Virtual Worlds in Asia: Business Models and Legal Issues

This paper examines the business models and legal challenges facing virtual world developers as their enterprises mature, using Korea and China as case studies. Its central argument is that early technical obstacles for virtual world businesses have largely been overcome, while new environmental, security, and governance challenges are emerging, requiring a fundamental rethinking of the assumptions that have guided the game industry.

The Korean analysis centers on item trading, a practice in which real-world currency is exchanged for digital items stored on company servers. Korea's high broadband penetration, with 68.8% of households reporting home Internet access in 2003, underpins a trading market that has grown to over $200 million in transactions in 2004, with more than 300 item trade companies operating. The findings highlight sharp disagreement among developers: large firms such as NCSoft oppose item trading, while smaller developers view it as a means of attracting players. A 2003 industry survey revealed a divided landscape, with responses ranging from outright prohibition to unrestricted individual trade. Fraud and hacking have produced a rapid rise in cybercrime, from 675 cases in 2000 to 10,187 in 2003, and the Korean legal system has struggled to adapt.

The Chinese analysis emphasizes how business models evolve through distinct stages, from technical issues to environmental regulation, revenue streams, and sustainability. It addresses challenges including Waigua automated play, private servers operating on leaked source code, and legal liability for lost virtual property, illustrated by a 2003 Beijing court ruling against a developer. The study also classifies community governance models, from anarchic to panoptic, and suggests Chinese operators are moving toward shared governance.

The paper's evidence draws on industry surveys, government statistics, operator disclosures, and secondary academic and press sources, though the reliance on self-reported figures from companies such as ItemBay limits independent verification.