Opportunities in China and India
With an avid gamer base and an online games market worth more than $2.5 billion in 2007, Korea, China, India, and Taiwan represent significant market opportunities for casual game publishers who have compelling and relevant content. Nevertheless, Asia cannot be treated as one monolithic region. Significant cultural and business differences exist between countries. What works in China might not work in Korea or India—and vice versa.
Pearl Research, a San Francisco- and China-based market research and consulting firm, examines the games market in two emerging markets: China and India.
India
Pearl Research believes 2007 will be a pivotal year for the India games market as interest in this market intensifies. There are several reasons for the growing interest in the games market in India:
- International companies are now considering a “1+1 strategy” whereby they combine their development in China with expansion into another nearby country such as Vietnam or India.
- India has a large middle-class population at 81 million people, with growing Internet and broadband consumption.
- Local and international players—including Reliance, Indiagames, and Microsoft—are experimenting with different business models in India and starting to launch new products there. Their marketing promotions are building user awareness and accelerating the adoption of games.
In addition, several other recent developments are causing a growing interest in the Indian games market, including:
- Growing usage of the Internet
- The launch of Zapak by Reliance
- The official launch of Microsoft’s Xbox 360
Growing Usage of the Internet
The Internet and Mobile Association of India (IAMAI) and India Market Research Bureau (IMRB) recently completed a survey covering around 65,000 individuals from 16,500 households in 26 cities, with additional coverage of 10,000 businesses and 250 Internet cafe owners. It is one the largest offline surveys of the Internet users in India. According to that study, Internet users in India reached 37 million in September of 2006—with 25 million of those active users. (“Active user” is defined as someone who has used the Internet at least once in the last 30 days).
Figure 1: Hours Per Week Spent on the Internet
Source: Internet and Mobile Association of India and IRMB study
Of those users, approximately 38% (14 million) spend an average of eight hours per week online. The average time spent on the Internet increases with age—older men spend the most time on the Internet with 580 minutes (9.7 hours) of usage each week (see Figure 1). Given the low home PC penetration rates in India, Pearl Research believes the majority of Internet access occurs in Internet cafes and at work.
As Indian Internet users become more familiar with the Internet, Pearl Research believes their usage is evolving to include more sophisticated patterns of content consumption. The next round of growth will be driven by applications such as blogs, video-on-demand, online radio, online gaming, and localized content. Pearl Research believes this trend could be an opportunity for international content providers to market their products and services to a growing Internet population.
The Launch of Zapak.com
One of the key players to watch in the Indian games market is Reliance. Reliance is one of the largest business groups in India, with $22 billion in assets spanning petrochemicals, energy, retail, telecom, and technology (among other industries). Any business moves by the Reliance group are heavily tracked in India due to the group’s influence and financial resources. Accordingly, the industry listened with interest when Reliance announced that it will spend $100 million on the games market in India. While Pearl Research believes that, in the end, the actual amount spent will be much lower, the announcement underlies Reliance’s push into gaming.
Reliance’s primary product is Zapak.com, a gaming portal. Reliance believes Zapak will succeed if it has the right content offered at the right price for price-sensitive Indian consumers. Initially, Zapak plans to offer free casual games in categories such as arcade, shooter, and racing. In addition, downloadable games will be available from 49 rupees to 249 rupees ($1 to $5). The site will also offer Zapak email, a blog function to encourage community, Zapak.TV, and forums. Also in the pipeline is Zapakgirls, a sub-section of the site offering casual games targeted mainly at girls. What’s more, to boost the site’s popularity in star-obsessed India, Reliance has secured endorsements from film stars Salman Khan and Bipasha Basu for Zapak.
The revenue model for Zapak will be based on advertisements for its casual games and a mix of subscription and pay-per-use fees for its MMOG and downloadable games. Zapak also plans to operate games with an in-game economy, allowing for the selling and trading of virtual items.
Reliance is already cross-promoting Zapak through Reliance WebWorld, the second-largest Internet cafe chain in India with 240 outlets in 104 cities. For instance, during January’s GameBox National Championship (a gaming tournament held in the 104 Reliance WebWorld outlets), Zapak was the casual gaming partner for the event.
Zapak’s operation and its success or failure in the market is being closely watched by the Indian games industry. Backed by a large financial group and leveraging its Internet cafes, Zapak is a first-mover whose strategy and execution could help it capture market share. If the company is unable to execute or if the market is too nascent, however, the lessons learned from its launch will help other companies refine and develop their Indian strategy.
The Official Launch of Xbox 360 in India
The Indian Xbox 360 launch occurred in October, 2006 with the system retailing for 19,990 rupees ($439). The high prices for Xbox 360 reflect hardware and software tariffs of close to 37%. The company said it is working with the Ministry of Commerce to try to reduce these high import tariffs.
The Xbox 360 launch was focused on the top seven cities: Delhi, Mumbai, Chennai, Bangalore, Hyderabad, Pune and Kolkata. Launch day releases within the region included titles such as Project Gotham Racing 3, Kameo, and Perfect Dark Zero, with titles such as Gears of War and Viva Piñata scheduled to be released in the following weeks. Xbox 360 software generally retails for $30 or more, expensive by Indian standards. Xbox distribution is being handled by Chennai-headquartered Reddington, a supply chain service provider for the IT and consumer electronics industry with more than 1,000 employees.
