Moving to China

According to a couple of sources the Shanghi Youth Daily is reporting that the Chinese government is about to invest $1.8 billion in on-line game development. And for that money I’d move anywhere.

Reports suggest that the cash will fund 100 games.

Question - is money like this a good thing for the industry? OK, 100 is a round figure no doubt plucked from the air – but are there 100 good ideas out there, if there are, is there 100 x the talent base needed to make them happen.

Many argue that the current VC / publisher system promotes the safe and mediocre, but, in this case, does the market act as an editor?

Comments

[magicback]

1.

Government getting into the act of funding means that the government think this industry is going to be major cultural asset.

In another news, a rule came out banning minors from playing online games that have PK and ordering game operators to develop identity autentification system. Is this a beginning to censorship or taxation? Will the funds be used to build the mechanism for the tracking and taxation of online game players and traders?

http://www.interfax.cn/showfeature.asp?aid=4211&slug=INTERNET-ONLINE%20GAME-MOC-POLICY-MII

[ren]

2.

magicback > Is this a beginning to censorship or taxation?

“Passive” censorship through promotion and taxation maybe.

[Jeff Lotton]

3.

Taxation is imminent, especially since game items have been openly traded for some time.

Censorship is a potential, especially if games like GTA continue to be published.

Jeff

[Peter Ludlow]

4.

All I can say is :0

[HiroPendragon]

5.

(Linked from Hamlet's New World Notes.)
Irony: China has the vision to invest 1.8bil in online worlds and yet lacks the vision to earmark some of that for a Metaverse project to replace and control the Internet as they would like.

[lewy]

6.

I posted this earlier, but I think it bears repeating here. I've heard that the South Korean government grants deferments from its policy of mandatory military service to inviduals working in the MMOG market. (Similar deferments are offered if you're the only son in a family, for health reasons, etc.) That's in addition to a policy of government funding and perks.

Taking into account factors like the level of broadband penetration in S. Korea, (and, I'm guessing, soon China), the penetration of online gaming into the population at large and the massive levels of government sponsorship I have to admit I am intrigued. Is Asia going to be the nexus of online computing in the future, while the West is relegated to a backwater?

My guess is that this announcement will be met with simple bafflement from the mainstream media in the US, if it's noticed at all. "Spend that much money on video games? That's crazy." I have to wonder it's not about games at all. In the short run there may be some kind of economic benefit. In the long run will this contribute to a "wired" culture? A population which understands, down to its very bones, that computers that can communicate with other computers are orders of magnitude more powerful than computers which can't?

Anyway, I'm off to write a letter to Hillary Clinton suggesting that the US government fund the next iteration of "Grand Theft Auto".

[galiel]

7.

Hey, you can call your Chinese game company "Tiananmen Square". Get it?

And folks wonder why the game industry is held in the same high esteem as used car salesmen, televangelists, and corporate lobbyists....

[Bart Stewart]

8.

lewy > "Spend that much money on video games? That's crazy." I have to wonder it's not about games at all.

My theory: bread and circuses.

--Bart

[lewy]

9.

Bart wrote:

"My theory: bread and circuses."

If so it's a remarkably misguided decision. The majority of Chinese still do not live in cities and make their living from agriculture. There seems to be little chance that MMO's will have any impact on them. Even when you're talking about the urban dwelling minority the percentage of game players is relatively small. A policy designed to placate the masses would do better working through the medium of television.

Also note that South Korea, another Asian country whose government is making a sizable investment in this technology, has been a fully functioning democracy since the 1980's.

[Bart Stewart]

10.

Networked computers offer a much freer multidirectional flow of information than television sets. That makes them considerably more dangerous to a controlled social structure.

A government concerned with such things might favor a policy of persuading networked computer users to spend their time consuming entertainment rather than gathering electronically to spread "subversive" information. Investing a few billions' worth to promote such a policy might seem like money well spent.

As for South Korea, its government's reasons for investments may have nothing to do with another nation's reasons.

But as I said, it's just a theory.

--Bart

[lewy]

11.

Bart wrote:

"A government concerned with such things might favor a policy of persuading networked computer users to spend their time consuming entertainment rather than gathering electronically to spread "subversive" information. Investing a few billions' worth to promote such a policy might seem like money well spent."

The problem is that such a strategy would imply that people can't do both. Futhermore so far as clamping down on dissidents goes it seems like an awfully indirect and obfuscated approach.

[Paul 'Phinehas' Schwanz]

12.

A couple of years back, I was at the Sun Microsystem's booth at GDC helping promote a Java-based MMOG called Magicosm. The lead developer for Magicosm was approached by Chinese government officials about investing in the game. Apparently, the Chinese were keen to have an MMOG that supported Linux clients. From the discussions, it seems that they were not very comfortable using a closed-source OS, fearing that foreign intelligence gathering agencies might be granted special back-door access through Windows. Having alternative games that ran on Linux would make it easier for them to convince the populace to stick with an OS they could trust.

I'm not sure how much of this was speculation on our part and how much actually came out in the conversation, since I only heard about it after the fact, but I thought it made a certain degree of sense. Has anyone heard whether the current proposed investment targets Linux in any way?

--Paul

[Dr, Cat]

13.

