The game of jacking up rankings

Sitting in his office in Beijing, Li Yong-yi, executive vice-president of COM2US Corporation, looks a little depressed. As the top manager of one of the most successful mobile game companies in South Korea, Li is struggling to make his firm successful in China.

Li and his wife founded COM2US, the first mobile game company in South Korea, in 1996. The company entered China in 2003. But Li says his company's revenue in China declined by 20 percent last year to around 3.5 million yuan. Li says the performance is "quite poor".

"The Chinese mobile game market is much more complicated than we originally thought," Li says. "In the foreseeable future, I think we will regard China more as a manufacturing base than a profitable market."

Li's remark seems strange when compared with figures from consulting companies showing rampant growth in China's mobile game sector.

According to Analysys International, a domestic consulting firm, the revenue of the mobile game market in China increased 78.3 percent to 1.43 billion yuan in 2005. It predicted that the market is likely to experience similar growth until 2010, when revenue will hit 9.53 billion yuan.

IResearch, another domestic consulting firm, found the number of mobile phone subscribers who have paid for mobile games reached 13.9 million in 2005, and says the number will surpass 31 million in 2008.

But these statistics, according to Li and others in the industry, are heavily skewed due to "self-consumption", a practice by which mobile game firms have their employees download games to increase subscriber rates.

False statistics

In the Chinese mobile game market, there is large-scale "self-consumption", Li says, which amounts to numbers that are "inaccurate at best" and downright misleading at worst.

"If we eliminate the effect of these consumptions, I don't think the Chinese mobile game market has been on the rise," he says.

Li's remark refers to M-box, a mobile value-added service provided by China Mobile that ranks mobile games by subscription rates. As a multipurpose service, M-box enables mobile applications such as game downloads, e-mail, weather forecasts and stock information on common mobile phones.

Backed by China Mobile's dominant position in the telecom market in China, M-box has become the biggest mobile game retailer since its debut in 2003. In 2005, M-box's revenue from mobile game download services reached 216 million yuan, accounting for about 90 percent of M-box's total income.

Here is how M-box works: China Mobile charges 5 to 10 yuan each time a game is downloaded by a mobile user. It then forwards 80 to 85 percent of the payment to the mobile game companies. All download figures are collected and the games that get the most downloads are at the top of M-box's ranking.

Li says that by having employees download games, the rankings get skewed. And since most users make their download decisions based on the ranking, positions in the channel become a lucrative resource.

"As a result, many Chinese mobile game companies encourage their staff to download their companies' games as ordinary consumers so as to create a higher position in M-box's ranking list and to attract more users."

One mobile game maker, Magma Digital, a subsidiary of NASDAQ-listed wireless value-added service provider Hurray!, denied engaging in "self-consumption". The firm is concerned the dismantling of M-box, a possibility in the near future, could have a negative effect on its business, says spokesperson Liao Jiannian.

Mammoth Technology, another mobile game maker and a subsidiary of NASDAQ-listed Kong Zhong, also denied practicing "self-consumption".

But Li's assertion was echoed by Wang Yuquan, a senior consultant of Frost & Sullivan China, who says the practice of "self-consumption" is "very common" in China.

"Although China Mobile claims that only the most popular games are at the top of the ranking, the fact is that most games become popular simply because of their top positions in the ranking."

According to a report by Analysys International, "self-consumption" accounted for as high as 60 percent of China Mobile's revenue from M-box.

Wang doesn't think it's quite as bad as that. He estimates the proportion is around 35 percent, which is still a problem for the market, he adds.

"Usually a higher position in the ranking would not only help mobile game companies look more attractive to new users but also win a better position in their investment negotiations with venture capital firms, so most game companies are willing to pay for 'self-consumption,'" Wang says.

However, although "self-consumption" could bring short-term benefit to mobile game companies, Wang says it may greatly hurt the company's development in the long term and destroy the whole industry by providing consumers with low-quality games.

"In a world where only the ranking matters, no company would like to invest in making high-quality games," Wang says, adding that they would rather spend money on buying positions through 'self-consumption'. If too many low-quality games get popular simply because of their high ranking, he says, the result will be that "no one would like to play games on mobile phones".

Changing the system

China Mobile, which has been cutting charges in recent years, is eager to benefit from the growth of the emerging data services like mobile games. Last July, it introduced several new policies to restrict 'self-consumption' in the mobile game industry. The result was that M-box's revenue dropped by 31.14 percent at the end of the month.

"The self-consumption phenomenon is caused by the lack of other retail channels for mobile games in China", says Wang.

Besides working through M-box, mobile game companies can also cooperate with mobile phone makers such as Nokia to pre-install their games in phones or team up with independent mobile game websites.

But games that could be pre-installed are very limited and independent mobile game websites have yet to establish an effective way of charging users.

According to earlier reports, China Mobile plans to stop game ranking solely based on downloading volume and replace it with a new system in which the games will be jointly ranked by players, game designers, third-party organizations and China Mobile.

The new system has been put on trial since last year and received a good response, says Yao Feng, deputy director of the business development center for China Mobile.

"China was home to 462 million mobile phone users last year and the number is still growing. I'm sure the mobile game market in China will be growing too," says Wang. "Certainly there will be obstacles, but I think they will be overcome as time goes by."

(Shanghai Start 09/07/2007 page10)