GameCyte speaks with Lisa Cosmas Hanson, founder of research firm Niko Partners, about the Chinese gaming market — and the gamers who occupy it.
Niko Partners has studied the Chinese gaming market since 2003, since which time the country’s economy has made great strides. In their sixth annual Review & Forecast Report, published this morning, Niko discovered that China’s estimated 46 million gamers spent $1.7 billion towards online gaming in 2007, and the company forecasts the Chinese gaming industry will nearly quadruple to $6 billion by 2012. Other findings include the rise of casual gaming, and a surprising 75% increase in game console sales despite their illegality since the year 2000.
To better interpret these results, GameCyte consulted the research firm’s founder and managing partner, Lisa Cosmas Hanson. And while we were at it, we couldn’t resist asking the veteran analyst to give us a realistic picture of the average Chinese gamer — a fellow with which we believe Westerners, ourselves included, are painfully unacquainted.
GameCyte: Today, I don’t think anyone would ask you, “Why China?” But how were you attracted to China in the first place?
Lisa Cosmas Hanson: Niko Partners had originally been founded as a consulting firm to help multimedia software companies expand internationally, and within the Asia region, China was the one country people were flocking to. Within multimedia software, the video game space was the one that was really booming. We discovered that in 2003, and so this is our sixth year.
GC: So you just happened to find China at the right time, and took advantage of that unserved niche?
LCH: Yes, essentially. My background is in market research and analysis — I spent a few years at IDC and a few years as an equity analyst in Japan and London – and looking at China, I saw an opportunity in the coupling of a demand for information and a country where there wasn’t a lot of information. So that’s where we went.
GC: Your recent report tracks 46 million Chinese gamers, spending $1.7 billion on online games in 2007, but our readers will note that the U.S. game industry can make $1.7 billion in a single month (In fact, it just did - Ed.) Could you put this growth in context?
That $1.7 billion is a growth of 71% over 2006, and next year we forecast growth of 47% for online game services, and a compound annual growth rate of 28.8% through 2012. Compared to the size and scope of sales in the United States – well, it pales in comparison. But since 2001, when the first online game was launched in China, the industry has grown substantially, and we’re quickly approaching levels that are quite impressive. You can see that in the fact that several online game operators have gone public recently on Western exchanges or in Hong Kong; and the international financial community is now paying much closer attention to China’s game market. It’s reached a level of importance to people beyond just the big publishers and hardware makers; it’s become important to investors as well.
GC: Does China’s game industry growth have a predicted plateau or saturation point? What will the future of gaming in China look like?
In our forecast period, there will not be market saturation. In 2012, we’re hoping there will be legitimately sold consoles, the online game market will expand beyond the few genres popular in the past to a much wider array of choices for gamers, and as prices continue to fall and the people gain some wealth, we hope there will be even greater availability of PCs in the home…
GC: You mentioned new genres: traditionally we’ve seen the prevalence of MMO and RTS titles, but there also seems to be a recent upswing in the popularity of casual gaming. Why is casual gaming booming right now?
Casual gaming is the mode through which new gamers enter the market. In 2007, there were nearly 7 million new online gamers, but those people don’t just hop into the market and instantly start playing World of Warcraft; they begin through casual gaming for the most part. Casual gaming is something that’s easily transferred, word-of-mouth, between people of all gaming abilities. In addition to these masses entering through casual gaming, we found a new type of casual game has gained a lot of popularity as well; and those are the Flash-, or sometimes Java-based browser games. They’re often similar to some of the popular MMOs or real-time strategy games that more hardcore gamers play, but they’re much shorter and easier playing experiences.
GC: Your report prominently mentions China’s 185,000 internet cafes: What percentage of the country’s 42 million online gamers connect at home, and what percent use the online cafes?
Last year, we found gamers were playing about 50% at home and 50% at cafes, but this year they’re playing a little bit more at home, simply because more PCs were sold into the home. I should caution you to say that our survey was conducted in Tier 1 and Tier 2 cities, which tend to have more wealth and greater propensity to spend on technology, and so gamers in Tier 3 and Tier 4 cities still need to go to cafes in order to play.
That doesn’t mean that Tier 1 and Tier 2 gamers don’t still go to cafes; they do, but they go for different reasons, whether to enjoy the social aspect or to participate in competitions. They’ll practice and play their long hours at home, but you’ll still find that each café is filled to the gills if you go to visit.
GC: When the Western audience thinks of Chinese gamers, we’ll often conjure up terrible, media-fed stereotypes based on those individuals who died of fatigue or committed grisly murders over virtual items. But what is the average Chinese gamer actually like?
Well, thankfully they’re not all like those you just described. Extreme cases and only extreme cases get picked up by the media – even in the United States and other countries — to make a sensational story. The wide majority of those 46 million people playing games in China are perfectly decent people.
GC: ‘laughs’ I’d assume so. So what is the average gamer like? How do they go about their day?
