Christmas may be a time for games, but there’s nothing childish about Massively Multiplayer Online Role Playing
Anyone thinking about purchasing a starter disc for an online role play game for their son or daughter this Christmas might like to consider whether they are raising a cold-blooded killer in their midst.
That’s not because the little darling is going to wake up on Boxing Day morning in a Lizzie Borden-style teenage grump and ‘whack’ uncles, aunts and in-laws. It’s because in Massively Multiplayer Online Role Playing Games (MMO for short), war and killing is the route to success.
There’s an old and rather cynical maxim that war is good for the economy. What may hold true for the real world also seems to apply to gaming in the virtual one, because the more engaged MMO players are in their virtual world, the more it seems they are prepared to spend on extra items for their ‘avatars’ or online selves. And that’s where the sweet spot is in revenue terms with MMO games, says Sam Woelm, Executive Director, Business Development, for C Y Foundation Group Limited (C Y Foundation for short). Hong Kong-listed C Y Foundation describes itself as the leading company dedicated to providing play for prize (P2P) tournaments across Mainland China. The company operates online tournaments through a rapidly expanding network of Internet cafes and entertainment centres. The tournaments feature the popular card games dou di zhu and Texas Hold’em poker, as well as the traditional Asian board game mahjong.
The significance of MMO games in China for companies such as C Y Foundation is that they attract huge and relatively affluent audiences. And the players in these virtual worlds exhibit many of the motivations and characteristics that would probably turn them into good card or mahjong players online.
Many card or traditional board games date back centuries and remain popular probably because they’re about sublimating basic human motivations—the desire to seek affiliation with others, to increase personal power and influence within a community or peer group, and to identify and, if necessary, eliminate or neutralize rivals or enemies—all at minimum expense to oneself. The same seems to be true with MMO games, which offer a modern take and a commercially successful model for tapping into humanity’s oldest and most basic drives.
Part of the appeal of MMO games is they allow the players to act out life and death situations without a drop of real blood being spilled. Although war in an MMO game thankfully doesn’t involve real blood, it does involve expending real ‘treasure’ in the form of hard earned wages or pocket money to acquire the necessary virtual weapons or strength to fend off challenges from online opponents.
The spiritual home of MMO games in Asia is South Korea, where animated series based on some games are shown on television, and national ‘leagues’ for MMO players operate. South Korea is also one of the most advanced telecommunications markets in the world, with high broadband Internet penetration, generally high Internet speeds and 3G mobile communications as standard. Many MMO games are developed initially in South Korea and then licensed to neighbouring Asian countries, including China.
In December 2008 C Y Foundation announced it had bought the Chinese distribution rights to a major MMO game called R.O.H.A.N.: Blood Feud. The product, originally developed in South Korea by YNK Interactive, has already been very successful in Korea, Taiwan Japan and the US, and has been ranked one of South Korea’s top ten multiplayer online games for three years in a row. The launch of the official China website for the game followed in July this year.
“MMOs in China are a big part of the online entertainment industry. We’re talking celebrities, merchandising and millions of online gamers flocking to these MMO games,” says Sam Woelm.
By 30th June 2009, the number of Internet users in Mainland China had reached 338 million—a penetration rate of 25.5% of all citizens aged six and above—according to the country’s government-funded China Internet Network Information Center (CNNIC). This represents a 13.4% increase (40 million people) since the start of the year, said the Center. Importantly in the context of MMO gaming, 94.3% of all China’s Internet users (320 million people) have access to broadband. Graphics-rich MMO products are dependent on broadband for smooth and clean download, upload and game playing speeds.
Equally importantly from a game content developer and game platform provider’s perspective, China’s Internet users are disproportionately young compared to users of many other service industries in China. A whopping 62% of all China’s Internet users are aged ten to 29 years. Research across multiple markets repeatedly shows the young tend to have more disposable income available for entertainment than their older peers. In total, 31% of the 338 million Web users in China are described as ‘students’, with a further 24.4% defined as corporate staff or Communist Party workers.
In terms of monthly income, however, China’s Internet users still have a long way to go to match the spending power of their peers in North America or Europe. According to CNNIC, only 4.9% of Chinese Internet users have a monthly income of RMB5,001 (US$732) or above, though the income trend is rising slowly. China also has numbers on its side in population terms, making it a highly attractive market for game content providers, licensees and platform operators.
“A ‘blockbuster’ game in China is anywhere from 500,000 to a million concurrent users,” says Sam Woelm.
