Electronic Arts Developer Spicy Horse to Expand China Studio

Electronic Arts Inc. (EA) content developer Spicy Horse Games aims to double its workforce as the American-owned, Shanghai-based company looks to sell online games in China, the world’s largest Internet market by users.

The game-software creator, whose “Alice: Madness Returns” is nearing completion for release by Electronic Arts next year, plans to increase the number of employees to 160 to 200 in the next 18 months, from about 80 currently, founder American McGee, 37, said in an interview yesterday.

Spicy Horse, originally established to develop content for export and use on Microsoft Corp.’s Xbox and Sony Corp.’s PlayStation consoles that are banned in China, now aims to tap demand in the local games market, which is projected to double to $10 billion by 2014. The company will need a local publisher to help it meet Chinese laws that bar foreign-owned companies from directly operating online games, McGee said.

“The whole reason I came to China was I could see six years ago that the Western game-development and publishing model was starting to break down and malfunction,” the former Electronic Arts game designer, who founded Spicy Horse in 2006, said. “I wanted to be in China to gain access to what was happening in online games production, and monetization.”

Designed in China

“Alice: Madness Returns” title will be the first console game entirely designed and developed in China for export and is a sequel to “American McGee’s Alice” that was released by Electronic Arts for personal computers in 2000 and sold more than 1.5 million copies.

Closely held Spicy Horse has received about $11 million in advances on royalties to develop titles including the “Alice” sequel for Redwood City, California-based Electronic Arts, and an online game called “American McGee’s Grimm.” The developer has hired Wedbush Securities Inc. to explore financing options for its expansion in China, McGee said.

The “Alice” sequel has been produced for about half the $30 million that such a title might have cost in the U.S., where the original title was developed, McGee said. The game follows Alice “on a journey through a wildly corrupted and shattered Wonderland to uncover the truth behind her haunted past and tortured psyche,” Electronic Arts said in a statement announcing the sequel in July.

Facebook Inc. (FB) game developers Kabam and Zynga Game Network Inc. last month said they will increasingly turn to Chinese software designers to make games. While Kabam has 35 employees at a studio in Beijing, and Zynga acquired XPD Media with its 40-strong Beijing workforce, both have said for now they won’t try to operate their games in the highly regulated local market.

Online Multiplayer Game

China is home to Tencent Holdings Ltd. (700), the world’s biggest online games company by market value. The most popular title it operates, “Crossfire,” is licensed from South Korea’s Neowiz Games Corp. (095660) NetEase.com Inc., China’s second largest online game company, is the local operator of Activision Blizzard Inc. (ATVI)’s “World of Warcraft.”

Spicy Horse is convinced there is room for others, McGee said. The studio has recently begun developing its first online, multiplayer game to target the China market, he said, without disclosing details of the new game.

China’s videogame market will double to $10 billion by 2014, researcher BDA China Ltd. said last month. About 280 million Internet users play games on-line that will generate revenue of $5 billion this year, according to the Beijing-based firm.

“It’s time to start bringing more Western-style production to bear on the Chinese local market,” McGee said. “We’re going to force our way in.”

--Edmond Lococo. Editors: Suresh Seshadri, Jonathan Annells

To contact the reporter on this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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