Mr. Krejcik: China is actually a focus of our firm right now. We are doing a lot of work in this area. Company-wide we see this as one of the most interesting emerging markets, and a couple of years ago we opened an office in Shanghai and have since been building that out. So my sector of focus is the China online gaming industry, which I cover with my associate Nick Ning, who works out of our Shanghai office. We think this is an interesting growth sector. All of the companies under coverage are still enjoying significant growth, and despite market turmoil here in the US and a fairly pronounced slowdown in China, these companies so far have been showing pretty amazing resilience.
TWST: Is online where most of the activity takes place in China?
Mr. Krejcik: For investors who are not familiar with the industry, I would
compare it to the US video game sector; however, instead of playing on consoles,
i.e., PlayStation, Xbox, and Nintendo, the dominant platform is the computer,
which allows users to log onto the Internet and play games concurrently with
thousands of other players. Now, these types of games exist in the US, but it's
much more popular in China for a number of reasons, one being that the console
market has not yet been established in China. This is primarily due to pricing
issues and piracy concerns, which we believe will be very difficult to overcome
any time soon. As such, online games have become one of the most popular forms
of entertainment in China as they offer a compelling value proposition and avoid
many piracy issues.
The acronyms for the industry can be fairly confusing, but basically online
games are divided into two major categories — MMORPGs, which stands for
massively multiplayer online role-playing games, and casual games. MMORPGs or
persistent world games consist of a large number of players interacting with one
another in a virtual world. Players typically take the role of fictional
characters and control that character's actions. The games are characterized by
high quality graphics and immersive environments and usually appeal to
"hardcore" gamers. One of the most popular MMORPGs of all-time is World of
Warcraft, which was developed and is operated here in the US by Activision
Blizzard (ATVI). In China, the game is operated by a local company called The9
Limited (NCTY).
Casual games refers to a category of games that appeal to the mass market —
trivia, puzzle, board games, things of that nature. A third category of games
has also emerged called advanced casual games, which includes elements of both
casual games and MMORPGs.
Tickers included in this excerpt: ATVI, NCTY, NTES, PWRD, SNDA
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