It is encouraging to read that 18 Chinese online game companies have formed an IP Protection Alliance to combat illegal game servers and cheating programs. Those are the biggest headaches for Chinese online game operators as illegal (private) servers disrupt the operational loads on the legitimate servers, and the cheating programs upset gamers so much that if a game has a reputation for allowing cheats and hackers, most legit Chinese gamers walk away from the game (case in point: AION). Gamers have told Niko in a number of our surveys that if their own account is compromised in a game that they are playing, they will immediately shut it down and never return to that game, taking all of their friends with them. We are eager to see what action and penalties the IP Protection Alliance will take. And we are naively hopeful that some of their ire will spill over into the packaged goods part of the games industry as well, sparking some sort of business-led solution to the problems of packaged piracy and illegal downloads.

If, in fact, the hackers who made great progress in hacking into the fortified PS3 can find a way to easily modify a PS3 to enable use of pirated software, that console will enjoy much higher sales in China that it has in the past few years. However, the issue is that all of the sales will be in the grey market of illegal imports until a law banning consoles is overturned. The Xbox 360 and the Wii can already be modified, and therefore the gamers in China who wish to own one of those can buy pirated games for them. The penalty is that they cannot hook up to Xbox Live or suffer the consequences, but no matter, as there is no Xbox Live in China anyway. PS2 was the biggest selling console ever in China, largely because of the vast number of pirated titles available for it, and also because it was less expensive than the next-gen options. PS3 may find itself with more grey market sales than the company knows what to do with if the hackers have their way.

Here they come. Perfect World has been the most aggressive Chinese online game company in terms of international expansion, but has been pushing only its own games. Now the company has secured the North American license for a Korean game called Rusty Hearts. This could signal a tap-tap-tap on the American front door for Asian online games from developers big and small to be operated in the US by Asian online operators who may or may not have developed those games themselves.