70% Chinese Online Game Companies in Loss

Posted on: Wed, 04 Mar 2009 07:52:00 EST

Symbols: IELSF, SNDA, NTES, NCTY

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BEIJING, Mar 04, 2009 (SinoCast Daily Business Beat via COMTEX) --
NCTY | Quote | Chart | News | PowerRating -- About 70% of China's online game companies spend more than they earn, estimated an analyst at the Shanghai-based Internet market advisor iResearch Consulting Group.

Such estimates may stun those people who believe that the business generates huge profits. But from analysts' points of view, the huge profits, if existing, have been killed by costs on human resources, hardware, promotion and after-services firstly.

T2 Entertainment Co., Ltd., a Chinese online game operator, invested about CNY 30 million in the South Korean game Freestyle before the open beta testing in China, including over USD 1 million on the operating rights and CNY 20 million on promotion.

Besides, the R&D of an ordinary three-dimension online game often costs CNY 10 million, insiders said, adding that of ten online games, only one is profitable.

The number of China's online game players has reached 147 million by June 2008, according to the China Internet Network Information Center. But 50% of them never pay for the playing, and another 20% spend less than CNY 10 a month, according to iResearch.

In a questionnaire initiated by Sohu.com Inc. (NASDAQ: SOHU) last yearend, about 1,300 online game payers said that they decreased their spending on the entertainment due to the global financial storm, accounting for over 45% of the surveyed. Only up to 12% of the objects increased such spending.

As for venture capital investors, the online game market was once a harbor in the financial storm. Around November 2008, Moli Group Ltd. and Beijing Kylin Network Information Science and Technology Co., Ltd., the two Chinese online game developers, won investments of USD 5 million and USD 15 million, respectively.

But venture investors' optimism about the market may has been shocked when Blizzard Entertainment Inc. reported a loss of USD 72 million for the fourth quarter of 2008. In the same quarter, The9 Ltd. got a net income of CNY 44.4 million, compared to CNY 98.4 million in the previous quarter, a 55% plunge.

Moreover, the stock market seems to be closed before Chinese online game companies. 9you.com, the Chinese online game operator has been planning an IPO since 2007. Now, it is still outside the stock market.

(USD 1 = CNY 6.84)

Source: www.beijingtimes.com.cn (March 04, 2009)

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