World of Warcraft profits tumble in China

Players lose interest as cash row delays China expansion agreement.

Revenue generated by World of Warcraft in China is falling as the popular online game ages, despite an increase in players, according to the game's local operator. 

China is believed to have more Warcraft players than any other nation, at almost six million registered accounts and as many as 660,000 playing simultaneously.

New data on the game's performance in China was revealed in figures released by The9 Ltd, which operates the game in China under a licensing deal with the US-based developer, Blizzard Entertainment, a division of Vivendi Universal. 

Jun Zhu, chairman and chief executive at The9, told analysts last week that Chinese Warcraft enthusiasts paid a total of US$29.1m to play over the past three months, a fall of 10 percent from US$32m in the previous quarter.

Income from Warcraft in China is significant for Vivendi Games, which reported pre-tax profits of US$31m in the third quarter.

Blizzard and Vivendi take approximately 39 percent of the Chinese players' initial sign-up payment and 22 percent of fees thereafter, according to The9.

The9 ate into its own profits by investing approximately US$5m in setting up a new server centre for the game, following player complaints and rumours of pressure from Blizzard.

This helped make room for a marginal increase in peak concurrent users to more than 660,000 shortly after the end of the quarter.

The fall in revenue comes as long-term users begin to desert the aging game in China. The9 is hoping that the forthcoming Warcraft expansion pack, The Burning Crusade, will win these players back. 

"We believe that when we launch Burning Crusade in China, a lot of the old users will come back to play again, and we will also attract a lot of new users," said Zhu.

The eagerly-awaited expansion could boost the number of players to as high as one million during peak hours next year, predicted China-based Deutsche Bank analyst William Bao Bean in a report issued last month. 

However, The9 and Blizzard have still not signed a deal to distribute the expansion, despite negotiations lasting more than a year. Zhu said three months ago that he believed the discussions were almost complete.

Burning Crusade is scheduled for launch in most countries in mid-January 2007. It will be made available in China, Taiwan and Hong Kong "as quickly as possible after that", according to a statement on Blizzard's website.

"I would like to clear up rumours that are spreading in China. Based on all our communications with Blizzard, the two parties have always believed that Burning Crusade is part of the original license agreement," said Zhu.

"During the four years of the exclusive licence, there is no possibility that companies other than The9 can operate Burning Crusade in China.

"We are still in discussions, rather than re-negotiations, with Blizzard regarding the margin arrangements, and the timetable for Burning Crusade in China."

The9's current four-year licence to operate World of Warcraft in China runs until June 2009. About 99 percent of the company's revenue comes from this single licence.

In a report released at the end of last month, Deutsche Bank analysts anticipated short term weakness at The9, but remained positive about the firm's prospects.

They rated the Nasdaq-listed stock a 'buy' based on Warcraft's continuing dominance and on expectations that forthcoming games will be successful. The9 is preparing to bring the popular online game, Guild Wars, to China early next year. 

There are more than 7.5 million World of Warcraft players worldwide, according to Blizzard. The 5.9 million activated accounts reported by The9 suggests that as many as 78 percent of all Warcraft players could be in China.

However, it is unclear whether Blizzard's estimate of players includes all accounts activated, like The9's estimate, or only those accounts which have been used recently.

According to vnunet.com's analysis of data released by The9 and Vivendi, between 30 and 50 per cent of the world's 9,000-plus Warcraft servers are in China.

Although different countries use different pricing systems, an average two-hour per day Warcraft player in China pays roughly 25 percent of the fees paid by a US or European gamer.

A significant delay in launching the Burning Crusade expansion in China might even tempt some Chinese gamers to bypass The9 and pay to play on foreign servers, despite the deleterious effect long distance connections can have on the game's response to player input.

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