Terra’s new game plan
S. Jai Shankar
WHEN Malaysian Debt Ventures Bhd (MDV) extended a hefty RM61 million loan
to Terra ICT Sdn Bhd, an online gaming company, in June last year, it
raised many eyebrows. Should a gaming company deserve such priority
considering there are more viable business models?
While the critics were still sniping, Terra ICT had made good use of the
money. According to Tom Tamura, the company’s Japanese founder and CEO,
the online gaming industry is a huge untapped market that can provide
handsome returns if leveraged correctly. `And we intend to do just that,’
he says. Market research firm IDC says the industry is expected to be
worth about US$1.8 billion by 2005, up from US$210 million in 2001.
Jupiter Research is also upbeat with predictions valuing the online gaming
market to reach about US$2.55 billion in 2006. The most upbeat forecast
comes from consulting firm Forrester Research, which projects that online
game revenues will more than double each year until 2005, to reach total
sales of US$4.3 billion.
While the potential is there, Terra ICT needed capital injection and the
right environment to operate in. That’s when Malaysia came into the
picture. According to Tamura, Malaysia was chosen as the base due to
various reasons. For one thing, what many people don’t know is that Tamura
is an old hand in doing business in Malaysia. His first foray into the
Malaysian business world was back in the 1960s. `I was a trading agent for
my employers in Japan and handled the Malaysian account. I generally sold
fishing nets,’ he says with a smile.
From then onwards, Tamura has kept an eye on Malaysia. When the
opportunity came to place his company on proper footing to launch the
online games model, it didn’t take him long to decide on Malaysia. `We
were considering Singapore as a possible long term base but decided
against it after considering MDV’s attractive financial and non- financial
incentives,’ he says. The fact that the MDV fund is a Malaysian- Japanese
collaboration probably helped to tilt the odds further. MDV is a company
wholly owned by the Minister of Finance Inc. It offers project debt-
financing, focusing on high-value added ICT and high growth sectors,
through its RM1.6 billion ICT fund provided by the Japanese Government.
Terra ICT was incorporated in February 2003. It is owned 31% by Terra
Corporation of Japan, a global technology and Internet-based solution
provider with interests in Japan, South Korea and the United States.
Another 20% stake is held by listed local turnkey contractor Bintai Kinden
A bulk of the loan incidentally went towards the creation of what Terra
ICT claims is be the world’s first massive multi-player online game
portal. There are also concerted steps to expand the company’s line of
products to ensure it will have the largest online games list in the
future. It has the exclusive distribution and hosting rights within the
Southeast Asian region for 15 titles, and plans to increase the figure to
30-40 by 2005. Every year, three to four new titles will be developed
wholly in Malaysia while the rest will come from global developers. The
current range of titles are basically developed in South Korea but
customised for the regional and global market. The products are mainly
customised into English and Mandarin.
The genre ranges, among others, according to age groups. The range
includes musical, first person shooter, and sports simulation. However,
none of the titles are rated as violent as Terra ICT has a policy against
such titles. `We don’t believe in selling any product which promotes
violence. We prefer strategy-based games,’ Tamura says. Seven of the games
can be played from the www.e-games.com.my portal. The remaining eight
would be made available from June onwards. The portal is also expected to
serve as a platform for games developers in Southeast Asia to market their
products. Terra ICT is also involved in portal development, game
development and creation of intellectual properties.
Terra, which currently has 60 employees, expects one million subscribers
for its online game portal by 2005. The company has started offering
selected South Korean online game titles in English to gamers in Malaysia,
Singapore, Indonesia, the Philippines, Thailand and Vietnam in order to
quickly build a substantial regional customer base.
The distribution channel would primarily involve cybercafes. According
to Tamura, the company is hoping to attract at least 1,000 cybercafes to
its alliance programme. `We are in the midst of negotiating with various
cybercafes to find the right formula that can ensure a win-win proposition
for all,’ he says. It would also be leveraging on advertising and
promotional activities to drive up its subscription base.
Tamura is enthusiastic about the future prospect. One of the reasons for
the optimism is the increase in broadband penetration in Malaysia and
across the region. `That is the impetus that will drive us forward,’ he
says. The increase in uptake will facilitate the company’s push towards
massive multiplayer online role-playing games (MMORPGs). Such models are
big in countries where the broadband penetration is huge such as South
Korea and Japan. The former has the largest broadband deployment per
capita in the world, with about 60% of households with broadband. South
Korea is currently the biggest online game market in Asia with revenue
from online games surging from US$8 million in 1997 to US$465 million in
2002. Not surprisingly, Terra ICT is focusing a lot on developing MMORPGs
to keep itself at the forefront of the online games industry.
Growth is also likely to escalate in coming years as the population for
broadband users continues to expand. The current number of broadband users
in Malaysia, which stands at 100,000, constitutes less than 1% of the
Online games are also expected to grow significantly as it could
circumvent the piracy problem that often plagues offline game developers.
In the case of online games, revenues are driven by subscriptions and not
sales. Furthermore, well-equipped cybercafes, which have mushroomed across
the region, provide the distribution platform that mitigates other
hardware related problems. Tamura notes that gamers these days don’t have
to constantly buy newer and faster machines or subscribe to broadband
services at home to keep abreast with the systems demands of online games.
However, Terra ICT should be wary of competition, which is ever growing.
Over the last few months, many local companies have shown interest in the
market segment. This includes two Mesdaq listed companies, namely MOL
AccessPortal Bhd and FTEC Resources Bhd. Furthermore, due to the nature of
the business models, Terra ICT should expect stiff competition from
incumbent players in the market, especially those from the United States
and South Korea.
To counter the competition, Terra ICT is mulling over the possibility of
sourcing a second round of funding from MDV. It is also planning for a
possible Mesdaq listing by 2005. This would give it the requisite
financial muscle and credibility to truly become a global player in time
Online games have in many ways revolutionised the interactive
entertainment industry and created an important new source of revenue and
gamers. Most industry analysts agree that online games will continue to
grow in raw usage, and will generate significant revenues. Terra ICT
simply wants to become a significant player in the world of games.
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