Piracy fails to dampen online content services market

The future looks bright for Asia-Pacific's paid online content services market.

Despite the continued threat of software piracy, APEJ (Asia-Pacific excluding Japan) revenues for paid online content services rose 25.6 percent year-on-year to US$3.86 billion in 2007, according to research firm, Frost and Sullivan (Frost).

Frost attributes the growth to online gaming popularity, and expects the region's paid online content services market to be worth US$4.67 billion by end-2008, up 21 percent year-on-year.

In 2007, the online gaming segment dominated the market, accounting for 81.3 percent of total revenue. In contrast, piracy has taken its toll on the online music and online video segments, which accounted for 10.8 percent and 7.9 percent of market value respectively.

Mainstream infotainment channel

"Today's internet has come a long way from being just a medium for disseminating information, and is now increasingly becoming the mainstream channel for distributing and accessing 'infotainment' content as well," says Frost and Sullivan's industry analyst, Kamlesh Kalwar.

Kalwar adds that the paid and ad-revenue supported free online content services markets will grow in tandem with the jump in users seeking leisure time internet entertainment.

The Chinese and South Korean markets together accounted for about 79 percent of APEJ's premium online content revenues in 2007, according to Frost. China's online gaming market is largest in the region, thanks to increasing use of entertainment applications among Chinese netizens.

China is expected to contribute up to 45.7 percent of the region's paid content revenues by end-2013, Frost says.

The research firm notes that increasing broadband affordability and adoption by households has driven growth of the region's premium content services market. Other driving factors include rising popularity of portable entertainment devices and more value-added services offered by ISPs.

Broadband on the rise

While different Asia-Pacific countries are at various stages of internet and online service adoption, broadband usage is on the rise across the region. According to Frost, some 57 percent of Asia-Pacific households that accessed the internet, did so over broadband connections at the end of 2007.

"As faster internet speeds enhance overall online experience, users are spending more time online playing games and visiting social networking sites," Kalwar says. "Growing broadband penetration has created a conducive environment to encourage users to spend more time online engaging in entertainment activities, by enabling convenient sharing, personalization and sourcing of relevant content."

He adds that consequently, demand for premium online content services like audio- and video-streaming and downloads, as well as online gaming, will jump.

Content piracy threat

However, Kalwar warns that widespread availability of free online content, both legitimate as well as illegal pirate downloads, will continue to affect paid online content demand.

China's legal music downloads account for only about one percent of the region's online music download volume, reflecting the severity of piracy threats, Frost says. Online gaming has fared better to some extent as players need to be a registered with the game provider to participate in multiplayer community games.

"In a bid to shake-off the ghosts of piracy, stakeholders are grappling to find the right business model to monetize content," Kalwar says. "For selected content, particularly online video and music streaming services, the ad-sponsored revenue model has been widely used."

He adds that game providers have adopted the FTP (free-to-play) revenue model where gamers are not charged an upfront fee to play online. Instead, the game's basic version is provided free to encourage sampling, while a fee is charged for advanced game features when users demand for them. In-game advertising provides another source of revenue as well.

Such FTP billing models, richer and wider offerings, and rising demand for massively multiplayer online role-playing games, will drive the online gaming segment's growth, Frost says.

Favorable market outlook

Overall, the future looks bright for APEJ's paid online content services market, which Frost estimates will register a CAGR of 15.6 percent between 2007 and 2013. The research firm expects the market's value to hit US$9.2 billion by end-2013.

Online gaming should post a 14 percent CAGR during the forecast period, and account for 75.1 percent, or US$6.9 billion, of the market value in 2013, Frost says.

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