Chinese games market explosion predicted

DFC Intelligence has predicted that the Chinese games market will triple in size, in spite of massive piracy problems and controversial government intervention plans for online gamers.

Completing a new report which takes a broad look at the Chinese games market, the market research company analysts have forecast a growth from USD 580 million (EURO 474.2 million) in 2005 to USD 1.7 billion (EURO 1.4 billion) in 2010. The revenue increases are not as clear cut as they may first appear however, as lead analyst Alexis Madrigal points out.

"Because the top games in China can generate as much as USD 100 million (EURO 81.8 million) a year for several years, at first glance the market looks very attractive," Madrigal commented. "However, it is clear that margins are headed down as the business matures."

DFC has predicted a substantial decrease in margins surrounding the online gaming market, with increased costs of doing business in China. Western games have traditionally struggled to make an impact in an already overcrowded Chinese market, with Vivendi's World of Warcraft being the only notable success in recent years.

World of Warcraft currently has over 1.5 million Chinese subscribers, but appears to be a singular success in a long line of failures in attempted market penetration. DFC warned of the problems facing western companies trying to establish a customer base in China, commenting that "a company entering the Chinese market must compete with the increasingly sophisticated domestic Chinese game companies. On top of that, there is the rampant piracy problem, extensive government regulation, and a market that is already overcrowded with products."

China-based gaming publishers NetEase and Shanda are claimed to be currently operating with revenues that reflect margins of between 40-50 percent. However, the DFC analysts suggest that maintaining such high margins is likely to be impossible