The9 Loses China World Of Warcraft Deal to NetEase

Author: by David Jenkins, Kris Graft

Activision Blizzard has confirmed rumors yesterday that publisher NetEase will take over control of World of Warcraft in China. The change is a major blow to former Chinese WoW operator The9. Blizzard's MMORPG has been the primary driver of the company's revenues. The9's contract officially expires in June. The firm gained the rights to distribute and operate WoW in June 2005, and subsequently saw revenues double over the next year. As recently as February this year, The9 has indicated that WoW "continued to enjoy high popularity and tremendous growth," maintaining a high peak concurrent users level of around 1 million. Whisperings that distribution duties would change hands caused The9's shares to slide 22 percent yesterday. According to Wedbush Morgan analyst Michael Pachter, the new contract with NetEase substantially increases Activision Blizzard's royalty rate on revenues from WoW in China. He estimates that with The9, Activision Blizzard collected a 22 percent royalty rate that translates into $50-$55 million annually based on recent subscriber figures. "Although the terms of the new arrangement were not disclosed, we estimate that the royalty rate will increase to at least 55%, and that the new arrangement will generate revenues of over $140 million annually," Pachter says. Says Activision CEO Robert Kotick: "We believe this new relationship will promote a consistent level of quality and service in mainland China for each of the games that Blizzard Entertainment is partnering with NetEase on, including WarCraft III and StarCraft II, as announced last year." "In addition, we believe this new relationship positions us well for the long-term, and despite the near-term impact of the transition, we are reaffirming our calendar 2009 financial outlook," he added. The9 also operates the MMORPGs MU, Soul of the Ultimate Nation, Granado Espada and several other titles.