Thursday, February 4th, 2010
Chinese MMO Companies Set for Expansion
Changyou.com Limited (NASDAQ:CYOU), Shanda Interactive Entertainment Ltd. (NASDAQ:SNDA), The9 Limited (NASDAQ:NCTY), NetEase.com, Inc. (NASDAQ:NTES), and other online gaming companies in China could be set for rapid expansion in 2011 and beyond.
With a fresh stack of cash from public offerings in the United States, many Chinese gaming companies are making a small fortune in the rapidly growing Chinese market while also eyeing an expansion abroad with their popular game titles. Companies in this industry include names like:
- Changyou.com Limited (CYOU, Free Analysis)
- Shanda Interactive Entertainment Ltd (SNDA, Free Analysis)
- The9 Limited (NCTY, Free Analysis)
- NetEase.com, Inc. (NTES, Free Analysis)
In 2009, China’s online gaming market surged 41.9% year-over-year to $3.7 billion in size, with more than 50 million domestic online gamers and 361 major software titles. Meanwhile, analysts believe the industry will continue rapidly expanding to 40% of the global market by 2011.
Expanding to the West
Chinese gaming companies are also eying expansion abroad into Western markets like the United States. In 2009, Chinese online games earned some $106 million from overseas markets, which was a 47.2% increase over the previous year.
Despite the trend, industry experts warn that there are many barriers to successful entry into these markets. For example, the cultural differences between East and West may require developers to rewrite some storylines, while foreign competition also continues to grow.
Additional Potential Risks Ahead
Chinese gaming companies also face a number of challenges domestically stemming from the government. Officers in charge of the Ministry of Culture have noted that regulations to protect the growth of adolescents and better manage the market could come this year.
Meanwhile, the online gaming industry also continues to face new competition as a result of the enormous profitability and low overhead seen in online gaming companies. In fact, approximately 115 new games were launched in China in 2009 alone.
The Takeaway…
- Chinese online gaming companies are well-positioned in a quickly growing market, with plans to expand internationally during the coming years.
- Despite the move to expand, there are several barriers to entry, including cultural barriers and foreign competition from countries like South Korea.
- Chinese online gaming companies also face competition domestically, as the government may regulate the industry and competition grows fierce.
Written by Rick Telfur
