Detailed description of NTES's Gaming Fee Increase, part 3

One can find my last NTES related post here:

part 2 here

It took me two blog posts to finally get here. In this post, I will describes the new policy change in detail. One can find the official policy change here:

XYQ announcement

The policy became applicable on 2/10/2013. As of today (2/21/2013), I didn't find any news about this in English. It amazes me how inefficient Wall Street can be some time.

These policy changes apply to XYQ, XY2, and XY3.

Before the policy change, players spend 0.4 RMB to play one hour of games. For example, if a player spend 4 RMB to buy a game card for XYQ, he could play XYQ for 10 hours.

The new policy change has two major components. The first component is it increases the gaming fee by 50%. Now, to play 10 hours, a player has to spend 6 RMB (or 50% greater than 4 RMB).

The second component is it introduced monthly playing card and yearly playing card for these games.

Let me go through the monthly playing card. This monthly playing card is the most restrictive card I have ever heard. It is nothing like that in the west. Typically, a monthly card of other companies works like this: one pays a set monthly fee, then the player can play as much as he wants within that month.

But that is not that way at all for NTES. In this case, a player spend 60 RMB to buy a monthly card. For that, he can play "exactly" 100 hours. What happens if he only play 60 hours within that month? Tough luck, time runs out and he loses 40 hours of play time. What happens if he plays 110 hours within that month? The monthly card would only cover the first 100 hours. That player would have to spend an extra 6 RMB to buy the last 10 hours.

Why would anyone want to buy the monthly card? Because for 60 RMB, one not just get 100 hours of play time, one also get 200 "Jade".

For NTES investors, those "Jade" represents another exciting form of future revenues. It represents a new direction for NTES to uncover future revenues.

In China, there are two form of games. One is item-based free-to-play games. In this type of games, player plays for free. Game company makes money by players buy in-game items.

Another form of games is the time-based paying game. For games like XYQ, XY2 and XY3, players spend money to play the game. Those kind of games are not supposed to have in-game items. But now, with the "Jade" as a new form of game currency, player can buy many in-game items.

So far, NTES are starting to form the in-game store. NTES is taking its time to slowly introduce more in-game items. Most of these in-game items don't affect the player balance.

For the next few quarters, XYQ and XY2 shall get a big revenue boost of 50% due to the fee increase alone. After that, the revenue increase from the in-game items sales shall start to kick in.

Finally, both policy changes will not be popular with the players. Both changes are big risk big reward moves by NTES. There are real chances that those moves can back fire. But it is easy to monitor the player game server statistics to see if there are major player defection. I will monitor them in the next few weeks/months to see which way it goes.

But one would think it would be feast or famine. Either most player tolerate it and NTES get super high growth rate or player defection starts to catch on and NTES loses two of its most important franchises.