Chinese Operators Facing Promotional Rethink on Slowing Net Café Traffic

6 January 2009

The Chinese casual gamer frequented mainland Internet cafés less in 2008 than 2007, but analysts argue recent media reports of a steep decline in traffic are exaggerated.

William Lei Ding, chief executive of the Beijing online gaming operator Inc., told the Nanfang Daily in late December that the global economic downturn had contributed to a 30 percent fall in gamers playing at cafés.

For Netease and listed peers like Giant Interactive Group Inc., the loss of traffic could mean a lighter audience toward whom to promote new content and, as a result, slower adoption of that content.

Adam Krejcik and Nick Ning, analysts with Roth Capital Partners in California, believe that the downturn in traffic is connected to negative macroeconomic trends, but is likelier due to players changing their habits.

"More gamers are playing at home as PC affordability improves, as well as school and the workplace, as computer hardware improves," the two wrote in a research note Tuesday.

Contrary to Mr. Ding's claim, 14 of 50 Chinese café owners surveyed by Roth in recent days reported that traffic, year over year, was flat or slightly up; 29, flat or slightly down; five, down; and just two down by 30 percent or more.

Although much has been made of Mr. Ding's gloomy estimate, how important, really, are Internet cafés to the Chinese casual gaming scene, and why are they drawing fewer customers than in years past?

Roth cited research conducted by China's iResearch Consulting Group which found that cafés were the fourth-most-popular place for gamers to play online behind home, school and the workplace.

"But Internet cafés still play a pretty crucial role at this point because more of the hardcore gamers are going to a café and playing," William Sutjiadi, chief executive of the Asia-facing software developer Mahjong Time, told IGamingNews Tuesday.

On the question of traffic, Mr. Sutjiadi said the wider availability of broadband -- in addition to changing habits and cheaper PCs -- is making gaming easier from home.

To ensure survival in a changing market, Roth said, China's online gaming operators will need to look toward new routes to market like television shows, film stars, Internet portals -- even instant messaging.

Chris Krafcik is the editor of IGamingNews. He lives in St. Louis, Mo.