1. In-Game Advertising in China Edward Lehman Managing Director

2. China’s Gamers China’s Internet-using population slated to surpass that of the United States by early 2008 Largest market in the world for Massively Multiplayer On-Line Role-Playing Games (MMORPGs) Over 45 million people in China play games online –Roughly half of these players pay for them. Estimated 85 million online gamers in China by 2012

3. Business Models “Pay to Play” Models –Sale, Subscription, or “Pay as you Go” –Sometimes advertising-supported “Tiered” Model –Players pay to improve their character “Free to Play” Models –Selling virtual land, items, et cetera –In-game advertising

4. Types of In-Game Advertising (1) Static Ads: –Ads hard-coded into the game, and do not change –No Internet connection required –No way to easily gauge effectiveness of ads Dynamic Ads: –Game contains ‘ad engine’ to retrieve ads on demand –Requires Internet connection –Can change ad campaigns for a particular game –Can enable ‘click-through’ and other user interactivity, monitor ratings, et cetera

5. Types of In-Game Advertising (2) Advertisements on Menus and Loading Screens Advertisements in the “Game World”

6. Immersive versus Intrusive Well-placed ads make games more realistic Poorly-judged ads can turn off players (potential customers)

7. Market Growth “Netguide 2008” survey: Gaming market increased 57% year on year to RMB 14.7billion (US$2billion) Public gaming companies – market capitalization: –Giant Interactive (NYSE: GA) - US$2.6billion –Shanda (NASDAQ: SNDA) - US$2.13billion –Perfect World (NASDAQ: PWRD) – US$1.31billion Growth of local companies specializing in in-game advertising: Captiv8; NGI; In-Game Interactive Foreign in-game advertising companies starting to establish presence in China: Aruon Communications (Korea); GameGlance (Thailand)

8. Regulation Restrictions on Advertising –“Real world” restrictions also apply to the “virtual world” (and to on-line ads in general) No obscene, false, or disrespectful advertising, or advertising that runs contrary to official ideology Restrictions on Online Gaming –Computer game software is a “restricted area”; foreign game producers may not operate directly in China –ID registration and restrictions on gamers under 18 Software must contain time restrictions

9. Thank You!