For my first post here I thought that I would write about something that relates closely to me; after reading Chris’ post on how microtransactions pissed him off, I started thinking about what I know of the local market here in Shanghai. I’m in Shanghai until the middle of June and have done a fair amount of research into the market here and there are some really interesting statements to be made about how video game business is conducted here.

China is infamous for its piracy, for good reason too, as soon as I enter out on to any street with a group of vendors - there is guaranteed to be at least one pirated DVD shop. Buy any movie you want for less then $1, including ones currently in theaters (one of my friends took back 900 DVDs to the US, lets just say he’s glad he did not get checked at the airport). I’ve seen a few PC games and computer applications but the majority of pirated things are movies. Where the hell are the console games? Well I thought about it and after having been here for a while one can come to a good solution as to how this happens. It’s mainly because of the huge initial investment to be had in owning a console, not many are able to afford something that costs so much only to play games on it (A wii is about half of what a middle class family would earn in a month). This is why every game is played at an internet cafe on a PC.

Well, they play PC games, so what games are they playing? I took a walk into a local internet cafe and decided to look around. There was one person playing Counter-Strike, half of the room was playing World of Warcraft and the rest were other games I couldn’t name due to my inexperience with local games (my Chinese is still pretty rudimentary so that didn’t help either). It was clear however that the majority of the other games were MMO-style games. This goes hand-in-hand with what James Gwertzman, Vice-President of the Asia-Pacific region for PopCap (creators of the casual gaming hit Bejeweled), said when I attended his session at the Montreal International Games Summit. He discussed a few of the details on how business is done in regards to PopCap in China. One of the key elements of his discussion was the fact that because piracy is so rampant there are only a few models from which a developer can actually make a profit. These are through advertisements, pay-per-play, subscription-based and microtransactions. What seems to be working the best is microtransactions, this is because the games are given away for free and then people are able to spend what they are able to on progressing their characters.

Obviously this is very different from the market that we are used to dealing with. I do have trouble seeing something like this happening in the states but piracy has already been blamed for closing the doors of Iron Lore Entertainment and with estimations putting the number of Call of Duty 4 downloads at about 1,000,000 from one bittorrent site alone it doesn’t seem impossible.

Is piracy causing the downfall of the traditional payment model? What do you think?