Big bucks licensing
“If you look closely at the MMO business model, you see that it has very strong ‘Hollywood’ characteristics,” he suggests.
“What Hollywood and MMOs have in common is they both offer fans strong entertainment values. The main difference is that Hollywood movies are more of a two-hour passive gig whereas MMOs are an immersive experience where the player has a virtual character in a fantasy world. Players can spend anywhere between one and four years in this fantasy world,” he asserts.
“Like fans of Hollywood films, MMO players are always looking for the next blockbuster title. Budgets for MMO games are still a lot smaller than in Hollywood, but like Hollywood they are escalating each year,” says Mr Woelm.
“We see the distribution model operate [for MMOs] in a similar way to Hollywood. Let’s call the game developer the equivalent of the Hollywood studio. The developer invests millions of dollars into making the game. Once the game is developed, it targets different territories for distribution. In this case, it’s countries such as [South] Korea, China, Japan and the US. In those countries, there’s what’s called a publisher. The publisher operates and markets the game in the territory. The publisher pays a licence fee to the developer. The developer seeks to recoup most if not all of its costs via the licence fees.”
The development budget for Dungeon & Fighter (often referred to by enthusiasts simply as DNF) was US$13 million over four years according to trade press reports. The game was created by South Korean company NeoPle and first launched in that market in 2007.
The distribution rights to DNF for China were licensed to Tencent Holdings in December 2007, and the game had an open beta launch in China in 2008. Tencent Holdings is a Hong Kong-listed company most famous as the operator of the enormously popular Tencent QQ instant messaging service—a platform only available in Mainland China.
Although Tencent hasn’t disclosed how much it paid for the China rights to DNF, the company’s consolidated cash flow statement for 2007 filed in Hong Kong shows spending of RMB197 million (US$29 million) on “purchase of intangible assets”, which the firm says in a note includes licensing fees. It’s fair to point out that licensing fees may be amortised over more than one quarter, so the company statement may be an imperfect guide. Industry sources say, however, that licence purchasers are normally asked to give a minimum guarantee up front to the MMO game developer, equivalent to 30% of the licence fee.
Media speculation puts Tencent’s payment for DNF rights in China at anywhere between US$10 million and US$30 million plus. The investment appears to have paid off, because the game now reportedly has 900,000 concurrent players (i.e., people taking part simultaneously).
Aion, from South Korean development company NCsoft, is described as “a game of celestial combat and adventure”. Players choose to be one of two warring races—the Angelic realm or the Demonic realm. The budget on Aion was reportedly US$25 million and it took four years to produce, entering the South Korea market in 2008, and China in mid-2009.
In China, Aion has been licensed to Shanghai-based Shanda Interactive Entertainment Ltd for a fee of US$30 million according to a report by JLM Pacific Epoch, an independent research firm focused exclusively on China. Shanda’s marketing budget for Aion is said to be RMB10 million per quarter.
Once a publisher has made such a big investment in purchasing the territorial rights to an MMO game, it’s vital that he recoups the outlay with a high impact and successful launch to the players.
“It’s very similar to the marketing of a Hollywood movie, where creation of strong expectation and strong anticipation for the game is the key,” says Sam Woelm of C Y Foundation.
“With MMOs it’s very important to have a lot of players come onto the game platform. We’re talking hundreds of thousands of players right at the launch phase. This builds the buzz, the word of mouth. To build this expectation we use posters on the sides of buildings; we have themed buses at player conferences; we have fan forums; we have player symposiums where they take a building and theme it as a castle for one of the games. We also have something that’s called ‘cosplay’ [short for ‘costume role-play’]. That’s where girls and guys get dressed up as characters from the game and go on tours around the country where the game is being launched.
“Because China is the largest online game market in the world, the publisher will also pay royalty of anywhere from 15% to 30% on the revenue of the virtual items sold in the game. The publisher also does very well with these games.”
The sale of virtual items to players is a vital element in the MMO business model, explains Mr Woelm.
“A key turning point in the business model of MMO games in China came in 2006,” he says.
“That year the online game operators switched their MMO business model from what’s called a time-based model to a virtual items sales-based model. The time-based model is where the player pays for how much time they spend online in the game. In the virtual item sales-based model, players pay for what they buy. They buy virtual clothes and virtual weapons etc. If we look at the model after 2007 and into 2008, there’s a significant growth in revenue.”