Christmas may be a time for games, but there's nothing childish about Massively Multiplayer Online Role PlayingTuesday, 15 December 2009
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."
Inside an MMO game
How do they attract players and how do they keep those players playing?
For the uninitiated, MMO games may appear to be a fantasy world having more in common with a teenager's bedroom wall poster than the realities of 21st century business. But as Sam Woelm points out, huge amounts of revenue can be generated by the ability of MMO games not only to draw players into their virtual world, but in getting them to commit real life money to acting out their online roles and building up the presence of their online avatars.
Mr Woelm illustrates the point with a fictional account of an 'Everyman' of MMO game playing, whom he refers to as Li Chen.
"Li Chen's an avid online game player. She's 28 years old and she's married. She and her husband work for large corporations. By day she's a marketing director for an equipment manufacturer. By night she's monarch of the Kingdom of Song, and she has many 'subjects' who follow her.
"Li Chen has money, but she doesn't have a lot of time. She used to play time-based games where she had to go through mazes and kill monsters in order to get to a higher level of the game. She found she'd often get a quarter or half way through and she'd get 'killed' and she'd have to start at the beginning again. This is frustrating to her because she has to work and time is valuable to her. So she finds out about a new game—it's called Sword Master. She's in an Internet cafe and a salesman comes up to her and says 'Hey, we have a great game for you. It'll be perfect for your lifestyle. It's more money-based rather than time-based. So Li Chen's excited and signs up for the game.
Five MMO 'truths'
"As I go through this story, I want to point out five common elements of an MMO game. The first is the fantasy world. There's a structure around an MMO game. It has a story that drives the action. It also provides a mission for players. In this case, Li Chen is born into the village of Chi. In her MMO 'storyline,' her blood and ancestry is of a noble line. Her ancestors were fierce warriors. Her mission is to go out and train a new generation of warriors and conquer the world.
"She's born as a 'level one' character, as all players are. At this stage she has no powers. She can't even leave the village of Chi.
"Li Chen says to herself: 'I can't walk around in the Sword Master world looking like this'. So she deposits money in her MMO account and she goes shopping. She gets virtual clothes and a weapon. She's now a higher level character and able to travel outside the village of Chi. That's very important for a lot of MMO games because it helps players navigate around the fantasy world," explains Sam Woelm.
Up in the world
"So Li Chen picks a place she wants to go. She's easily transported to a city called Pomonia. This is a happening, bustling place more Li Chen's style. It's also part of the Kingdom of Song. Under the Kingdom of Song, there are many factions and guilds. Li Chen joins a faction because in order to get higher up in the game she needs to work with a team. It's very difficult to do that on your own. This gets us to the second common element of an MMO game.—levelling up. Players spend a lot of time in an MMO game trying to become a higher more powerful character. To do that they need to get to higher levels. To get to that new level they need to do things like special missions. In this case, the faction leader comes up to Li Chen and says: 'There's an enemy at the gate. Will you go fight them?'
"Li Chen says: 'Absolutely'. She's transported to outside the city gates and there she sees a king and an ice dragon. Now Li Chen has just bought some special powers. These are fire bolts. So she stands back and shoots fire bolts into the air. A couple of minutes later a message goes all across the Sword Master world that says: 'An unknown has just killed the King of Tang'. This is a big deal. A low level character has just killed a high level character. So she gets big congratulations, she moves up a few levels. She's now an instant celebrity around the Sword Master world. She's getting fan mail, and praise from her friends.
"But not everyone is happy that Li Chen killed the King of Tang. And this gets us to the third common element of an MMO game. It's called 'PK' or 'player kill'. This is when players are trying to knock off other players. In this case, a friend of the King of Tang, a high god-like character, is not happy about this. So he wants to 'PK' Li Chen. He goes up to Li Chen and says: 'Did you kill the King of Tang?' And Li Chen says 'Yes'. So then the god-like character deals Li Chen what's called a 'death blow' or 'Sec Kill'. She's immediately killed. This is a very embarrassing way of being killed in an MMO game, because this message goes all across the 'world' of the game and the real world. At first, Li Chen is stunned, then she's embarrassed, and then the embarrassment turns to animosity, and then that animosity turns to revenge.
"Now we get to the fourth common element of an MMO game. When players are getting knocked off in PK situations, they want to get back at the guy that knocked them off. In this case, Li Chen wants to get back at this god-like character, but she needs to 'level up'—to become stronger to get to his level. That means she has to complete special missions. Every time she completes a special mission, she gets to a new level and then she needs to buy a new weapon. Buying a weapon isn't as easy as saying 'Give me one of those, give me two of these'. It's a two-phase process. In the first phase the player goes to what's called the weapons store and buys materials to make the weapon. Then, in the second phase, they go to the treasure chest and buy a component to complete the weapon. To give an example, if a player makes a sword with bronze, they will probably need a diamond crystal to put on that sword, or they will need some special power to activate the sword so that they have a complete weapon. Now these components are on a wheel inside the treasure chest. The player puts one RMB [Chinese currency] in the treasure chest, the wheel spins, and if it lands on that component, then they have a complete weapon. But if it doesn't land on that component, they put another RMB in and the wheel spins again. And they [the player] keep doing that until they get the component they need.
