Telecom market research firm IDC recently released a report showing that the contribution of China's online game market to telecom revenues has increased significantly.  While foreign and local games are popular diversions among netizens, online games also serve as a marketing and sales tool for many companies.

According to the 2006 report, released by the International Data Group (IDC) and China Publishers' Association (CPA), the number of online gamers in China grew by 18.5% on the year to 31.12 million in 2006.  This number is expected to reach 44.78 million by 2011.  Online games made on the mainland have secured 64.8% of this market.

The report also says that the size of China's online gaming market has grown 73.5% to 6.54 billion Yuan (US$827.85 million).  While this market was only at 310 million Yuan
(US$38.75 million) five years ago, the next five years are expected to bring a massive increase, bringing the industry's sales income to 24.43 billion Yuan (US$3.09 billion) by 2011, with an annual compound growth rate of 30.2% between 2006 to 2010.

As the Internet becomes more common, and China undergoes rapid development of information technologies, the information and entertainment industries have become more mobile and interactive.  Online gaming is a breed of the online application of these functions, and China's online gamers currently account for almost half of the total number of netizens on the mainland.  China's online game market has directly contributed
21.05 billion Yuan (US$2.665 billion) in revenues to the telecommunications industry, 8.33 billion Yuan (US$1.041 billion) in revenues to the IT industry and 3.94 billion Yuan (US$498.73 million) to the media and publishing industries.

While foreign online games have dominated the scene for quite some time, 2006 saw a major increase in the number of local games on the market.  The report says that mainland game makers developed 218 new games last year, up 13.5% from the year before.  China-made online games hit 4.24 billion Yuan (US$536.71 million) in annual sales revenues in 2006.

Mainland online game companies are constructively competing over the gamer base at home while at the same time seeking to expand overseas.  Many have entered Southeast Asia, Japan, Korea, and Europe, and China's total export revenues on games exceeded US$20 million in 2006.  As one of the earliest advocates of exporting their products overseas, Kingsoft Corp has landed its Swordsman Online in Malaysia, Singapore, Vietnam, and Taiwan.  Voyage Century, developed by Snail Game has inked an export agreement with 10 countries and regions in Asia, Europe and North America, generating more than 3 million Euros.  Perfect World Online tops the various mainland-made online games with its exports to Japan, generating US$2 million in revenues.

"There are currently two groups participating in online gaming research and development on the mainland.  The first group consists of independent research and development companies and teams.  The second group consists of research and development teams working under online game operators.  More R&D companies are focusing on raiding their R&D team's qualifications, improving products according to changing market trends, and seeking more sufficient capital input," said Kuo Xiaowei, deputy chief of audio-visual electronics and online publishing management at the General Administration of Press and Publishing.

84% of the new online games in 2006 are free-of-charge and they contribute 60% of  overall market revenues. By cultivating user consumption potential through various value added services, this mode of profitability also proves capable of satisfying consumer demands. 

Advertising is also a new growth point for online games, as cooperation across industries in the development of online games and advertising becomes more common.  In-game advertisements are widely used to make online games function as a communications medium.  For instance, when Shanghai Volkswagen launched its new Polo model, it cooperated with Shanda's car-racing game, Crazy Kart, in order to closely associate the family sedan with online games.  Coca-Cola has also joined with Freestyle from T2CN Information Technology (Shanghai) as part of Greater China's marketing and sales plan.