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It's Game On for Firms in Mobile Device Industry

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Chinese mobile game operators like Guangzhou Gude Network Technology had reason to cheer in 2012, as it and many other industry players enjoyed rapid growth.

Gude Chairman Xu Yuan called the year a turning point for companies in the industry. Gude's role playing game, World Online, had monthly revenue of 18 million yuan and average revenue per user of 300 yuan.

Additionally, a number of mobile game companies, who only a few years ago seldom saw monthly revenue of 1 million yuan, last year broke the 10 million mark, Xu said.

Xue Yongfeng, an analyst at industry information provider Analysys International, said the future for the industry was bright. "The mobile game market has figured out a clear business model, and the industry chain is quite complete. Business is ready to boom."

Xue expected more companies and investors to enter the field in 2013, meaning "China's mobile game industry may see a revolutionary change."

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Song Wei, secretary general of Global Mobile Game Confederation, a Sichuan-based industry association whose members include Angry Bird developer Rovio Entertainment, Fruit Ninja maker Halfbrick Studios and Gude, predicted that some popular mobile games will have monthly revenue of more than 100 million yuan.

The Android Approach

Mobile games on the Android operation system have posted strong profits, said Zhu Shunyan, CEO of UCWeb Inc., a mobile internet software provider. "The growth is astonishing," Zhu said.

UCWeb said 10 Android-based games have had average monthly revenue of more than 1 million yuan in 2012, compared to four in late 2011.

Three games operating on the Android system pocketed more than 10 million yuan every month in 2012.

Gude's World Online was the first to reach 10 million yuan in monthly revenue. The game, launched in September 2011, had revenue of 2 million yuan in its first month, Xu said.

Compared to PC games, the versions for mobile devices require far fewer resources. The team that developed World Online had only 27 people. By the end of 2012, Gude employed only 88 people.

Xu attributed his company's success to a strategy that focused on developing a more complicated game for the Android system.

"(We) believed the Android system had promising growth potential, while PC games have cultivated a large number of users who like to play complicated games," said Xu.

World Online's success was repeated by Wangxian, another Android-based mobile game. On its first day of operation in June, Wangxian had income of more than 100,000 yuan. In September, Wangxian's revenue reached 10 million yuan.

Next Player

Many of the companies who entered the mobile game industry have earned their first fortune, attracting an increasing number of market players and investors to the booming market.

Xu said more and more PC game developers and other newcomers have joined the fray.

Zhu Yanshun, a senior executive of Beijing Ourpalm Co., said traditional PC game developers, like Shanda Games Ltd. and Perfect World Co., plan to develop games for mobile devices.

Shenzhen-listed Ourpalm was one of the earliest Java mobile game developers in the country. It had revenue of 183 million yuan in 2011 and net profit of 55.7 million yuan.

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Ourpalm started develop smart phone games in October 2011, and by the end of the year games based on the iOS and Android systems generated 530,000 yuan in revenue for the company, Zhang said.

Internet veterans like Baidu, Qihoo360 and UCWeb were also building platforms offering mobile games, and telecom operators are also counting on mobile game business.

Gude's Xu says the company is in talks with smart phone markers Huawei Technologies Co., ZTE Corporation and Lenovo to install its game on their handsets and share the revenue.

The booming sector was also attracting capital. Li Juhua, investment manager of Zhejiang Zheshang Venture Capital Co., said many companies like his planned to invest in mobile gaming in 2012. His company has found an investment target, he said.

Research firm Zero2IPO said 30 investments were made in China's Internet industry in the first half 2012, including seven in the mobile game business.

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Li Mimi, Asia-Pacific manger of Intel Capital, Intel Corp.'s global investment and M&A arm, expected both the number and value of investments to rise in 2013, and added that Intel was seeking an investment target.

Bright Future

Wang Feng, the CEO of Web-based game developer linekong.com, said the rise of smart phone games would change Internet gaming.

Traditional platform providers like the telecom operators and Tencent would face stronger competition from newcomers like Baidu and UCWeb.

Since launching its mobile game platform in May 2011, UCWeb has been catching up with Tencent, China Mobile and China Telecom, becoming the fourth largest mobile phone game operator with market share of 6.2 percent. In 2012, game developers earned more than 100 million yuan from their operations on UCWeb.

Tencent is facing more and more challenges. The head of its wireless game service, Li Ying, said in late 2012 that the gap between it and its rivals was narrowing.

Telecom operators are also facing greater challenges. Development of online payment systems weakened telecom operators' advantage and created more choice for game players, Xu said.

A source at China Telecom said that "in the future, telecom operators, Internet companies and mobile game developers will all provide game platforms and compete for good games and users. All of them will have to make efforts on services and marketing," said a source from China Telecom.

All of the changes mean game developers now have more choice regarding where to launch their products. Zhu said platforms are luring popular game developers by offering higher revenue sharing, ranging from 50 percent to 70 percent.

(Read More: Why China Allowing Game Consoles Won't Help Game Makers)

However, Zhang said that nether platform operators nor game developers had a dominant say in the market. The two sides had to work together to win customers.

Meanwhile, the country's mobile game market was becoming a battlefield for a large number of small developers. Analysys International said the largest player, Tencent, now controls about 22 percent of the mobile game market, followed by Gude and WiSTONE Entertainment, with 5.7 percent and 5.3 percent, respectively.

Due to much lower requirements for capital, talent and time compared to traditional PC games, there are no exact figures on how many mobile game developers are operating in the country. Industry insiders say many teams involve only ten to twenty people, and many have failed.

Zhu estimated that only 30 percent of mobile game developers were profitable, "earning from several hundred thousand yuan to millions of yuan."

However, with Analysys International predicting that China's smart phone penetration rate would reach 50 percent in 2013, the boom looks set to continue. The company forecast 55 percent growth of mobile game revenue to 9.6 billion yuan this year, and says annual growth will remain above 50 percent until 2015.

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