As serious and focused as young German consumers may appear to their American and British counterparts, they are playing around more than ever. And that is good for the German entertainment software industry in more ways than one. Not only is demand for computer games growing appreciably in Europe's largest consumer market, the country is also producing some innovative game development studios, particularly in the online sector. And their numbers, experts agree, could soar with the right kind of funding and creative environment.

To be sure, a growing number of German gamers are getting hooked on online games, especially the so-called massive multi-player games that allow large groups to interact online. The market research group Datamonitor estimates that the number of online gamers in Germany will grow from around 900,000 in 2000 to 4.6m by 2005. During the same period, online gaming revenue will surge from $6.6m to $96m. Over 500,000 hard-core German gamers already spend over 30 hours a week playing online games, according to the market researcher. Another 1.2m Germans are occasional online gamers, with more than 10m users of CD-Rom products representing a huge pent-up demand for online offerings.

These numbers, experts believe, are certain to climb if online charges come down to US levels and broadband access becomes readily available at reasonable prices. Both are in the making. Although Deutsche Telekom, the incumbent telecom operator, introduced and later abandoned a flat-rate fee for analog modem and IDSN users, citing huge losses, several competitors have filled the void by offering their own flat rates for dial-up access, albeit at price levels some say are still prohibitive for most youngsters without income. Not surprisingly, most online gamers in Germany are between 25 and 35 years old.

As for broadband infrastructure to support the many new interactive multi-player games, Germany will soon have some of the best in the world. Telekom has installed nearly 800,000 DSL lines, with more than 1m sold. The operator is targeting 2.6m by the end of the year. Its flat rate offer of around E30 a month for a 786 kilobit per second (kbps) connection is a price competitors say is hard to beat.

At the same time, several new cable operators are preparing to launch alternative broadband access services. One of them, Kabel-NRW, is already testing service. Both groups see online gamers as important revenue generators.

With more Germans buying more entertainment software and with many of them soon able to access faster internet services, a number of companies, such as Electronic Arts of the US and Havas Entertainment of France, are showing marked interest in developing products for the German market.

At the same time, Germany has proved fertile ground for some local start-ups. Not only are these companies tapping into the potential of the domestic market, several of them have also been able to expand internationally.

For instance, BlueByte, in the industrial city of Muhlheim in the Ruhr Valley, has successfully penetrated the challenging US market with its simulation game, Settlers. In fact, some US game analysts say it's one of the most popular strategy games ever. Another cutting-edge games studio is Terra Tools in Berlin, which has licensed its Urban Assault simulation game to Microsoft for worldwide distribution.

An entirely new group of German game developers is focusing on the mobile market - Europe's largest. Ludiwap, for example, has already developed games to run over Wap and SMS platforms. Vodafone is a key account.

"With GPRS and later 3G network technologies and handsets, we are going to see a huge improvement in graphics and speed, and that means more enjoyment," says Ludiwap general manager Ulf Morys.

However, whether Germany can nurture and retain talented game developers remains to be seen. Critics say the country has traditionally lacked a culture for game development and, in particular, a willingness to provide the necessary funds to create and distribute entertainment software both domestically and internationally.

"Maybe it's the serious German mentality that has made the task of developing and financing computer games a bit of a chore, at least in the past," says Mattias Kurwig, chief executive of MightyGames, a distributor of online games that commissions game development almost entirely in the US. "There hasn't been much room for creativity on either front."

What's needed to spur game development in the country, says Mr Kurwig, is a Silicon Valley type environment where people with specialised skills can interact.

"You need development competencies in various areas, like game engine design, networking and game authoring, which aren't always available in one house," he says. "German universities have mostly ignored entertainment software, leaving people interested in acquiring skills in this area pretty much to themselves."

As a result, there have been defections. Factor 5, for instance, abandoned Germany for California, citing problems with finding funds and talented game developers. The company is thriving in the US and doesn't regret the move.

Others counter that Germany has what it takes to become a hotbed for online game development. The country, says Gregor von Scheidt, chief executive officer of NxN, a German consultancy and software development house specialised in digital production management, has very good artists and programmers who can design sophisticated game machines.

"German game developers have shown real talent in creating strategy, management and trading games, and these are the types of massive multi-player games that will be popular online," he says. "German game developers just need more opportunities, which they're finding increasingly in clusters of game development studios that are cropping up, particularly around Muhlheim."

Moreover, claims Mr von Scheidt, Germany has plenty of capital. The trick is how to attract it. "There are numerous investors "who would be willing to invest substantial amounts of money in game development companies if they're offered a sensible way to do so," he says.

Germans, he notes, are among the biggest investors in Hollywood film productions thanks largely to a creative model that strictly separates film financing from production and guarantees returns over a several year period. "There's no reason why a similar model can't work in the German software entertainment sector."