To me it seems like a fairly straightforward case of promoting economic development. A lot of revenues from current online games is presumably going overseas to Korea (and now the US, for World of Warcraft). I'm sure the Chinese government would like to keep more of that money in their own economy. They also develop their high tech sector more, clearly a desirable thing to be competitive in the modern global economy, and if they do well they could see some of those games successfully licensed in other countries, improving their balance of trade still further. Plus locally made games will be more likely to reflect a Chinese cultural viewpoint of morality, history, etc. rather than a foreign one, which is probably important to them as well. Especially in this age of having their people starting to get more "invaded" by rival points of view through movies, TV, and that wicked internet.

All in all, it seems like a no-brainer to try something like this. I suspect $1.8 billion is a pretty small portion of their overall government budget, and they're putting it into something that's a very hot economic growth industry right now.

[Alexis]

14.

Just my 2 cents here. Seems like there's some validity to all the previous comments.

The first point I want to make is that it's not weird for the Chinese government to support particular industries. It's part of what capitalism with Chinese characteristics is. Matter of fact, considering US agribusiness subsidies, it probably is what capitalism with nationalistic tendencies means.

Re: bread and circus. Some domestic Chinese company executives I've talked to believe that is exactly why the government supports them. Especially in smaller Chinese cities, underemployment is a major concern. Add to that the fundamental problem of too many males (due primarily to selective female abortion/infanticide) and you have a young, idle male population unattached to females. Historically, that has not been a good recipe for social stability. How do you occupy those guys? 'Addictive' games seems like a pretty good starting point.

On the other hand, it's true that Internet penetration is below 10% for the total population. Take Guangdong and Shandong though--they've got around 12 million and 8 million internet users respectively. Beijing and Shanghai have Internet penetration of 25%. And, obviously for young men, it's much, much higher. I have a forthcoming report in which I estimate that around 15% of the 20-24 year old men in China play games of some variety. That's decent reach for an entertainment medium.

The Chinese government realizes that it needs games. Games drive overall telecom revenues in a major way. They also drive broadband adoption. In China, games are the 'killer app' that everyone always talks about. Unfortunately, there is a lack of actually killer games. Most of them are pretty crappy, esp. the domestically developed ones. The game industry is even more risk-adverse there than it is here. That translates, in practice, to a bunch of lookalike crap games. To keep driving the telecoms industry they need better games and because hte Chinese like insourcing, that means developing their own games. From what I can tell, the cultural stuff is 85% smokescreen for what pretty questionable protectionist moves.

In fact, the only reason that any Western games get into their market at all on good terms is when we've got them over a barrel. Take a look at Blizzard's deal with the9 (there's a modified copy on oncle.com) and you'll see one hell of a lopsided deal. Keep in mind it is very hard to get a foreign game approved for operation in China. Why did the government let that deal go through? Without WoW, the9's IPO never gets off the ground. MU's metrics, the other game the9 operates, had been (and continue) dropping through the floor. The Chinese government likes to avoid that kind of bad press for its domestic companies. That's how I read it at least, perhaps slightly biased by some conversations with some of the9's competitors (who know a bit more than I do).

[HiroPendragon]

15.

Can MMOs be the liberation of Chinese citizens from the restrictive government censorship? (i.e., last year CNN had a short story about how all references to the Tien. Sq. Massacre are completely censored from CNN - was an anniversary of the tragedy.)

[lewy]

16.

HiroPendaron wrote:

"Can MMOs be the liberation of Chinese citizens from the restrictive government censorship?"

I doubt it. I'd imagine that most Chinese gamers will be playing on Chinese servers, in Chinese.

[lewy]

17.

Alexis wrote:

"I have a forthcoming report in which I estimate that around 15% of the 20-24 year old men in China play games of some variety. That's decent reach for an entertainment medium."

Is that for video games as a whole, or MMO games specifically?

"Without WoW, the9's IPO never gets off the ground."

Then again, the WoW deal is going to chew up most of the revenue that the9 generates from its IPO. It sounds like the9 leveraged itself so heavily that it's counting on WoW to be a pretty big success, which probably isn't too much of a long shot given the game's success in S. Korea.

Still, that's all in Chinese money. Reports are that the terms of the deal were a paltry $3 million up front and $54 million in guaranteed royalties over four years--not exactly overwhelming.

[lewy]

18.

Alexis wrote:

"Add to that the fundamental problem of too many males (due primarily to selective female abortion/infanticide)..."

Actually the latest theory is that most of the "missing" females were simply never born due to the prevalence of hepatitis B in Asia.

[magicback]

19.

Regarding theories:

IMO, the bread & circus theory and the Hepatitis theory are false trails.

IMO, the preference for open source, the pursuit of a Chinese economic agenda and model, and the promotion of a global competitive industry are closer to the truth.

China does not hide their agenda of promoting and protecting domestic companies. China also does not hide their agenda of creating their own IP or use IP that is not controlled by a particular country (and I'm including cultural products within the IP category). China is promoting their own DVD standards, 3G mobile standards, IPv6 standards, etc.

Regarding: WoW and The9.

While the WoW deal did give The9's IPO a boost, I think the deal was fare given the expectations for the results. $3m upfront is fare value for WoW and the revenue split is also fare. The partnership is good for Blizzard as WoW is The9's main product for now (note the marketing $ committed by The9) and is good for The9 for obvious reasons.

Frank

[Michael]

20.

Thanks for that information,besides I have found an internet company, http://www.chinavestor.com

They cover all U.S. listed Chinese companies, weekly stock recommendation, portolios, Newsletter to eduate audiance etc. This is for individuals interested in investing in China. CHeck them out, great source of information.

michael

[sky fadak]

21.

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