NetEase makes play-for-free game with Tianxie II debut
Online providers switch to selling virtual weapons and outfits
The mainland is in the midst of free network gaming fever, as NetEase, the country's second-largest provider of online games, joins its largest competitors in this market segment with the launch of free-to-play game Tianxie II.
'In the past, we went to the extreme and overemphasised the time-based game model. As competition in the industry changes, users started to like the free or item-based game model,' said William Ding Lei, chief executive of Nasdaq-listed NetEase, at a mainland games industry conference in Suzhou last week.
Tianxie II, scheduled for release after the Lunar New Year, will be a free, item-based game, in which users will only be charged when they want better virtual weapons or outfits.
Revenue in item-based online gaming is derived from selling virtual weapons and other digital components used for playing the games. Time-based games are essentially pay-to-play products.
'NetEase is the last major online game company in China to move to the item-based model,' said Dick Wei, mainland internet analyst at JP Morgan.
Previous games released by NetEase, including Fantasy Westward Journey, have all been time-based games.
Tianxie II, a three-dimensional game that took NetEase three years to develop, was first released in March last year under the time-based model and became an immediate flop.
NetEase was once the mainland's largest online game company, but it somehow lost steam from the summer of 2006 for failing 'to catch up with the free gaming and casual game trends', said a Beijing-based market analyst.
Last year, NetEase's third-quarter revenue was almost flat even as the country's online gaming sector grew 61.5 per cent, according to market research firm International Data Corp (IDC).
The mainland's total online game industry revenue reached 10.5 billion yuan last year, up from 6.5 billion yuan in 2006.
Giant Interactive was first to launch a major free internet game on the mainland with ZT Online in 2005. The Shanghai-based company is currently the country's third-largest online gaming firm.
Nasdaq-listed Shanda Interactive Entertainment, the mainland's largest online gaming company, switched most of its products to item-based gaming by the end of 2005.
The9's World of Warcraft, a worldwide hit that was licensed by United States game developer and publisher Blizzard Entertainment, remains the only major pay-to-play online game in the country.
In the last two years, all major new online game releases on the mainland were item-based games.
A recent survey by IDC found most of the mainland's top 10 online games last year were offered for free. The study, which drew more than 260,000 respondents, also found the most anticipated online games slated for release this year are mainly item-based games.' Free games help to broaden significantly the mainland's online game user base and drive higher individual spending,' said JP Morgan's Mr Wei.
IDC estimated that the number of online game users on the mainland grew 23 per cent last year to 40.17 million, of which 22.36 million were paying customers.
Average spending on Giant Interactive and Shanda's free games is about 100 yuan and 60 yuan per month, respectively. Those werehigher than the 20 yuan to 30 yuan per month fees which NetEase charged for its time-based games, Mr Wei said.
He said that NetEase would firmly commit itself to the item-based game model after Tianxie II's release.
'Previously, the company thought item-based games, which allow rich players to buy better weapons, was unfair to other game users. It also thought that free games would give users the impression of low quality,
'These ideas are no longer true in today's online game industry in China.' The impact on NetEase's sales and profits from this move to free games remained hard to determine, he said.
Meanwhile, IDC's latest survey found casual games and mainland-developed games were getting more popular. The country's casual games market was worth 2.53 billion yuan last year, up 105.9 per cent from a year ago. The segment is expected to grow 31 per cent annually in the next five years, compared with 15.2 per cent annually for the so-called massive multi-player online role-playing games.
Out of the 76 online games released in the nation last year, 53 were developed by domestic firms. Total revenue from mainland-developed games reached 6.88 billion yuan last year, or 65.1 per cent of the total market. That total revenue was up 62.3 per cent from 2006.
Free game goldmine
Revenue for gaming firms rises as users spend more on items
Revenue for the nation's online gaming industry last year reached, in yuan: 10.5b yuan