Both co-operation and competition between Chinese and South Korean online game companies are set to intensify as they begin to encroach on each other's markets.

"Chinese online game companies are going to be a threat to South Korean companies, although we have not seen any significant changes yet," says Choi Hyunwoo, a spokesperson for Webzen, a leading South Korean game developer and operator.

Top Chinese online game company Shanda Interactive Entertainment acquired almost 30 per cent of South Korean game developer Actoz Soft for US$91.7 million in November. Shanda Chairman and Chief Executive Officer (CEO) Chen Tianqiao also became chairman of the South Korean firm.

Shanghai-based Shanda made a bundle running one of Actoz Soft's games in 2001. It made Chen the third richest man in China, and the NASDAQ-listed firm's revenues reached US$165 million in 2004.

Choi believes that Shanda was not trying to target the South Korean market, but was hoping to boost its development capacity.

South Korean games could decline in the face of growing Chinese competition.

Several Chinese government agencies encouraged domestic companies to develop 100 games in five years, with an investment of 1.5 billion yuan (US$185 million).

The overwhelming majority of game titles on the Chinese mainland in 2001 came from South Korea and Taiwan or other markets, but domestic games accounted for more than half the domestic market last year.

Webzen's Choi says there is more to competition than meets the eye, however.

"Chinese companies are quickly developing their technologies, but South Korean experience in marketing, technology and game operation is still superior."

For Webzen, it is more a question of how to develop the Chinese market, rather than having to compete against Chinese rivals.

The South Korean company already has a joint venture with Shanghai-based firm The9 Ltd, which has operated Webzen's popular game MU since 2003.

Choi says his company is very satisfied with the progress of MU in China, which has been one of the top 10 most popular games over the past two years. The game has 32 million players in China, three times more than in other parts of the world.

Partner The9 Ltd is strongly pushing World of Warcraft, a game by US developer Blizzard which became a huge success with hundreds of thousands of players. Choi says that it may not have any material impact on the joint venture, however.

China's talent pool can also benefit Korean companies. Webzen has a research and development (R&D) centre in Shanghai with 60 engineers, including 20 South Koreans, working on a new game called Kingdom of Warriors, which is set in the Three Kingdoms period, from 220 BC to 280 BC.

The game is scheduled for release in the third quarter of next year, and will be launched in both China and South Korea.

Many Chinese game companies are turning to casual games, due to pressure from the government and the public over game addiction. Korean companies, however, are still focusing on massive multiplayer online role-playing games (MMORPGs) like MU and Kingdom of Warriors.

Choi says his company will bring another MMORPG title, Soul of the Ultimate Nation (SUN), into China next year, bringing Webzen's MMORPG roster in China to three: MU, SUN and Kingdom of Warriors.

The company has also noticed the Chinese market's shift to casual gaming, however, and will release shooting game Parfait Station early next year to meet demand.

Despite the progress, Choi acknowledges his company still needs to learn more about the Chinese market.

Pirate servers compete for players and reduce game operators' revenues.

Choi says tight government content regulations are another factor that Webzen needs time to adjust to.

The low popularity of credit cards and mobile phones to top up game cards in China also force South Korean companies like Webzen to develop independent distribution and sales channels.

(China Daily 10/08/2005 page7)