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Pirates pillage China's online game industry

Software pirates are gouging China's red-hot online games industry by offering identical games for free and undermining planned Nasdaq listings by companies thought to be immune to copyright abuse.
/ Source: Reuters

Software pirates are gouging China's red-hot online games industry, offering identical games for free and undermining planned Nasdaq listings by companies long thought immune to copyright abuse.

A visit to any Internet cafe in Beijing, the strictest city in the country, reveals groups of glassy-eyed gamers hunched over computers fighting fantasy enemies, mostly without paying for the privilege.

"There are literally hundreds, maybe thousands, of private servers where I can play my favorite games for free," said Wang Rui, a 28 year-old office manager who has been playing online games since they where introduced in China more than five years ago.

"All my online friends play this way too. We think it's uncool to pay," he told Reuters, scrolling down a Web site called www.17ez.com that lists scores of illegal servers offering the popular game "Mu".

That's bad news for Shanghai-based online game giant The9 Online, which distributes the South Korean-developed game in China and is angling for an overseas stock listing this year.

Analysts say piracy in the industry is rampant, though it's difficult to quantify exactly how much knock-off sites hack into the sales of a market expected to be worth more than $400 million this year.

Downloadable cheating software that allows people to make faster progress through the official games takes out an extra bite.

A severe problem
"It's a severe problem, though not as bad as software piracy. Some pirate game servers are really big, with as many as tens of thousands of players at one time," said Henry Yang, general manager of Internet consultancy Shanghai iResearch. That compares with up to half a million on the official sites.

Other games drawing armies of Chinese pirates include "The Legend of Mir" series distributed by Shanda Interactive Entertainment Ltd, China's largest operator.

The game draws up to half a million players at once and is Shanda's most popular, helping the ambitious firm earn $33 million in profit last year.

Shanda raised $152.4 million from a Nasdaq listing this week, scaling back from a previously announced $259.8 million, and its shares will begin trading on Thursday.

Foreigners have invested hundreds of millions of dollars in China's young Internet game firms, betting they could sidestep the piracy curse that has crippled many Western software firms like Microsoft Corp and Sony Corp.

Many of the games are developed by listed South Korean companies such as Actoz Soft and NHN Corp.

Paul Waide, analyst at Shanghai-based media consultancy Pacific Epoch, estimates piracy lops some three percent to four percent from online game sales.

"If I were the (Internet game) firms, I'd be up in arms, but they seem to think it's just part and parcel of doing business in China," he said. "This is very hard to eradicate."

Legitimate game sites require users to log into computer servers to verify they are paying members and charge by the hour. Now gamers log into "sifu", or private servers running pirated copies of the software, to play for free.

Some private servers make money by selling advertisements. Others are run by fly-by-night hackers who have no interest in making money and believe they are helping their fellow gamers.

"It's a big problem and has a significant effect on us," said Li Lijun, a spokeswoman for Shanda, who declined to say how much illegal servers eat into the firm's sales.

She said Shanda was working with the government on anti-piracy campaigns. But players like Wang Rui scoff at suggestions their favorite sites will close.

"If they close one site, another will open," he said at the start of another evening of hardcore gaming. "If anything, more and more games are being offered on the Net every day."