Mainland's video games sector needs a world-class player

The mainland video game industry is evolving rapidly, yet a true world-class market leader is nowhere in sight.

There are roughly 100 development studios and 70 online game operators on the mainland, all of them wanting to be the No1 player in a market of more than 20 million gamers.

Yet there is no NCsoft or Electronic Arts - South Korean and American companies that not only lead their home markets but are highly competitive in markets across the globe.

A mainland leader is needed to guide the Chinese video game industry along the right path for growth.

Because of its top market position and rich Nasdaq valuation, Shanda Interactive Entertainment is considered by many to be the leader - but having the most share is not synonymous with being a true world-class leader.

NetEase.com has demonstrated creative strength with self-developed titles such as Fantasy Westward Journey, and its business strategy.

Time will tell whether Shanda, NetEase or another company emerge as the market leader.

What is needed is a company that can demonstrate prowess in development, operation, marketing, licensing, acquisition and strategy.

A domestic market leader, or even two, will be able to provide guidance to new and smaller companies, anticipate market needs and serve as an anchor for this fast growing industry.

Because the market is heavily skewed towards online gaming, the leader will certainly hold a sizeable share of that market segment. The company must also be able to show strength outside the mainland.

Whichever company leads the industry, it must develop top quality games for the hard-core gamer and casual gamer alike - because the market for both groups is growing.

Massively multiplayer online role-playing games (MMORPGs) dominate the industry, yet they are intense in nature and not attractive to all gamers.

At the other end of the spectrum are casual games, which are less intense and require minimal time to play.

Innovative developers are now dividing casual games into several segments, including very quick puzzle games or board games, and a longer game play experience which has been called 'advanced casual games'.

Advanced casual games fit nicely between traditional casual games and MMORPGs, and offer a challenging experience to hard-core as well as occasional gamers without taking up more than 60 minutes of a player's time for each game.

It will take time to build creative, top-quality online games because of the shortage of talent in the industry.

Desperately lacking are senior creative staff, senior project managers and senior international business development managers.

Programmers are readily available, yet coders with key experience in video games are not. Training and years of experience are required for the overall talent pool of game developers to become world class. Of course, there are already a few of that calibre.

The mainland companies that emerge as market leaders will have to develop creative games for all levels of gamers - and most likely operate them as well - and will need to master the creation of a superior business model that sustains profitability and reinvestment in the industry.

The business model for MMORPGs has worked well so far, collecting cash via prepaid cards and now even CD-keys for Blizzard's World of Warcraft, which is licensed and operated by The9 in China.

However, existing casual games are free to play and charge players only if they register for a special services account that enhances the game experience. The business model for advanced casual games will need to follow the pay-for-special-accounts model, and the games are likely to be much more compelling for gamers if such accounts are employed.

That model has yet to be perfected.

Although it is unclear who will emerge as the leader or leaders in China's online video games industry, it is clear a dominant player is needed to guide the industry during its growth in the years ahead.

Lisa Cosmas Hanson is the managing partner at Niko Partners, a research firm specialising in China's video game industry.