Chinese Internet & Gaming Stocks

3 new NTES games within the next 10 days, YSG, DT2, and CSXY

2010-04-07T09:54:00.001-05:00

One can find my last NTES related post here:

http://chinese-net-gaming-stock.blogspot.com/2010/03/players-revolt-in-wow.html

Right now, everybody is waiting to see when GAPP and Ministry of Culture will approve World of Warcraft』s next expansion pact. But everybody is missing two much more important recent developments.

Within the next 10 days, three new games will enter unlimited Closed Beta with permanent player statistics. Unlimited means anybody can play. This 「Closed Beta」 is not by invitation only. In addition, all player statistics will be permanent. That is, player statistics will not be erased at the end of this 「Closed Beta」. Thus, compare to the west, this is really commercial launch.

On the other hand, I think there will be minimal marketing for the 「Closed Beta」. NTES had been well known to be penny pinching on marketing.

YSG will enter unlimited Closed Beta with permanent player statistics on 4/9/2010. YSG is a 2.5D Turn based MMORPG game, based on Tale of three countries. It will be a free to play. But it is not a true item-based game. There are no items to purchase in this game. On the other hand, player can pay to buy 「essence level」 (精力值). Any time a player wants to get any goodies (such as experience, in-game currency, in-game items, etc.), he has to use up some of his 「essence level」. One can still play without paying any money. But he won』t get any 「essence level」. Thus one can』t get experience or item without 「essence level」. One can also get 「essence level」 through playing as team leader (or more like baby-sitter to other players). There is only one item in the online store, the 「essence level」, you can』t buy any other items in the online store. For PK (player kill), it incorporates 「Battle Chess」 style of play. It emphasizes the usage of battle formations. Therefore, there is a lot of strategy involved in player combat.

Therefore, this game is really NTES』s attempt to investigate another paying model (other than time-based, and item-based).

CSXY will enter its unlimited Closed Beta on 4/15/2010. This closed beta will have permanent player statistics. This game』s development starts in 2005. It is a turned based 3D game, based on BigWorld game engine. It will be a free to play, item-based game. It will be the third game behind the two blockbusters, XYQ and XY3.

DT2 will enter its unlimited closed beta on 4/16/2010. Again, this closed beta will have permanent player statistics. It is a 2.5D real time game. It will be a free-to-play, item-based game. This game emphasize player PK. This game encourages PvP but there are also some PvE elements. Basically this is a game for PK.

DT2 has promotional video for its closed beta. One can find it here:

http://news.17173.com/content/2010-04-06/20100406143519287.shtml

I had always defined a game to be a blockbuster if its PCU can break the important 500k barrier. For MMORPG (without counting the casual game), one can count all the blockbusters in China with two hands. NTES has three of them, WOW, XYQ, and XY2.

Of NTES』s other existing games, TX2 will probably reach blockbuster status by 2011 (it probably has PCU closed to 300k and is still growing strongly).

But out of about 10 new games in the pipeline, I can only see two games that have the chance to reach blockbuster status. These two games are DT2 and CSXY.

A new WOW expansion pact is important in that it will probably give a 10% to 20% kick to the amount of WOW players. It will also indicate the closure between the unpleasantness between GAPP and NTES. But the additional revenue will be shared between NTES and Blizzard.

A brand new blockbuster on the other hand will contribute much more to the bottom line. Somehow, the developments of these two games (DT2 and CSXY) are completely ignored by Wall Street.

At this point, there doesn』t seem to be a major marketing push for the 「Closed Beta」. NTES will probably using this period to continuously modify the game design. In a few months time, NTES will probably conduct a major marketing push for the 「Open Beta」.

But in two to three weeks, we would have some indication of the potential of these two games.

Players revolt in WOW

2010-03-25T23:31:00.002-05:00

My last WOW related post can be found here:
http://chinese-net-gaming-stock.blogspot.com/2010/02/coiled-spring-ntes.html

In the last three days, there is a mini-player revolt for Netease's WOW. Sina's game channel had a special section on this revolt. Sina's section can be found here:
http://games.sina.com.cn/zt/wow100325/index.shtml

I will provide a quick summary of what happened below:

On 3/23/2010, an individual WOW player hook up with a WOW clique to do a raid in WOW. After they kill the in-game monster, the clique took all the in-game reward (gold) from the monster. The individual felt he is victimized by the power clique (at least according to that individual).

