Friday, April 17, 2009

Blizzard partners with NetEase for China opps

Blizzard just confirmed it's gone with NetEase for its Chinese licensing, as has been rumoured for the last few days.

The9 was the previous holder of the contract.

NetEase will now run the Chinese version of World of Warcraft “for a term of 3 years following the expiration of the current license agreement.”

“We appreciate the enthusiasm that Chinese gamers have shown us over the years, and we've always worked hard, in collaboration with our partners, to ensure that these players receive the same high-quality service and gameplay experiences that we deliver in other regions.” said Blizzard head Mike Morhaime.

“This new agreement with NetEase will support that goal for years to come, and we look forward to collaborating with them on a smooth transition for World of Warcraft moving forward.”

Blizzard didn't specifically say this morning why it's dropped The9 in favour of NetEase to run its Chinese WoW operation, but Wedbush Morgan analyst Michael Pachter's claimed the answer’s simple: it's going to make a mother-trucking boatload more money from the new deal.

“The company had previously contracted with The9, but the current arrangement will expire in June 2009.” said Pachter in a note this afternoon.

“Under the terms of its contract with The9, Activision Blizzard received a royalty of 22% on revenues generated in China. We estimate that the current arrangement generated revenues of around $50 – 55 million annually (using most recent subscriber figures), at close to 100% margin. 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.”

$90 million is probably a good reason to kick a partner into touch. But don't shit the bed just yet, share-buyers: Pachter said he believed the upside - approximately $0.04 per share - has already been factored into forecasts.

Originally Posted: China Business Daily
Author: Angulo Fu