Venture funds tap China game designers amid downturn

SHANGHAI (Reuters) - Chinese game designers, whose clients often include big names such as Sony and Nintendo, are attracting venture capitalists who believe the multi-billion dollar sector can grow despite the global economic downturn.

China does not have a long history of electronic games, but in neighboring Japan, where Sony Corp (6758.T) and Nintendo (7974.OS) are based, the country is well known for its popular games design and outsourcing services.

China has relatively low labor costs and a plentiful supply of programmers and visual artists, industry experts say.

And before the competition hots up, foreign investors are jumping into the market for deals despite the still unfolding U.S. financial crisis, the worst since the Great Depression.

"The financial crisis may bring opportunities to the game industry as we expect more and more people will be willing to go home and play a game with their family when the economic situation is not good," said Su Fang, managing director of Mine Loader Software Co Ltd.

Mine Loader, specializing in outsourcing services for the development of video and online games for various platforms including PC, Microsoft Corp's (MSFT.O) Xbox, Sony's PlayStation and Nintendo's Wii, received an investment of several million dollars in its first round of fund-raising from Fidelity Asia Ventures in September.

The company aims to go abroad for a listing around 2012, said Su, a former senior China executive of Konami Corp (9766.T), one of Japan's largest game developers.

Some Chinese game developers, including Shanda Interactive Entertainment Ltd (SNDA.O) and Giant Interactive Group Inc (GA.N), have listed in the United States in the past few years as young Chinese show strong interests in multi-player online games.

WII INSTEAD OF DISNEY

Robert Hutter, a partner of Revolution Ventures, called the home entertainment and game sector a "recession neutral" area where venture funds would still be keen to invest in the hopes of juicy returns when the markets recover.

"I think parents will tell their family that we can't go to Disneyland this year but we are going to get you a Wii, for example," said Hutter. "That conversation is happening all over America and also all over Europe, I believe."

In September, Revolution Ventures and WPP (WPP.L) jointly invested in InGame Ad Interactive Technology Ltd, which helps companies use online games as a medium to deliver advertising.

New technology, such as virtual skiing and boxing offered by Nintendo's Wii, can help games remain popular during the current economic downturn and video games are expected to become Britain's number one form of entertainment, an industry research report showed last week.

"Gaming itself is a way to bring the same type of psychological pleasure without spending as much as money in other times," said Hutter, adding that his fund was looking for more investment opportunities in entertainment and game sectors.

Large companies, which have tightened their advertising budgets amid the economic crisis, are also showing an interest in games as a means of promoting their business at a lower cost than through traditional mediums such as newspapers and television.

InGame Ad's chief executive Steven Hu said his firm had secured a contract with a big foreign brand with sales expansion plans in China's consumer and retail sectors, which would bring in money for the company in the first quarter of 2009.

"We are not hurt in the economic crisis, instead, we may see a new sales record in the next quarter," Hu said.

(Additional reporting by Samuel Shen; Editing by Jacqueline Wong and Alex Richardson)