Chinese Net Café gamers reduced by 30%

My last article on NTES can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/01/ntes-games-4q2008-prediction.html

On 12/28/2008, there is a small article on a local newspaper in southern China. That article can be found below:

http://www1.nanfangdaily.com.cn/b5/www.nanfangdaily.com.cn/nfjx/200812280015.asp

It was an extremely short story. In it, NTES's CEO said that there is a 30% reduction on the number of gamers in China』s Internet Cafés. He thinks it is due to the global economic crisis. It caused the stock of NTES to crash from $22.78 to as low as $16.61.

At the time, I don't really believe the authenticity of the story. First, the story is extremely short and doesn't provide any background. I tried to find more details, but I couldn't find any at the time.

China』s news industry is extremely competitive and all the players place great emphasis on quantity rather than quality. In addition, during slow news time, sometimes they create stories rather than just report stories.

But most importantly, my server checks on NTES and SOHU's games don't reflect that at all. The following article is my server checking on NTES's games for 4Q2008:

http://chinese-net-gaming-stock.blogspot.com/2009/01/ntes-games-4q2008-prediction.html

From my server count, NTES's games had very strong growth in the 4Q 2008. Therefore, I have great doubt on the authenticities of that story.

Today, 1/28/2009, there is follow up on that story. You can find it here:

http://epaper.nddaily.com/D/html/2009-01/28/content_694844.htm

In it, it repeats of what NTES's CEO has said. More importantly, it provides more colors or details on what he said.

NETS's CEO said that there is 30% reduction of the number gamers in China』s internet café. It is not clear to him whether it is due to the current global crisis or due to those gamers plays at home rather than internet café.

He said the decline started in October 2008, but accelerated in November and December, 2008. He got this data from his 1000 strong ground sales force. He did admit that part of these declines is due to seasonality.

Typically, there are less gamers in internet café during winter. In addition, there are many school holidays in the 4Q.

Gamers from internet café represented about 25% of NTES's games' population.

In response, SNDA's CEO took a completely opposite ways of looking at the same thing. He believe internet gaming is recession proof. He believes whether a game company can prosper in the global crisis depends on the capability of the game company's CEO. Then he uses a pretty loaded term to describe NTES's CEO. He said NTES's CEO has a 「short」 attitude.

We all know what short means. But for NTES's CEO to short its own stock, that is, driving down NTES's own stock with the purpose of buying it later, it could be a strong accusation.

NTES's CEO said, 「If you don't believe me, go ask GA's CEO. GA has even bigger ground sales network than we do」.

The above article didn't ask GA's CEO about this story.

The following is what I think.

I think this story is real. NTES's CEO did say those things. It does make sense that global crisis has an impact to gaming industry.

But from the response from SNDA's CEO, the effect of the global crisis is pretty small on China』s gaming industry.

In addition, NTES's CEO wasn't trying to relate internet café』s gamer population to NTES's performance. He was talking about the affect of global crisis on China and he happens to use the decline of internet café gamers to illustrate his point.

NTES's CEO has never being known for being marketing savvy. He probably has no clue of how other people will interpret of what he said.

Note that he never said anything about his games server statistics. If he said there are much less gamers due to his game's server statistics, it would mean absolutely lower revenue.

There might be 30% less gamers in China』s internet café, but there might be more internet café gamers playing NTES's games due to NTES has more new games on line this quarter. It is also possible that there are now more gamers that play at home rather than in the internet café.

My server check had indicated a very strong NTES's growth. But NTES's CEO's statements definitely had put some doubt into it.

But I think the fundamental stays the same. Global crisis will have some negative affect. But the affect is probably much less than most other industry. For NTES, the fundamental is the same. Its new games are growing extremely strong. It also will have 2 to 4 new games coming on board this year. NTES is in an extremely strong position in China』s gaming industry.

But there does seem to be some short term doubts for NTES. For SNDA's investors, it is nice to see the confidence of SNDA's CEO.