SPECIAL REPORT: After mega-merger, what lies ahead for PH online gaming industry?

MANILA, Philippines — The local online gaming community has undergone tectonic shifts recently following the merger of two of the fiercest rivals in the local online gaming scene: Level Up! Games and IP E-Games.

Last week, IP E-Games Ventures Inc. (E-Games) announced that it would be selling off its game publishing business to rival Level Up! Inc. (LUI), in a deal that involves both equity and cash, although the amount for the transaction has yet to be specified.

E-Games is a wholly owned subsidiary of IP Ventures Group Corp. (IPVG), a Filipino-owned technology conglomerate that has quickly been diversifying its portfolio in recent years.

Its gaming subsidiary, for one, has been busy gobbling up Internet cafe chains across the country in the past two years in its bid to corner a market that could prove beneficial for its game-publishing business.

To date, the firm operates a 200-branch network of Internet cafe chains nationwide, operating under the brands I.T. Log Park, Station 168, iHooked, Cybr and Netopia.

Recently, however, E-Games announced that it would begin venturing in the food and beverage, entertainment and hospitality businesses, on top of its current portfolio of offerings.

Distraught fans

Very scant details were made available following E-Games’ disclosure to the Philippine Stock Exchange regarding the sale of its game-publishing business.

Naturally, these left fans and industry analysts alike to speculate about the future of the two major players in the online gaming scene as it moves to operate as a single entity.

But it’s not only the fans and the gamers who were shocked about the merger. Employees, too, were not kept abreast of E-Games’ plans as it begins to shift directions.

“Kahit kaming mga FM (Forum Moderators), gulat na rin kasi di namin naasahan na mangyayari itong merger (Even us (FM) were surprised because we didn’t see this coming),” said one moderator at one of the company’s online message boards.

Fans of E-Games’ Massively Multiplayer Online Role-Playing Games (MMORPG), such as Ran Online and Cabal Online, couldn’t help but wonder about the future of their favorite games under a different company.

Questions such as “Will LUI continue supporting our games?” to comments such as “LUI’s customer service is bad” were raised in the message board, although moderators were quick to douse the flames of speculation until an official announcement on the developments is issued by the two companies.

Ramon, an avid fan of the hack-and-slash online game Cabal Online, was as indignant when he told InterAksyon.com that he might eventually give up his gaming addiction now that his favorite game has been sold to another company.

“I’ve played Level Up’s games before, and I don’t like the way they treat their customers,” he said in the vernacular.
“Plus their games have bots, which is why Ragnarok Online is not so fun to play anymore.”

The 23-year-old young professional is referring to in-game bots, which automatically control a player’s character in the game. Bots are used by players to quickly level-up their characters, so that even if they are physically unable to play the game, their characters would still progress in the virtual world.

Ramon, who has been playing MMORPGs since his college days and spends an average of five hours a day exploring the nooks and crannies of Cabal, added that he has been meaning to quit online games and may have finally found a perfect reason in the recent merger.

Ramon echoes the sentiments of most players of the two gaming companies’ offerings, who were equal parts shocked and hopeful that the merger would bring good opportunities for Philippine online gaming fanatics.

A gaming monopoly

According to XMG Global Research Manager Anna Juanillo, the merger brings to life a new monopoly of the local online gaming market, equivalent to the widest gaming pre-paid cards and PIN distribution network in the country.

“This consolidated Philippine gaming venture includes 2010 to 2011 service revenue projections, from IP E-Games, of P261,895,846 to P571,339,742 (an “increase” of 118 percent); while at the same time projecting advertising revenues surging from P35,982,525 to P130,395,371,” Juanillo said in an email interview with InterAksyon.com.

According to the analyst, the merger includes enormous service revenue projections for the joint venture, adding that the new entity could corner the “lion’s share” of advertising revenues in online games later.

“This monopolistic merger may result to the starvation of the other smaller players,” she added, referring to other online gaming publishers, which are operating in the country.

Juanilla further dismissed speculations that the free-to-play business model, which E-Games pioneered in the Philippines, has not worked out too well for the online gaming players, adding that it would still be the “norm in the future.”

“Each new option, whether it is role-play, or gaming, will need to entice the prospective client into ‘trying’ a game out,” the analyst explained.

“Once they have shown a preference to one game over another, the market will quickly dispense with the culls, and proceed to show the user why it will be even ‘more’ profitable/exciting once they enter the pay mode,” she added.

The bigger picture

Even as the future looks bright for the union of the two companies, the bigger picture is starting to look awry for the general desktop-based online gaming industry as preference for mobile MMORPG, Facebook-based games and casual gaming on smartphones begin to chip away on the market share of MMORPGs.

The picture is made even more complex by the current ownership structure of LUI, which is now partly owned by a unit of Chinese Internet service giant Tencent and South African media group Naspers.

Tencent, which owns QQ Instant Messenger, the largest instant-messaging platform in China, bought a 49 percent stake in LUI’s mother company — Level Up! International Holdings Pte. Ltd. (LUIH) — in January, in its bid to expand its online game platform worldwide.

In 2010, Tencent also invested as much as $300 million in Russian-based firm Digital Sky, which is a popularly known backer of social networking site Facebook and the social-network gaming platform Zynga, the makers of such popular casual gaming hit as Farmville and Cityville.

Naspers, meanwhile, used to wholly own LUIH before the sale of stock to Tencent. The Philippine subsidiary, meanwhile, used to be co-owned by ePLDT, a subsidiary of telecoms giant Philippine Long Distance Telephone Co. (PLDT), before it sold its stake in the company to a yet undisclosed investor last year.

Naspers has been on a buying spree of popular online platforms in the Philippines in the past few years, including famous e-commerce platforms such as Sulit.com.ph and the erstwhile social networking site Multiply, where broadcast firm ABS-CBN used to have a stake in.

E-Games, on the other hand, has a standing partnership with the New Media unit of another broadcasting firm, GMA Network Inc., for the game publishing unit X-Play, which publishes online games such as Dance Battle Audition and Band Master.

It is unclear, however, if X-Play is part of the assets that will be transferred to LUI after the merger.

The complex setup of both companies only makes it difficult for users and industry watchers to speculate about the possibilities that the merger will bring to the online gaming scene, although XMG-Global’s Juanillo pointed out that the big players would have to watch their backs for new players and new developments in the local gaming scene.

“It becomes imperative for the big players in this market be ever vigilant; what was the most popular game last year is no guarantee that it will hold the same position this year,” she stressed.

Moreover, in a playing field that is quickly being overcome by new technologies such as smartphones and tablets — which has likewise eroded revenues for makers of gaming consoles and portable gaming devices — the future had just become as muddied as ever for desktop-based MMORPGs in the Philippines.

InterAksyon.com
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