Have fun, be careful!

The year 2010 sparked mixed feelings among China’s PC game producers.

An exciting prospect still beckons. By the year 2014, the number of gamers in China is expected to jump to 123 million and the sale of games may fetch up to 50.8 billion yuan, increasing at a10. 4% compound annual rate. The sales of mobile games will reach 4.81 billion yuan, making it another strategic growth area.

The bad news is that during the first half of 2010, the gamer scale was expanding at a slower pace than first expected, at a growth rate of 11.9%, the slowest in the past 5 years. To make matters worse, intense competition between the producers has emboldened some to resort to dirty tricks, such as slandering, binding sexual content and malwares in their advertisements that spread wildly online.

A survey made by Analysys International, a leading provider of information on products, services and solutions in China’s Internet market, reveals that in terms of link relative ratio, China’s online game market began to slow down after reaching 12.1% by the end of the second quarter of 2009. It estimates that the market scale in China may finally fetch up to around 30 billion yuan in the year 2010.

The reasons behind the slowdown are various, including a shortage of creative products, rampant copycat practice and cheating programs. The main culprit, however, is the greedy nature of the producers over recent years, when they have thrived off the large domestic user scale.

“By introducing foreign games alone could establish national recognition in a short time, but it fails to meet the market demands in the long run. The online game producers must make a strategic shift of their focus,” said Zhang Shule, an expert in the IT and game industry.

China has seen the greatest growth and profit margin and ARPU (Average Revenue Per User) in its game industry, but has failed to meet its social responsibility.

Most of the active users are young people between the ages of 20 and 29, contributing to over 90% of the total gamer population. Many producers, eager to attain public recognition, have marketed their products by having naked models and Her Topic girls endorse appear in their advertisements, worsening the already fragile image of online games among Chinese parents.

Also, impulsive producers churn out many games without real characters; these anonymous products greatly depress the user’s experience.

“Today’s Internet is glutted with webgame advertisements of sexually suggestive pictures, alluring users to click and enter their games. But the games essentially are the same. A game can be easily reproduced to another one by just changing in-game characters and environment. That may be the reason why the players are always on the go,” one player said in a post.

In response to the intense competition at home, some pioneering companies have been testing the waters overseas, and they may be on the threshold of something big through overseas investment, share-buying and mergers and acquisitions, apart from product exports.

Perfect World, with its years of experience in overseas operation, has taken the lead. Its overseas revenue reached 7.82 million yuan in Q1, 8.13 million in Q2 and 726 million in Q3, drawing an exciting earning report for its investors. In March, it bought over C&C Media, the largest online game operation agent in Japan, with 21 million dollars, an act widely interpreted to enter the huge market of consoles.

It has also gained a head-start in the Russian market. Of the 8.13 million yuan of overseas revenue in the second quarter, 30% comes from the Russian market.

“The Russian market provides more earnings than Taiwan, and it is our main source of wealth now,” said Zhu Qi, senior vice president of Perfect World.

Kingsoft also stands to make gains, despite the sluggish market expansion over recent years. Its target countries, including Vietnam, Taiwan and Singapore, continue to show a good momentum of growth, taking up 14% of its total revenues.

Changyou began to promote its products in foreign markets in 2007. Its overseas revenue, in large part, comes from the overseas licensing of Dragon Oath, one of the most popular massively multiplayer online role-playing games (MMORPG) in China. With the coming release of other games in 2011, it’s determined to reach more foreign users and establish an internationally known brand.

William Ding, CEO of NetEase, has a different take on the overseas expansion. NetEase will expand into overseas markets when the opportune comes, he says, and for a highly competitive company, time does not matter; what really matters is whether or not it is willing to improve the user’s experience through technology upgrades and innovation.

In 2009, the sale of China’s online games reached 25.62 billion yuan, 39.4 % up from 2008 and generated another 55.5 billion yuan for game-related industries, including theme toys and clothes.