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Global Video Games Investment: China, Online, Mobile Ascendent
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Global Video Games Investment: China, Online, Mobile Ascendent

February 22, 2011 Article Start Previous Page 2 of 4 Next

Quality investment demand still exceeds supply, with high quality, high growth (100 percent annual revenue growth, 20 to 50 percent operating margin) online/mobile games companies seeking investment to accelerate growth.

Outside the major investment deals, online/mobile games companies still find it challenging to find high quality investors despite major publisher/media consolidation (Electronic Arts/Playfish $400M, Disney/Playdom $763M, DeNA/Ngmoco $400M, Tencent/Riot estimated $350M-$400M, Shanda/Mochi Media $80M).

You believe China, not America, could dominate the global games market?

Yes, and we believe the data backs us up. Online/mobile games should grow total video games market size to $87B and take 50 percent revenue share at $44B (18 percent CAGR 2009-2014F), with the historically strong pure console sector flat to down.

Asia Pacific and Europe should take 90 percent revenue share for online/mobile games (China 49 percent, Europe 17 percent, Japan 14 percent, South Korea 11 percent in 2014F), although North America remains important.

China's domestic strength has produced high volume (companies like Tencent deliver up to 20M peak concurrent users -- a population the size of Australia at one time), low Average Revenue per User, cost efficient online/mobile games businesses with up to 50 percent operating margins, enabling significant investment in foreign markets.

Global Video Games Sector Revenue ($B)

Regional Online/Mobile Games Revenue ($B)

Speaking at the Shanghai World Expo and GDC China last year, and interviewed by CCTV this year, I was struck by the singleminded focus and drive of the Chinese games companies I met. Their approach is analytically driven and commercially balanced; they understand how to make substantial profits while growing revenue at scale, and they are hungry for more.

Almost every Chinese games company I know is looking for two types of investment: foreign companies they can use as a business platform to leverage their domestic strength internationally, and foreign intellectual property and knowledge they can leverage in their domestic market.

At the banquet in honour of Vice Premier Li Keqiang in London in January, I was fascinated when he voiced sentiments that I heard many times last year. Chinese companies are excellent at execution, but they would like to move further ahead in global terms when it comes to innovation. Similarly, the 12th five year plan provides a stronger drive and support for Chinese games companies to increasingly globalize.

So we expect to see Chinese companies as major games consolidators in 2011, investing in, acquiring, partnering and licensing from the strongest international online/mobile games companies. The Tencent/Riot Games acquisition announced in February (est. $350M -$400M) is a portent of more to come.

Article Start Previous Page 2 of 4 Next

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