June 10, 2005

China Online Game Clean-up to Run Until September

SHANGHAI -- A clampdown on China's burgeoning online game industry will run until September and is aimed largely at imported titles featuring pornography, violence or gambling, the industry's regulator told Reuters.

The new campaign began in April and is designed to rid the fast-growing industry of inappropriate content, according to the Ministry of Culture, which regulates online games in China.

"Promotion of economical development (of the industry) and improving recreational options for the people has its definite advantages," the ministry wrote in a series of answers to questions submitted by Reuters.

"At the same time, some problems should not be ignored: some games contain pornography, sex, gambling, violence and other unhealthy content, with imported online games the main culprit."

As part of the five-month clean-up, the ministry has identified nine illegal games, including one titled "Sexy Beach," as well as four illegal operators and eight illegal game suppliers for scrutiny, the ministry said.

In a recurring refrain, it said the campaign was aimed at protecting young people "who lack self control and can easily become addicted" -- a reference to the legions of teenage boys who are the main audience for online games and usually play them outside the home at Internet cafes.

On Wednesday state media reported a 41-year-old Shanghai online game player had been given a suspended death sentence after stabbing to death a competitor for selling his cyber sword.

Expanding the Dragnet

The latest clean-up appears to be broader in scale than a smaller campaign last year in which less than a half dozen operators were closed down, said one industry analyst speaking on condition of anonymity.

He added that the campaign did not appear to be directed specifically at foreigners, but that foreign companies were being singled out because they supply the majority of titles in China.

"Over 60 percent of the games in China are imported," he said. "This isn't something new. It is a continuing effort of the government to clean up content, not just in online games but in all online and wireless content."   

China's online game industry is expanding quickly, with annual growth expected to average 39 percent over the next few years to reach $823 million in annual revenue by 2008, according to International Data Corp.
Gamers like the format for its pay-as-you-go approach, in a country where many cannot afford gaming consoles like Sony's PlayStation and Microsoft's Xbox.

Game developers like the format because such titles are more difficult to copy in a country where piracy is rampant.

The clean-up appears to be directed at smaller industry players, with no signs yet that it has affected the country's top tier of operators like Shanda Interactive Entertainment, NetEase.com and The9 Ltd.

The analyst said that last year's smaller industry clean-up did not involve any major publicly traded companies.

But he added that one or more subsidiaries of a Chinese telephone company may have been affected, as telecoms operators try to cash in on the online game craze.

Reflecting the growing participation of phone companies in the industry, the Ministry of Culture said it was being joined in the current clean-up by the Ministry of Information Industry (MII), China's telecoms regulator.

The gaming clean-up mirrors similar campaigns in other new media industries, most notably one that began more than a year ago to rid mobile phone short messaging services (SMS) of controversial content like pornography and spam.

A number of China's most up-and-coming listed companies became snared in that campaign, including market leaders Sina Corp., Sohu.com and Linktone Ltd.