Further negotiation results in the clique threaten to "kill" the individual.

That evening, when that WOW player logged on to the game, he is informed that his account is being frozen by NTES (the WOW operator).

That player complained on a popular instant messaging channel. Things like this happens a lot and a lot of individual players had been victimized by the power cliques (or clans).

Thing like this happens all the time and nothing usually happens. But somehow, this time, this player's circumstance somehow draw the attention of a lot of other WOW players.

These players then went to WOW and start to attack that clique. After the angry mob finished off the clique, they start to attack the game operator (NTES). For a while, all of in-game communication channels are dominated by angry players accusing NTES of negligence. That in turn attracted more players' attention.

By the morning of 3/25/2010, several tens of thousands of players were talking about this at various game forums. By the morning of 3/25/2010, NTES contacted that individual player and told the player that his account was frozen not because of any attack by a power clique, but because he had used illegal game point purchased from an illegal source. In addition, his account is only frozen for one day. Three will be no other punishment to that individual player.

Satisfied, that player get on the instant message channel and told the crowd that this issue had been resolved.

But the mob is not satisfied and the mass protest continues.

As of this evening (3/25/2010), accounts of several of leading protesting WOW players have been frozen.

Sina had hired a lawyer to provide legal advice to support the protesting WOW players. Oh, by the way, SINA and NTES are competitors.

While I don't think this thing has any long term affect, it is still interesting to follow this development.

Coiled Spring - NTES

2010-02-12T09:43:00.002-06:00

My last WOW related post can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/07/wow-approved-by-ministry-of-culture.html

Now that WOW is finally being approved by GAPP. Better yet, NTES is probably not going to get panelized. Let me look forward to see how the fundamental is going to shape NTES.

Sometimes bad news worked out for the best.

The whole WOW-GAPP episode was definite a bad news for NTES last year.

But as we get to 2010 and as WOW is now officially approved, everything is most likely going to work out for the best.

NTES's TX2 is a competitor to WOW. If WOW got approved last year and the expansion pact (Wrath of the Lich King) got approved, it would had squeeze all the oxygen out of TX2.

As it turned out, NTES can't get WOW approved and it turns all its energy in TX2. As a result, TX2 has established a thriving and highly devoted fan base, it is on its way to become the next mega hit in China. TX2 has got to the point of being able to stand on its own feet now.

Now that NTES has got its license to WOW approved, it has three mega (WOW-related) events coming up. It has two new expansion pacts (Wrath of Lich King and Cataclysm) and Starcraft 2 coming up. In normal time, these events are staggered about 2 to 3 years apart. Each of these events would had been the dominate events in China’s gaming world.

Now, because of the unique circumstance (or incompetence) of GAPP, all three events are being squeezed into one year. In other words, 6 to 7 years of game changing events are being squeezed into one year time. For the next year to 18 months, NTES is able to release the Wrath of Lich King expansion, followed by Starcraft 2 and finished by coming out with the Cataclysm expansion pact.

NTES is going to have all of China’s gaming market all to itself in the next 12 to 18 months.

Better yet, NTES doesn’t have to sacrifice TX2 for it.

NTES has about 15 major games in later stage of development right now. But two of them has early signs of being the next mega hits. They are DT2 and CSXY. None of them are the direct competitor to WOW. Both of these two games are probably going to out within the next 12 to 18 months.

NTES is already dominant in the 2D cartoonish turn-based game, it is going to be dominant in 3D mythical games with WOW and TX2. With Starcraft 2 and the new battle.net, it is going to carve out a new area (that does not exist right now) in on-line battle matching. DT2 is targeting directly at the martial art games of PWRD, GA, and CYOU. CSXY is going to create another new area that does not exist in China’s gaming world.

18 months from now, there is a good chance NTES would achieve near monopolistic position on virtually all the different areas (except casual games) of China’s gaming market.

I don't think I could have been more optimistic about a company than I am about today's NTES.

WOW approved by ministry of Culture

2009-07-21T01:35:00.003-05:00

My last WOW related post can be found here:
http://chinese-net-gaming-stock.blogspot.com/2009/07/approval-of-wow-could-take-another-60.html

Sorry, for not keeping up with the post, I do have a regular job and it gets pretty busy lately.

