The Investor’s Guide to The Video Game Industry – Page 3
Emerging Markets: The Future of the Gaming Industry
The Middle East, China, India, Africa, and South America all have extreme pirating problems where video games are concerned. Thus, most companies have trouble expanding into these markets.
The Chinese market is a rapidly growing area for video games. However, the video games that the Chinese are enjoying are not what the West is enjoying. Chinese consumers love MMORPGs. While an average Western MMORPG, like Everquest for example, will reach 500,000 users. An AVERAGE Chinese MMORPG will attract well over 1,000,000 users very quickly.
Of World of Warcraft’s 10 million subscribers, 1.5 million live in China. Analysts estimate that the WoW Chinese market, alone, could eventually have 10 million users.
Most Chinese play MMORPGs in internet cafés (since most of them have limited Internet access). A large percentage of Chinese, however, do play free MMORPG’s. Free MMORPGs usually are completely free to play, but players can pay money to expand the gaming experience (bigger map to play on, more areas etc.) or improve their character (items, weapons character stats, etc.). While this doesn’t seem to like it would make a lot of money, it actually does, thanks to the addictive nature of most MMORPGs.
Some of the bigger names in the Chinese MMORPG market are Giant Interactive Group Inc. (NYSE: GA), Perfect World Co. Ltd. (Nasdaq: PWRD), Shanda Interactive Entertainment Ltd. (Nasdaq: SNDA), and The9 Ltd. (Nasdaq: NCTY).
Unfortunately, China is China. As such, the government always thinks of something ‘imaginative’ to do with the gaming market. The ‘Fatigue System’ is a means by which the government gets to control how long its citizens spend online playing games.
This system requests that games stop rewarding players after three hours of play in one day. Additionally, the system also requests an ID for players so as to be able to control their play more easily. While the system was originally meant for all gamers, it has been limited to gamers under the age of 18, due to the initial outcry it garnered.
China is also notorious for having the largest game sweatshop industry in the world. A game sweatshop is where a person is paid to play a game intensively and to make an extremely good character in it. That character is then sold to whomever wants it.
Chinese censorship is surprisingly low as the government only censors games that are anti-Chinese or portray Tibet and Taiwan as independent nations.
India’s market has yet to fully realize the potential of video games (putting the pirating aside). India is regularly compared to China in 2001. The online video games market is picking up but the overall market is still small. The few Indians who do game, do so like the Chinese: in Internet cafés. Unfortunately, there aren’t any enormous MMORPG makers (or equivalents) in India, yet.
The Middle East is generally also a pirating heaven though there are some legitimate shops usually selling games that haven’t been translated. Countries like Saudi Arabia also tend to ban certain games that are conceived as anti-Muslim.
If you wanted to invest in one of the Chinese MMORPG makers, the one that looks the best thanks to its pricing model and quality of games is Giant Interactive.
Appendix 1: Politics
While it is far more limited than in China, the West does not lack a government presence in the video game industry. A major concern for parents and governments is the increasing violence of games. While there has been no conclusive evidence that playing a violent video game will make you more aggressive, most politicians still try their best to regulate the industry.
In the United States, the industry is regulated by the Entertainment Software Association (ESA), a trade organization for the United States that created the widely accepted rating system – the ESRB.
The ESRB has 7 ratings:
EC-Early Childhood (age 3 and above)
E-Everyone (age 6 and above)
E10+-Everyone 10 and older
T-Teen (age 13 and above)
M-Mature (age 17 and above)
AO-Adults only (18 and above)
RP-Rating Pending
While this rating system is not controlled or enforced by the government, U.S. retailers and game publishers all abide by it. If a game is rated M, it cannot be sold to a person 17 or younger (though a parent may buy it). A game rated AO cannot be sold to anyone under 18 and more often than not, games that receive this rating are generally of the sexual nature and not sold in most stores.
In the U.K., there is a conflict between the British rating system (the BBFC) and the European Union one (the PEGI). While the British rating system is government operated and enforced, the PEGI is controlled by the Interactive Software Federation of Europe (ISFE) – an organization similar to the ESA.
The rest of Europe generally uses the ISFE system, or in Germany’s case, its own system (like the U.K.). Most of the systems are very similar and most of them do not ban games that other systems don’t ban (though there is the occasional exception).
Australia has a system that only goes up to age 15 and as such the country bans a lot of games that other systems let through.
Japan has a similar privately owned system to the ESRB and PEGI that is run by the Computer Entertainment Rating Organization (CERO).
Appendix 2: History
The Video Games industry has a very long and detailed history, of which the following is the ultra-summarized version:
1952: First Game to use a digital graphical display: OXO (Tic-Tac-Toe).
1972: First Game to achieve widespread popularity: Pong.
Late 1970’s-Early 80’s: Golden Age of Arcade Games: Pac-man, Space Invaders, Asteroids, Donkey Kong released among other industry-defining games.
1983-1984: The Video Game Crash; The Industry crashes and comes the closest it has ever come to completely disappearing. The crash is mainly caused by hundreds of very low quality games being released at an increasingly fast rate.
1985: Release of the Nintendo Entertainment System (NES). Industry shaken by one of the most successful consoles in its history, as well as the games that emerged from it and its successors, such as Super Mario Bros., Metroid, The Legend of Zelda, Final Fantasy, Castlevania, and Mega Man franchises, among others. The NES also started the Nintendo line of video game consoles.
1989: Release of the Nintendo Game Boy (GB), one of the world’s first successful handhelds. Started the Game Boy line of products and also led to the Pokémon game franchise as well as the global recognition of the immensely popular game Tetris.
1994: The Sony PlayStation (PS or PS1) is released; started one of the best-selling video game console franchises. It led to major game franchises such as Metal Gear Solid, the continuation of the Final Fantasy series, Gran Turismo, Tomb Raider, and Grand Theft Auto as well as many more.
2001: The Microsoft Xbox is shipped. It led to the establishment of the Microsoft video game console franchise. Game franchises such as Halo, Gears of War, Project Gotham Racing, and Tom Clancy’s Splinter Cell as well as others are created through the Xbox franchise.
2004: The Sony PlayStation Portable (PSP) is released and leads to the Sony handheld console franchise. The console serves as competition in the handheld market against Nintendo. While the handheld has yet to create a very successful game franchise, sequels and spinoffs of games from the PlayStation library are very common and sell equally well. Some of these include Grand Theft Auto: Liberty City Stories and Daxter.
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