In one sitting, Li Chen can easily open a thousand [treasure] chests. She'll get more than one weapon. She'll get maybe a dozen weapons. So, over a few months she completes missions, gets to new levels, buys more weapons, and after a few months she becomes a really strong character—way different from at the beginning of the game. She also has thousands of subjects who call her the queen. She has to buy weapons for all her subjects as well, because she needs an army. Now she's the leader of the Kingdom of Song. She's at the top of her game. She's excited about this. She's really happy about the money she's spent and the time she's spent.
War: What is it good for?
"But now that she's a 'monarch,' she's a target for the fifth common element of an MMO game. It's called 'war'. Many MMO games encourage war. They want one kingdom to fight another kingdom. They want one faction to fight another faction. Because every time there's a war, someone's buying more equipment—more weapons—and driving revenue in the MMO game. You're driving the virtual economy. In this case, the Kingdom of Khan is waging war against our friend, Li Chen. Now why would he wage war against Li Chen? Well, let's look at his player stats: he's a high level character and there are 170 levels in the Swordmaster world. He's the second strongest right now, and he wants to be the number one guy. In order to do this, he needs honour points. How do you win honour points? You have to win wars! That way you can raise your [player] character level," explains Sam Woelm.
There's no way that Li Chen is going to beat the Kingdom of Khan. Her only objective is to last 30 minutes [in combat], because the Kingdom of Khan guys are saying 'We'll beat you in ten [minutes]. So they 'war' and 'war'. And Li Chen lasts forty minutes. Is she happy? Yes she's happy! Is she completely satisfied? No! She wants revenge. She wants to 'level up' again, she has to buy more weapons, and so she has to go to the weapons store, the treasure chests, and the cycle goes on and on. And we can see how players last for anything from one to four years in this fantasy world," states Mr Woelm.
Who's playing MMO games in China, and how much do they spend?
Most players in MMO games in China are young adults, says Sam Woelm of C Y Foundation.
"As far as the players are concerned, they're normally about 18 to 30 years old, though 80% are less than 25. I've put our fictional player Li Chen at 28 years of age, which is not unusual. Certain MMO games are actually targeted at an older, more affluent audience, for obvious reasons. These MMO players are devoted to their game and they spend a lot of time—anywhere from 21 to 40 hours a week. When you compare this to casual games players like poker players, they spend seven to 20 hours a week.
"The longer players spend in an MMO game, the more money they spend," he points out.
According to iResearch—a market research company with a presence in China—last year online gamers of all types (including casual games played on cellular phone handsets) in the Mainland spent an average of RMB188 (US$27.50) monthly on online games (including online fees). Those spending between RMB81 and RMB120 accounted for the highest percentage of the game playing audience, the consultancy added.
According to iResearch analyst Zhao Xufeng, in the second quarter of 2008, quarterly revenue from online gaming in China broke the RMB50 billion barrier, bringing in RMB50.8 billion (US$7.4 billion). Shanda was in top spot with revenues of RMB8 billion during the quarter, while Hong Kong-listed Tencent was the fourth biggest player in this Mainland market, recording online gaming revenues of RMB4.8 billion during the quarter, said iResearch.
"MMO games generate most of the revenue on the online platform [in China] and they also generate most of the traffic," says Sam Woelm.
"They really are the anchor 'tenant' on the platform and the online operators rely on the MMO game and its players to populate the other online games such as card games, chess games, racing games, 'first person' shooting games and dancing games—which are very popular now in China."
Drawn Swords to Double Draw
>The crossover appeal of traditional card and board games for MMO players
"To give you an example of the effectiveness of cross promoting or getting an MMO player to a card game site, for example, at C Y Foundation we run a tournament called the International E-Sports Festival. We held one in December last year in China. Contestants from seven countries participated, and we used MMO-type games like [World of ] Warcraft and Counter Strike.
"When you make it a big event and put it on a giant screen with a lot of spectators, there are a lot of people present with a very MMO-type mindset. What we did is put electronic Texas Hold'em poker tables in the event. We had two of them and we ran 30-minute tournaments. They were packed the entire two days of the event. So just from such small-scale marketing activities, we see strong potential for taking MMO players and bringing them over to the card game side.
Other things we have learned included the appeal of 'PK'. 'Player kill' sounds harsh when you say it aloud, but when [MMO] players hear 'PK', they don't translate it literally—they just think 'head-to-head action'. So 'PK' has become a ubiquitous term in the online game industry.
"We've also put rankings in our entertainment platform. Rankings are a big part of MMO games. There are rankings for who's opened the most treasure chests, who's got the most 'PKs', who's got the most honour points. These rankings are very dynamic. They change on a daily basis. It motivates players to try and take strong action in the game and try to be a top five or top ten player. We have rankings on who's had the most tournaments, who's got the most points.
"C Y Foundation has MMO games on our entertainment platform. We see this adding a lot of traffic to our platform, and complementing games such as chess and flash-based games and Web-based games. We see MMO players as the casual games players of the future."