Pop Cap’s First Year In China

PopCap’s first year in China: work-in-progress A post-mortem James Gwertzman Vice President, Asia/Pacific

1P- 37P2F3 1.1GWERTZMAN/JAMES.MR*ADT 1 UA 977V 13SEP TU SEASFO HK1 710A 911A/O $ E 2 JL 1M 13SEP TU SFONRT HK1 100P 340P#1/O $ E 3 JL 795M 17SEP SA NRTPVG HK1 705P 905P/O $ E 4 CA1856Y 19SEP MO SHAPEK HK1 755P 955P/O $ 5 CA 123Y 22SEP TH PEKICN HK1 855A 1150A/O $ 6 JL 962M 24SEP SA ICNKIX HK1 1220P 200P/O $ E 7 JL 60M 24SEP SA KIXLAX HK1 530P 1155A/X $ E 8 AS 513Q 24SEP SA LAXSEA HK1 215P 449P/O $ E P- 1.P8F206-652-0888 ASA TOURS/YIHRU

Casual Games: QQ Mini game platform Tencent launched QQ Mini game platform since 2003. it is so far the biggest casual game platform in the world. So far, QQ mini game platform provides 50 mini games from 5 main categories. Market share 55% Registered users 156MM PCU 2.5MM

QQ Show –Global #1 Virtual Fashion Community 200 million+ registered accounts, each has paid experience User generated fashion,includes clothes,decorations, hair style,etc. Customize your own style and show yourself Subscriber 25,000,000

Our existing games were already very popular in China. But, our existing business models could not work.

Success would require mastering an entirely new set of business models.

Was Asia worth it? It’s HUGE (3.3 billion people, more than half under 30) The number of Internet users is growing FAST (20% CAGR since 2000, from 121 million to 411 million) Broadband connections are growing FASTER (28% CAGR since 2003, more than 292 million by 2010) Incomes are RISING (only 6% of Chinese are “middle-class”, but that’s more than all of Germany) Casual games are HOT (50% growth in China last year, projected 39% of market by 2010)

By the numbers… Population Internet Users Penetration Growth (2000-2007) China 1,317,431,495 137,000,000 10.4% 508.9% Japan 128,646,345 86,300,000 67.1% 83.3% India 1,129,667,528 40,000,000 3.5% 700.0% Korea, South 51,300,989 34,120,000 66.5% 79.2% Indonesia 224,481,720 18,000,000 8.0% 800.0% Vietnam 85,031,436 14,913,652 17.5% 7356.8% Taiwan 23,001,442 14,500,000 63.0% 131.6% Malaysia 28,294,120 13,528,200 47.8% 265.6% Pakistan 167,806,831 12,000,000 7.2% 8861.9% Thailand 67,249,456 8,420,000 12.5% 266.1% Philippines 87,236,532 7,820,000 9.0% 291.0% Hong Kong 7,150,254 4,878,713 68.2% 113.7% Singapore 3,654,103 2,421,000 66.3% 101.8% Australia 20,984,595 14,729,191 70.2% 123.2% New Zealand 4,274,588 3,200,000 74.9% 285.5% Asia 3,346,211,434 411,830,756 12.3% 240.0% North America 334,538,018 233,188,086 69.7% 115.7% European Union 493,119,161 252,818,939 51.3% 167.8%

Clearly we could not be… “The World’s Leading Developer and Publisher of Casual Games” … without a presence in Asia.

Timeline

“Homework” Phase

“Lobbying” Phase

“Execution” Phase

Fiscal Results $300,000 40 35 $250,000 30 $200,000 25 $150,000 20 15 $100,000 10 $50,000 5 $- - Jan-06 Jan-07 Jan-08 Jan-09 Headcount Expenses Revenue

Travel Impact 25 20 15 10 5 0 Jan-06 Jan-07 Jan-08 Jan-09 Days outside the US

The study also revealed that multinationals face a severe and growing talent shortage in China. This is a bottleneck to growth that will only worsen as they compete with each other and domestic companies for Holding on to skilled staff in China is getting as employees with critical skill sets needed for the mass hard as protecting intellectual property for market. Candidates lacking English language skills and Western technology and media quot;softquot; skills, such as communications and managerialfirms, executives told an industry summit this capabilities, were the top two reasons cited by week. multinational recruiters for the current talent shortage for multinational positions. Poaching is rampant. -- IBM Institute for Business Value (2007) biggest problem we have there is that quot;The they are taking people -- Chinese people we train, people we send,quot; Robert Lerwill, chief executive of UK media group Aegis AGS.L told the Reuters Global Technology, Media and Telecoms Summit in Paris. quot;The current HR challenges in China include recruiting, training and qualification, integration and -- Reuters (2007) retention, and the introduction of HR policies and procedures,quot; Schoof told the audience, with a particular emphasis on retention of local Chinese managers. -- Mercer’s 8th annual Expat Management Forum

Sept. 1 Finally hired Studio Head Cao Long (EA Pogo China) $300,000 40 35 $250,000 30 $200,000 25 $150,000 20 15 $100,000 10 $50,000 5 $- - Jan-06 Jan-07 Jan-08 Jan-09 Headcount Expenses Revenue

Chinese office stereotypes you won’t find at PopCap

Getting to here…

... from here…

... Involved this temporary appt….

… lots of iteration on the plan…

… and finally 3D renderings.

Tokyo Singapore Beijing Seoul Shanghai

We knew protecting Intellectual Property in China would be a challenge

(but verify)

mostly (but verify)

Reprinted with permission of the author

Regulatory Issues • Game companies must work with: – General Administration of Press and Publications (GAPP) – Ministry of Culture (MoC) – Ministry of Information Industry (MII) – State Copyright Bureau – Ministry of Public Security – Bureau of State Secrecy – State-owned Assets Supervision and Administration (SASAC) – State Administration of Radio, Film and Television (SARFT) – State Administration of Foreign Exchange (SAFE)

Vs. Vs.

China Will Punish Foreign Internet Game Companies Who Break Rules Posted By ChinaTechNews.com Editor On March 18, 2009 @ 5:01 am In Internet, Law & Policy | No Comments The General Administration of Press and Publication of China will soon fix a new measure to regulate the cooperation between Chinese and foreign online games service providers and the new measure may focus on punishing foreign game operators who adopt arbitrary rules during the cooperation with their Chinese partners. According to news on Sina.com, GAPP will hold a seminar featuring attendance of top game executives on March 18 when it will announce a range of new measures. GAPP says that foreign companies in China must comply with China's laws and regulations. To protect Chinese companies' rights, concerned departments have rolled out these measures with the purpose of creating a fair environment for online game operations. Under the new measure, if a foreign game operator is involved in a lawsuit as a result of their unfair clauses against their Chinese partners, their game products may be suspended in China. In addition, GAPP will strengthen the approval procedure for online games, which is believed to be a heightening of threshold for foreign games to enter the Chinese market, though Kou Xiaowei, deputy chief of sci-tech and digital publishing department under GAPP, stressed that GAPP would treat both Chinese and foreign game service providers equally without discrimination during the approval process.

Looking ahead… • First products launch end of this year – Modest expectations… – Validate our thinking, team, etc – Gain experience • “real” products launch next year – The real test… – That’s when we know if we are on the right track

Pop Cap’s First Year In China

by James Gwertzman on Jun 11, 2009

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