Warcraft game makes US$10m a month in China

World of Warcraft has earned US$32m for The9, the game's licensee in China, during the past three months alone. 

But uncertainty remains about the popular online game's future in China, following news that an expansion pack agreement is apparently being delayed by Warcraft developer Blizzard Entertainment while The9 upgrades servers to improve performance and user experience. 

Some 99 per cent of the China-based company's US$32.2m revenue for the second quarter came from World of Warcraft, which has more than five million registered players in China.

However, analysts noted that The9 has been very successful in its efforts to license new games that are likely to be popular.

This makes The9's current reliance on Warcraft less worrying, they say, despite the firm's continuing failure to finalise a deal with US-based Blizzard for the Burning Crusade expansion pack.

"For the Burning Crusade, we are still in discussion with Blizzard regarding a launching arrangement and server arrangement, as well as details regarding the customer services," said The9 chairman and chief executive Jun Zhu.

"I believe the discussion is near to the end, and I hope it will go smoothly. Blizzard announced that Burning Crusade will be launched in the North America market early next year, so we also hope to launch this upgrade version in China as soon as possible to offer amazing additional content to the China market."

Analysts at Deutsche Bank are holding off on incorporating the Burning Crusade into their future revenue model for The9, although they believe that the two companies are still likely to agree a deal. 

With World of Warcraft's unprecedented growth in China, The9 was hit by complaints of lengthy waits to connect to the game and slow glitchy play earlier this year.

Shortly afterwards, a rift appeared between Blizzard and The9, after the US game developer announced that it was considering other operators in China for the Burning Crusade expansion.

The9 is adding a seventh server in China with upgraded hardware to address Blizzard's concerns, and the existing six servers are also being bolstered, The9 executives said.

"With the seventh server site, we are buying more sophisticated servers mainly to ensure that they meet the specific specifications as required by the licensor," said chief financial officer Hannah Lee.

"These particular types of servers provide better performance for the games and will improve the user experience."

The company will operate NCSoft's eagerly-anticipated Guild Wars in China, which has been a major hit elsewhere in the world. 

The9 is currently testing Guild Wars and plans a public beta in the fourth quarter and commercial launch by the end of the year, according to Lee.

Other upcoming licensed games include Korean-developed Granado Espada and US-developed Hellgate: London, both planned for release in China in 2007. 

"We like The9's strong pipeline of licensed games as it gives it more than one chance to build a major hit and to limit its competitors' choices to obtain premium games," said analysts Eddie Leung and William Bao Bean of Deutsche Bank in Hong Kong.

"As the growth of massively multiplayer online role playing game users slows down, the strength of World of Warcraft will help to create [a] barrier for competing new games that are launched before The9's own new games."

A government-imposed system to prevent younger players remaining online for too long is being tested. Under new regulations, the so-called 'anti-fatigue' system must be implemented by the end of this year.

Some sections from analyst conference call transcripts for this article were provided by Seeking Alpha Ltd.

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