Microsoft’s strategy in India is to focus on value and not necessarily on the lowest price. Initially, the company plans to drive platform adoption and seed the market via bundle offers and consumer financing. It also plans to offer relevant, compelling content from international and domestic game publishers. In addition, Microsoft plans to focus on the lower-priced platinum hits program to combat piracy.
While capturing emerging markets is a goal for Microsoft, the low per-capita GDP of most emerging markets, combined with rampant software piracy, has generally inhibited console adoption and legitimate software sales. Still, the Xbox 360 launch was heavily promoted—with popular Bollywood actor Akshay Kumar and cricketer Yuvraj Singh both appearing in television commercials. Promotional tie-ins with MTV India also have increased the user awareness of the Xbox 360 and console gaming in general.
Pearl Research believes the Xbox 360’s launch in India is a promising sign that more companies will be willing to invest in and develop the emerging games market in India.
Overall, while India presents opportunities, critical challenges remain, including low PC and broadband penetration rates, price sensitive consumers, low concurrent user numbers, a nascent gaming culture, an underdeveloped payment and billing system, and a weak infrastructure.
China
China’s gaming industry has seen remarkable growth: from an insignificant market in 2000 to a market exceeding $1 billion in 2007. While the overall online games market in China will continue to expand in the coming years, Pearl Research believes the growth in the casual games sector will outpace that of MMORPGs. Casual and web games appeal to a wide audience with nearly 47% of online gamers playing these games, according to a survey conducted by CCNIC, the government-backed Chinese Internet research firm. While the casual games market represents a significant opportunity, it is also intensely competitive, with portals such as Netease, Sina, Sohu, and Tencent all offering similar casual games.
There are three key factors driving the casual games market in China:
- Web and casual games appeal to a diverse audience.
- Rapid Internet and broadband adoption spurs the online games market.
- Casual games provide an important social medium.
The Broad Appeal of Web and Casual Games
A top casual game in China might have more than 800,000 concurrent users, while a top casual game portal might have millions of concurrent users at any one time. Tencent’s casual games portal QQ Game, which primarily offers card and board games, has reported more than three million concurrent users during peak operations. Compared to casual games such as Audition (an online dance and music game) and Popkart (an online kart racing game), games offered through these portals appeal to a more diverse user group—ranging from teenage students to middle-aged housewives.
Screenshot of QQ Game
Source: game.qq.com
Rapid Internet Adoption
One of the underlying drivers of growth in the games market is the sheer number of Internet users in China, many of whom use the Internet to seek out entertainment content. Since the launch of Internet services in 1994, the number of Chinese Internet users has grown rapidly, reaching 137 million as of December 2006, according to China Internet Network Information Center (CNNIC). In another survey by the Chinese Academy of Social Science, nearly 62% of Internet users polled reported that one of the reasons they go online is to play games
One of the reasons for the popularity of online games is that approximately 54% of Internet users in China are under the age of 24—and Pearl Research believes this under-24 demographic maps closely to a game-playing demographic. Because this group is most likely to go online in search of entertainment—including online games, music, and chat—they are likely to help drive revenues for the online gaming market.
Further spurring the growth of online gaming is the accelerating adoption of broadband in China, where 70% of all Internet connections are high-speed broadband connections. (see Figure 2)
Figure 2: Number of Broadband and Dial-Up Connections in China
Source: China Internet Network Information Center, 2006 numbers are as of 12/2006
The Social Appeal of Casual Games
One of the principle reasons that online games in general—and casual games in particular—are so popular and “sticky” is that they offer extensive collaboration and player interaction. In Pearl Research’s interviews with Chinese gamers, some players indicated that most of their in-game chatting has nothing to do with the game itself. Younger players, in fact, tend to use casual games as a platform to meet friends and form virtual romantic relationships. Pearl Research believes that social-networking is an important factor relating to the success of casual games in China. Furthermore, since players are likely to see their avatars as extensions and idealizations of their real-world identities, they are more likely to purchase virtual items to improve their in-game appearance.
Opportunities for Developers
While China has a robust games market, most the top casual games in China are developed in Korea. Although there are numerous domestically developed casual games on the market as well, most of them are copycat titles. The lack of innovation from Chinese developers and the uniform look of Korean games leave the door open for the entry of more diverse casual games from Western and European publishers. However, to be successful casual games designed for the Chinese market must be multi-player since single-player games are much less popular with Chinese users. Furthermore, if casual game operators and developers decide to bring their content to China, they must localize titles for Chinese audiences and be prepared to deal with the ongoing challenges relating to intellectual property protection, nimble local competitors, and the changing regulatory system in China.
Note: This article was based on findings from Pearl Research’s “Games Market in China” and “Online Games Market in India” studies.
Pearl Research, a business intelligence and consulting firm, specializes in the interactive entertainment and games industry with a focus on emerging markets and platforms. Based in San Francisco, Pearl Research publishes in-depth market research reports in addition to providing customized research and consulting services. The company also provides a subscription service for its reports and services and operates Redlinechina.com, an updates news portal focused on the Chinese technology markets. For more information, please contact Allison Luong at 415-376-7310 or email research@pearlresearch.com.
