Manila, Philippines | Friday-Saturday, March 18-19, 2005
Cashing in on online gaming
By Kerlyn G. Bautista, Reporter
A business once caught in a ugly price war has found a new lease in life, thanks to the latest online craze.
Posing as a fresh source of revenue stream to the then dousing business of ubiquitous small-scale internet cafés -- numbering 14,000 at the close of 2004 -- is online gaming.
Internet cafés were once too many to offer a narrow set of applications -- electronic mail, chatting, internet surfing, and the like.
But along came online gaming which is now posing as a killer application that appeals to casual gamers -- mostly students who play in the peak hours of 3 p.m. to 5 p.m. -- and professional gamers -- who frequent Net cafés after their day jobs and up until midnight.
An offshoot of role-playing games in the 1980s and 1990s, the massively multi-player online role playing games (MMORPGs) of today let users plot gaming strategies while playing online, allowing them to exchange tactics in a virtual chat room. Experience of online games lifts up as players design their own character and choose how the game will be played.
Massive use of online games is partly hinged on the fact that its software is for free and does not require payment of licenses to distribute. Players would only need to buy prepaid cards that should be used to log on to the MMORPG's website in order to play.
Indeed, not a few were drawn to the online gaming bandwagon.
INTERNET CAFÉS
Netopia, the internet café arm of the country's biggest telco Philippine Long Distance Telephone Company, said that there were 500,000 online gamers in the Philippines last year who pay P60 everyday to play for at least two hours in internet cafés.
As of December 2004, Netopia found out from an in-house survey that there were 5,000 sizeable internet cafés in the country with more than 15 units of personal computers and 9,000 small-scale internet cafés with one or two personal computers. Netopia, now the biggest internet café chain in the country, has about 205 branches in the Philippines and Thailand, all of which cater to online gamers.
Worldwide, the International Data Corporation (IDC) estimated the value of the online gaming industry at $1.7 billion; the Wedbush Morgan securities pegged its value at $1.5 billion; and the DFC Intelligence at $1.2 billion.
"Online gaming locally and globally will continue to grow rapidly," Netopia president Raymond H. Ricafort said in an interview. "The only factors that can prohibit growth of this industry are unreasonable laws and legislation and lack of self-regulation among the players. The worst thing that can happen is an abuse by either the players of the industry or an excess of regulation. Other than these factors, I think this entertainment segment will continue to grow."
INVESTMENTS
Profitable has online gaming become that Netopia will invest this year P72 million to put up six online gaming centers, which would cost four times than an ordinary Netopia internet café.
The Extreme Gaming Grounds will cost P12 million, with its equipment already eating up P7 million. This gaming center will sport 60 computers priced at P120,000 each and a 42" plasma television that retails at P200,000 each.
The computers will have 64 MB memory, 2MB cache processors, and 17" liquid crystal display monitors with 16 millisecond response time -- faster than the 50 or 25 millisecond repose in the market today. The computers will each be powered by Intel's Pentium 4 Hyper-Threading Extreme Technology Edition chip that costs around $1,000.
Netopia is not the only company cashing on this emerging industry.
Level-Up!, the biggest online game publisher in the Philippines that is also present in Brazil and India, said it will increase its employee count from 90 last year to 180 this year, on the back of growing business in the country.
New hiring will be mostly for customer support personnel, sales and distribution. There are about 80 customer support personnel at Level-Up! who handle 4,000 gamers each. In the peak hours of 4 p.m. to 7 p.m. on weekdays and 3 p.m. to 5 p.m. on Saturdays, the company accommodates as much as 52,000 gamers concurrently.
Popularity of Level-Up! has resulted in P5,000 to P10,000 daily earnings for internet cafés. There are 5,000 internet cafés with 60,000 seats that sell these types of games.
Albert P. Dela Cruz, chief technology officer at Level-Up!, said in an interview that the booming online gaming had also prompted the company to invest more in information technology.
Mr. Dela Cruz disclosed that the company will buy 200 more units of servers this year to complement some 300 xSeries servers that were purchased from technology company International Business Machines Corporation Philippines (IBM).
Servers are multi-million-peso equipment that support functions of individual computers and systems. These equipment have to be robust and scalable to avoid downtime in online gaming.
Level-Up! will also ink more partnerships with internet service providers (ISPs) in the countryside in hopes to drive down the cost of broadband internet connection from the current P2,000 a month. It also plans to resell digital subscriber line (DSL) to end-users and bundle it with other services in hopes to prod adoption of online games.
"This year there will be about 12 games that will hit the market so that gives you an idea how much the demand for online games would grow. We think three of these games will make money," Mr. Dela Cruz said.
Online gaming is also painting a rosy picture for telecommunications companies.
Lopez-led Bayan Telecommunications Inc., which is investing on its online game "Tantra", said that online gaming will grow because of significant improvement in three-dimensional graphics and the manufacturing of computers with increased processing power.
GAME DEVELOPERS
The emergence of local game developers who are attuned to the tastes of local gamers will also give significant push to the online gaming industry. China for one has already endorsed a college diploma for online gamers to enhance the development of the local gaming industry.
Even when there is deficiency in the broadband connection in the Philippines, BayanTel said that online gaming will still grow as they would play mostly in internet cafés.
"Online gaming is fueling the growth of local content which was almost non-existent a few years ago. Before, the few local content in the Philippines are not even hosted locally. Most of them, especially the graphics heavy ones, are hosted in data centers in the US," Joevel Rivera, BayanTel product and development manager, said in an e-mail exchange.
"The online games encouraged the expansion of domestic peering connectivity across ISPs and carriers in the Philippines. With the availability of domestic peering, hosting local content becomes viable and more cost effective. Consequently, the cost of internet bandwidth is reduced as less international bandwidth is used to access web servers and contents," he added.
While online gaming is primed for mass adoption this year, some still argue that the benefits of online gaming will not trickle down to the masses, and will likely remain contained to internet cafés, online game publishers, ISPs, and a few technology companies.
One argument states that 99% of online games commercialized last year were mostly imported from Vivendi Universal and Electronic Arts, and South Korean companies.
The boom in online gaming in the Philippines thus created little chances for start-up content providers to go primetime with a hit online game, as the Philippines became a heavy importer of canned online games conceptualized and developed overseas.
In China, for instance, a small Korean company developed "Legends of Mir" with a capitalization of under $1 million. The game became a hit and is now being played by 30 million Chinese gamers. Mir's makers now employ 176 employees and 87 developers because of the success of just one game. Such success cannot be said for any local content provider.
INCENTIVES
In an interview, IDC research manager Manuel Ravago urged the online gaming industry to outline clear business incentives for potential players that would like to venture into gaming.
Mr. Ravago warned that the country is fast losing its online game developers to the United States and Singapore where pay-scale cannot be matched by local content providers.
He then advised the industry to follow the steps of some countries in Europe where there are professional incentives for professionals developing games. This move would be wise as the country's online gaming industry is expected to post continued growth in the next few years.
IDC said in its study "ASEAN Online Gaming Market Sizing and Forecast, 2003-2008" that number of Philippine-based online gamers will climb to 6.3 million in 2008 as the number of internet users reach 21.5 million.
It pegged the compounded annual growth rate of online game subscription in the Philippines at 58.4 percent from 2002 to 2007.
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