有把握的游戏不仅成本高，而且风险很大。网易已有两部自己开发的家庭游戏，每部的开发成本高达200万美元；另外3部游戏正在开发中。盛大也已推出了3部游戏。
但开发游戏跟好莱坞并不完全相同。网易的董瑞豹说，如果用户反响不佳，游戏很容易再进行修改，相比之下，电影就做不到这一点。他说，开发人员可以不停地向游戏里增加新内容和新功能。他举例说，2002年1月份网易就对其"大话西游"游戏进行了修改。
政府今年计划推出新政策以促进国内游戏行业的发展，其中包括对进口游戏实施严格配额，这将为国内游戏开发商带来福音。
由于网络游戏采取的是每次进入游戏前付费的所谓小额付费系统(Micropayments)，因此基本上不会发生盗"玩"行为。但黑客仍是令游戏供应商头痛的一个问题。这些身怀绝技的业余编程高手开发了一些特殊的盗用程序，通过它们能改变游戏的运行环境，或者可以在他们自己的服务器上免费运行游戏。
另一个潜在的收入来源──广告，也就是将产品嵌在游戏里──现在还不太成形，因为最受欢迎的中国游戏大都以传统的武侠或传奇故事为背景，要跟现代社会的商品衔接还比较困难。董瑞豹说，让《指环王》里的人物喝可乐吗？这简直难以想像。
