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 World Of Warcraft  China Downtime Continues In NetEase Transition

World Of Warcraft China Downtime Continues In NetEase Transition Exclusive

July 7, 2009 | By Leigh Alexander

World of Warcraft's millions of Chinese subscribers haven't had access to the game in a month -- and now it seems they'll have to wait a little longer.

The downtime appears due to a recent change-over in the game's Chinese game operation license. Activision switched operators on June 7th from The9 to rival NetEase, sacrificing what analysts estimate is $10-$15 million in player dollars and risking userbase loss for the long-term boon of a higher royalty rate.

Although NetEase sealed its deal months ago, the specifics of a broad contract with Activision are revealed for the first time in NetEase's NASDAQ-filed financials.

It's specified that the company has committed to pay a total $301.5 million in licensing, royalties, consultancy fees, hardware support and committed marketing expenditure over a three-year term.

That figure, which included $4 million in royalties to kick off the initial deal, doesn't just cover World Of Warcraft -- NetEase also has a second, previously signed licensing agreement with Activision that covers Blizzard's StarCraft II, Warcraft III, and the platform.

But the title has still not relaunched, and an official statement on NetEase's site recently translated by Reuters commented: "We have met with some factors which are out of our control [and] the servers' reopening will be delayed... As of now, we don't have a specific reopening timeframe."

NetEase's financials cited "difficulties and delays" in the WoW relaunch among its investment risk factors, noting Chinese government approval processes as one of the key risks -- since online games require an official license to operate.

"We cannot be certain of the duration of the transition period and if the transition will be completed satisfactorily," says NetEase as one of the risk factors. "If such relaunch is significantly delayed, the game’s popularity and profitability may be adversely affected."

The Chinese World Of Warcraft userbase is hardly an insignificant portion of the game's over 11 million worldwide total -- Lazard Capital Markets analyst Colin Sebastian has estimated that Chinese players could account for as much as half of all WoW users.

But Sebastian and other industry analysts have generally maintained that even if the player base suffers in the transition downtime, there's minimal risk to Activision in the near term assuming it all goes as planned. The average revenue per user in China is much lower than in other territories where the game operates, thanks to a different business model for WoW there.

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