[Spinelli666]

Von der Wall Street Journal, 6.10.2004:

Videogame giant Electronic Arts Inc. will announce today plans to build a videogame studio in China, putting a stake in the ground in what is expected to become the world's largest online games market by 2007. The studio is a cornerstone of a broader EA plan to expand further in Asia and could be a precursor to an acquisition or joint venture in the region. While EA has quickly grown into the world's largest videogame publisher with games such as The Sims and Madden NFL, the Redwood City, Calif., company doesn't have a strong presence in Asia.

"We want to hit a billion dollars [in sales] in Asia by 2010 -- and China is going to be a big part of that," said John Niermann, the president and Asia managing director of EA. EA's single largest Asian market now is Japan, where the company had revenue of $71 million in the year ended March 31.

The problem for EA and other games publishers in China has long been figuring out how to make money there. Rampant street-market piracy stifles the legitimate market for games distributed on DVDs, so Sony Corp. brought its PlayStation 2 console to China only earlier this year, and personal-computer game sales have long been stagnant.

But in recent years, China has bred a culture of online videogames entirely different from the TV console games of the U.S. EA and others say through online games -- which are run on large computers and played over a network -- they can stem piracy, and tap into a growing phenomenon. In cramped cafes or homes with broadband, China's online game players subscribe to an Internet service that simultaneously delivers a game to thousands of people, allowing each player to role-play characters. Rather than hard-core gamers, most players are ordinary kids.

Even though just a sliver of China's 1.3 billion people has Internet access, the numbers are still booming: There are more than 80 million Internet subscribers this year, some 16% of whom play online games, according to a new report by analysts at Dallas-based Diffusion Group. The researcher predicts that by 2007 China will become the largest online gaming market both in revenue and number of gamers. EA estimates China's online games market grew to $250 million this year, with hundreds of thousands of online gamers buying cheap subscriptions or pre-paid cards at convenience stores and from popular Web portals such as Netease.com Inc.

"This is the first time that we have seen a business model in China that lets customers pay for online games," said Erick Hachenburg, an EA senior vice president who recently moved to China to head up the company's global online gaming work from the new studio.

In interviews and analyst meetings, EA executives this year have been floating plans to expand further into Asia and have said they have looked for partners and potential acquisition targets. With annual sales of $3 billion, EA is the world's largest publisher of videogames and dominates the U.S. market. But to continue to grow, the company needs to expand its global footprint, EA executives and analysts say.

"Are they going to take a risk to miss out on the China market? The answer to everybody would be no," said Wallace Cheung, an analyst with DBS Vickers Securities in Hong Kong. "Right now the best entry point is online games."

To date, online titles in China have been dominated by Taiwanese and Korean publishers such as Webzen Inc. and NCsoft Corp., although domestic Chinese developers such as Netease and Shanda Interactive Entertainment Ltd. have recently made strides. EA will be the first big American maker to jump in -- though many in the industry consider it a relatively late move, considering EA has no timeline for when it will begin to produce games for the domestic market.

The move also marks a considerable adjustment for the company: Online games are a service, rather than a product you buy at Wal-Mart, like the bulk of what EA sells elsewhere. The company has a troubled history with online games in the U.S., where it lost at least $300 million on a big push into the online business a few years ago. It is now rebuilding its U.S. online business through partnerships with Sony and Microsoft Corp. Lacking experience in online games distribution in China, "looking to partner with a Chinese company makes sense," said Mr. Hachenburg. "We are talking to everybody in the market," he said, but declined to name specific prospects.

When the new studio starts, it will first work on customizing EA's popular international franchise games.

"We have to figure out how to take an established game like The Sims and customize it for the market, and make it work online," Mr. Hachenburg said. EA's popular international franchise titles should be available in China next year, he said.

But EA's longer-term goal is to build a team of 500 engineers, designers and artists in China to develop new titles specifically for the domestic market. Mr. Hachenburg declined to say how much the company would invest in its Chinese operation, but described it as "significant."

"We want developers who understand the local culture and will build the games that Chinese players want to play," he said.

While EA's entry will bring considerable experience, well-known game titles and software graphics libraries to the Chinese market, building original games may prove to be a challenge.

The games that are popular in China don't always resemble EA's American hits. "Chinese players are not typical gamers in the Western sense -- they need a game that is simple and easy to play," said Persy Zhang, the general manager of Object Software, a Beijing-based videogame maker. EA's fortunes are built on videogame versions of popular sports such as football and basketball. In recent years the company has also built franchises around games based on popular movies such as "Harry Potter" and "The Lord of the Rings."

Popular online games in China typically celebrate teamwork, giving an individual player a view of a whole group from an aerial view. Other popular games are based on Chinese history.

Zheng Da, a 32-year-old engineer in Beijing, spends three to four hours every day playing "San Guo Online," a multiuser strategy game based on a Chinese historical novel, "Romance of the Three Kingdoms." In the game, players work together toward the ultimate goal: the unification of China.

"The game gives you fresh experience every time you play it," said Mr. Zheng, "as different combat strategies will bring about different results." But Mr. Zheng complains that the animation on his home-grown game can't compete with what he sees on games from South Korean or U.S. companies. The characters are so rough and the animation effects are so poor that the whole game feels like a shadow play, he said.

EA says the China studio will focus on developing games for the Chinese market, not outsourcing programming for games sold elsewhere around the world, such as what competitor Ubisoft Entertainment of France has done in China since the mid-1990s. But eventually, Mr. Hachenburg said he hopes that his China-developed titles will be sold around the world.

While some sports simulation games -- such as EA's "FIFA Soccer" -- have proved popular around the world, makers have more difficulty sharing other kinds of titles.

"The tastes of Asian players compared to Western and European players are still so unique," said Richard Garriott, a U.S.-based creative director for Korea's NCsoft. "Very often when people set off to try to create a game that works everywhere, it is usually fraught with peril," he said.

Another challenge will be finding experienced programmers to fill EA's studio. Mr. Hachenburg said he hadn't yet chosen a city in which to locate EA's new studio, but other Chinese game makers say EA's entry will intensify the competition.

"If EA sets up studio in Beijing, it would be a disaster for us," said Object Software's Mr. Zhang. "We are very short on talent now, and they will have to steal people away."