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Via Next Gen, a report that 26M subscribers spent $470M on online video games in China. That’s 52% more revenue than in 2004.

It’s interesting that despite this increase, Chinese online game operators recently reported disappointing financial results. What explains the discrepancy?

I’ve heard whispers that piracy is beginning to hurt even the online game operators, but I’ve read nothing conclusive (in fact, I’ve read the contrary). The Chinese government recently ordered curbs on the number of hours consumers can play per day, but nevertheless, revenues rose. Furthermore, the government isn’t solely playing bad-cop; it is actively supporting the game industry all the while. And the Internet infrastructure is rapidly being improved in China, so the problem can’t be rooted in bottlenecks there.

So what’s up? Given the (known) facts, I think that there must simply be too many companies making too many of the same kind of game. As a whole, they make a ton of money, but individually, they are suffering from the competition. Perhaps the West cannot lay sole claim to the ever-prominent issue of “innovation scarcity”…

Shanda, China’s largest online game operator, announced that it is eliminating subscription fees for Mir 2, Magical Land, and Woool. The move was expected for Mir 2, an older game with a rapidly declining user base. However, Magical Land is a much newer game, and Woool is Shanda’s #1 property.

The company’s focus will shift to driving revenue primarily via in-game purchase of premium content. This applies to most of Shanda’s upcoming titles as well. The change is expected to result in a very signficant earnings shortfall, at least in the short term.

Predictably, Wall Street got spooked. Most analysts are interpreting this as further sign of bruising competition from the likes of WoW. But then, we know that WoW isn’t doing as well as Blizzard hoped in China.

If movie theaters stopped charging admission in the hopes that greater popcorn sales would make up the difference, I’d probably call them nuts. This seems similar, though I don’t discount the potential of in-game purchasing. I just think a dual-revenue model is better.

Oh, I also heard another explanation for these troubles: piracy. Apparently, Chinese MMOG operators might be losing the war against illegal instances of their games. I didn’t think it was possible to effectively pirate an MMOG…

• Press release

Irony == using Sony’s music DRM solution to defeat Blizzard’s anti-hack system, dubbed “the Warden.” Moral of the story: assume that your online games will be hacked. Use your players to identify and fight hackers. Work hard to generate good-will in the gaming community in general. Pure engineering solutions will never be enough – this is also a business problem.

• Full story
• Technical rant about Sony rootkit
• Social rant about Sony rootkit
• Good non-technical summary of the rootkit issue

Big drop in sales, some restructuring charges, and a conspicuously still-unfilled CEO slot. Bruno Bonnell remains (outwardly) confident in the future.

What’s the strategy here, guys? Plans to do more with your classic IP than simply continuining to repackage it in retro gear? How about some seriously snazzy remakes of classic games — have some fun with them? And/or a return to simple but incredibly compelling gameplay… we know there’s a market out there for it (see previous post on casual games).

When I hear “Atari,” I’m not going to think “Activision” or “EA,” no matter how much you wish I would.

• Full story
• Nolan Bushnell, founder of Atari, innovating on his own.

Big news: Bioware and Pandemic are merging! Pandemic is maker of Full Spectrum Warrior, Destroy All Humans, and Star Wars Battlefront; Bioware produced Jade Empire, Knights of the Old Republic, and Baldur’s Gate.

The merging of two high-profile studios (as opposed to their eventual absorption by publishers) makes a lot of sense. Scale = bargaining power (and, as Bioware noted, much-craved independence). Everybody wants scale nowadays … hard to do business with the Walmart and EAs of the world otherwise.

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Merrill Lynch predicts that next gen component costs will result in Xbox 360 selling at half the price of the PS3 by end of 2006. They’re blaming this primarily on Cell processor and Blu-Ray costs.

Inelastic fan demand and the forces of “luxury branding” notwithstanding, this prediction (if true) implies a serious advantage for Microsoft. Remember the famous Nintendo GameCube pricedrop to $99 — pretty much saved that console from failure.

• Full story
• Xbox 360 launch price details
• Explanation of Cell processor architecture
• More rumors about PS3 launch price

Steve Salyer, president of IGE, predicts that worldwide virtual asset trading in video games could balloon into a $2.7 billion market by the end of 2006. This figure probably doesn’t reflect the fact that the majority of that value cannot be extracted into the real world, and most if it will evaporate when a game’s popularity fizzles out (and its virtual world is abandoned.) That said, maybe my WoW hunter really is as money as he looks…

• Full story
• Offshore “game currency farming”

Further proof that casual games have been underestimated. Club Pogo charges (on average) $5 per month for access to “premium” casual games and other features. With an audience comprised of more women than men, and older players on average. There are religious groups that meet up to pray and play games at Pogo..

• Full story
• IGDA casual games SIG
• Innovation in the casual game space (Businessweek)

From the Austin Game Conference Asia Track:

• Anime and realist art are the most popular in Asia; realist art hasn’t done as well in the US.
• Individualism matters more in the US; community interactions (trading, graphical embraces, etc) matter more in Asia. (My two cents: it is dangerous to underplay community functionality in any region — it always matters.)
• Simple game controls are more important in Asia, due to habit of gamers in Asia to play with one hand while doing other things (such as eating, text messaging, etc).
• One Asian company reported that 60% of its customers were unemployed (living off unemployment checks). Some player’s wives wrote in thanks, preferring this to the possibility of gambling.
• Game companies are big buyers of advertising time in Asia — benefits of such spending are currently unclear.
• In China, companies pay fees to put up game posters in Internet cafes. Other companies can pay to have them removed. *grin*

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In no particular order:

• 25,000 wireless hotspots throughout Europe (unclear how many of these will be McDonald’s locations)
• Revolution will be “as graphically powerful” as PS3 / 360
• Revolution users will be ablet to play some games online without actually owning a copy.
• Online content will not be restricted by geographical region

Between the serious committment to online play and the nifty position-sensitive wireless controller, I’m getting more psyched abou the Revolution every day.

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