There are gamers who are teenagers in high school and play games on the weekends, or after their homework is done – that’s an average gamer in that age bracket, and their main interest is in some sort of entertainment outlet that’s inexpensive, something that their friends are all doing and that they can do together. Then there are the 18-22 year-olds, attending university and spending some of their free time playing games, spending what money they can cobble together from a part-time job or an allowance to play games, but with their main responsibility to their schoolbook. And then there are the newly-employed gamers, who have some disposable income of their own. They can play some lightweight games or something at the office or store if they’re lucky, but for the most part they’ll play at home, or at an internet café on the weekend. They too are playing games that their friends are telling them about, or if they’re older and have kids, maybe games that their kids have recommended. 40% of the gamers in China play fewer than seven hours per week — not everyone is hardcore.
GC: There’s a growing trend in the United States where gaming is becoming socially acceptable, and I’m wondering: in a population of 1.3 billion, how acceptable is the pastime of these 46 million? How do peers, parents and society in general view Chinese video gaming?
Well, the gamers think it’s socially acceptable, that’s for sure.
‘both laugh’
But the parents are often puzzled, don’t understand the fascination, and worry about the amount of time spent online, so the government has initiated a policy called the Anti-Fatigue system which restricts gamers under the age of 18 from playing more than three hours in a row. At three, they get a penalty, and after five hours in a row, their game level gets knocked all the way back to zero. It’s implemented by the online game operators, and was finally put into place last summer.
Kids find a way to register as adults, and register multiple accounts as well, so there are lots of ways to get around the system… but it’s not socially acceptable to play for long hours on end.
GC: How do video games compare to television, movies and books?
Television is quite popular, and books of course are popular, but I don’t think if you play games you necessarily substitute that for when you read books. It’s just an additional form of leisure. The movies are expensive, and so compared to movies they’re a far cheaper mode of entertainment, and it’s a longer experience and you can interact with your friends rather than just sit there, next to them watching a movie.
GC: There seems to be an increased interest in console gaming, with console sales rising 75% in 2007, but the sale of consoles is prohibited. Why the increased interest?
The law was put in place in the year 2000, its purpose to prevent Chinese youth from playing games too much. When online games hit a year later, the purpose of that law kind of went out the window. It has not been revoked or recinded yet, but the hardcore gamers who’ve wanted to gain access to some of the consoles they’ve heard about from their gamer buddies all over the world, have imported them illegally through the grey market. They’re easily available if you know where to go.
GC: Are Chinese gamers attracted to any consoles in particular?
They really embrace PS2 and the Nintendo Wii, and they’re big fans of Xbox 360.
GC: Lastly, I wanted to touch on current issues facing China. First, is there anything in your data that would suggest China’s gender disparity is reflected in gaming?
No… anywhere from 60 to 70 percent of total gamers are male, the rest are female – and I think just like anywhere else, you find more male gamers playing the hardcore MMORPGs, and females flock to games that are more fun for them, like the dancing and singing games, casual games…
GC: What about free speech… might the prevalence of online gaming have anything to do with an ability to speak freely?
No. ‘laughs’ Everything’s monitored there.
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Full disclosure: At time of publication, Niko Partners was a client of TriplePoint PR, a firm managed by Richard Kain — owner of our parent company Pantheon Labs. We spoke to TriplePoint to obtain the above interview.
Full press release for the Niko Partners report:
SAN JOSE, CA - May 2, 2008 - Niko Partners, the leading market intelligence firm on China’s video game industry, today announced results from its latest report citing China’s 46 million gamers spent $1.7 billion on online games in 2007, up 71% from 2006. Advanced casual and casual online games made up 21% of the total, and new flash-based casual versions of popular MMO and RTS games demonstrated the hardcore gamers’ appetite to play casual games along with subscription MMOs. Online revenue is expected to reach $2.5 billion in 2008 and $6 billion in 2012, for a 29% compound annual growth rate in the five-year period.
“China’s spending on games is up thanks to their booming economy,” said Lisa Cosmas Hanson, managing partner of Niko Partners. “14 million hardcore Chinese gamers play online games more than 22 hours per week. They play online, LAN, and single-player offline PC games in China’s 185,000 Internet cafés and increasingly on their PCs at home, thanks to falling prices and higher disposable income.”
According to Niko’s 6th Annual Review & Forecast Report, part of an annual subscription of reports for publishers, hardware makers, service providers, and investors who need to understand China’s fast-moving video game industry, gamers are buying consoles with their disposable income as well. “In spite of the regulation that has banned the sale of game consoles in China since the year 2000, gamers are flocking to stores that sell illegally imported Wii, Xbox 360, PS3 and PS2 machines to take part in the excitement of console gaming,” said Hanson. “While these consoles are expensive for the average Chinese consumer, gamers are willing to spend money on them to supplement their online gaming experience, and unit sales hit 2.48 million units in 2007, up 75% over 2006.”
Piracy remains an issue for packaged software via digital downloads and counterfeit copies of games, but legitimate sales of packaged offline PC games surged 56% in 2007, over 2006. Chinese gamers are showing that they like to buy the legitimate copies to ensure quality and to get customer support.
The 2008 Annual Review & Forecast Report on China’s Video Game Industry by Niko Partners is a thorough review and forecast of the 2007-2012 PC online, PC offline, console, handheld games and hardware market. Based on 75,000 points of data collected by Niko Partners in 10 Chinese cities in March 2008, the study provides one of the largest and most comprehensive sources of information on gamers, Internet cafés, regulations, online game operators, games, hardware, distribution, retail, outsourced development, and important trends in supply and demand.
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