First, some old information:
http://it.sohu.com/20090717/n265296111.shtml

The General Administration of Press and Publication (GAPP) said July 17, 2009 that its content checks into NTES's MMORPG World of Warcarft (WoW) is almost complete. GAPP said that GAPP has found some violent content which needs to be revised but that this should prove no difficulty for game companies.

My guess is this will only be 2 to 3 weeks of more work before it is approved by GAPP.

But GAPP is not the only government agencies that NTES needs to get approval. Ministry of Culture's approval is also required. Today, 7/21/2009, NTES obtained this approval. See the following article:
http://it.sohu.com/20090721/n265371279.shtml

The following picture is the image from the web site of Ministry of Culture:

At this point, it is pretty clear that NTES will start operating WOW within 2 to 3 weeks. This delay had nothing to do with what NCTY's law suit. This is what I predicted from my last post.

Finally, my last post had a couple of comments that disagree with my prediction. First, thank to the commenter for your opinion, even if you are disagreeing with me. As long as you don't resort to personal insult, your comments are welcome. Viewers are especially encouraged to view the comments section to get other points of views.

Approval of WOW could take another 60 working days

2009-07-01T08:54:00.000-05:00

One can find my previous article on WOW below:
http://chinese-net-gaming-stock.blogspot.com/2009/06/wow-had-already-passed-3-fourth-of-way.html

Previously, NTES and Blizzard had a joint statement saying that they will start to operate WOW at the end of June. Clearly, they are not able to do it.

NTES issued a public apology to Chinese users:
http://it.sohu.com/20090701/n264884981.shtml

In it, NTES didn’t specify the reason for the delay. It also didn’t say when WOW will be re-opened.

President of Blizzard said it (the interruption) is not a big deal:
http://it.sohu.com/20090630/n264863497.shtml

But the unknown is not good. Finally, the portals got hold of the relevant government department and interviewed the person who is in charge of the approval process:
http://it.sohu.com/20090701/n264903812.shtml

According to the person (a mid level bureaucrat) in charge of the approval process, government has up to 20 days to approve the application. But it also has up to 60 days to inspect the content of the game.

I believe there was a misunderstanding between NTES/Blizzard with the Chinese government. NTES probably thought since WOW had already been approved for NCTY, government no longer need time to inspect its content.

Therefore, NTES thought it only has to wait for up to 20 days before it got government approval. Thus, it and Blizzard made the announcement for restarting the game by the end of June.

But now, it is clear that the (up to) 60 working days of inspection is needed. Maybe the government thought there are a lot of new content being added for WOW between now and the time NCTY first submitted a few years ago, that a new review is warranted.

What does this mean? It has to be good news to SNDA’s AION. NTES’s TX2 will probably benefit from it also.

But overall, it is a temporary bad news for NTES. But does this have long term negative effect on the popularity of WOW in China? No, not at all. As long as WOW is the number 1 game in the west, its place in China is secured.
But it does means NTES will have to forgo a part of the summer season to make money from WOW.

Two other observations can be made here. First, this delay has nothing to do with the suits filed by NCTY against Blizzard. This explains the complete silence of NTES over the conflict between NCTY and Blizzard. That conflict doesn’t affect NTES at all.

The second observation is that it is clear now that if any foreign game companies want to change Chinese partner, even if it is perfectly legal under contract, he will have a high price to pay. Chinese government made certain of that.

Finally, will the full approval process last another 60 working days? I seriously doubt it. WOW had already been approved and people of playing it for long time already. If the government disapproves it, that means it disapproves something it already approved before. It is a slap on its own face. It also won’t take close to 60 days to approve it. It looks bad on them for being so inefficient. Finally, they really don’t need that long to inspect something they already inspected already.

Impact of new Government regulations on Chinese gaming companies

2009-06-29T22:53:00.001-05:00

Chinese government came out with a few new regulations yesterday for the online gaming market. In this article, I will try to list these regulations and their impact to various gaming companies in China.

First, it is going to forbid the exchange of in-game currency to the real currency. This has to be a bad news to Tencents game and SNDA. Both of these companies have very active in-game currency.

But there is a silver lining. This regulation might help to crack down on pirate servers and bots.
http://news.sina.com.cn/c/2009-06-27/153915860437s.shtml
I will describe the main point of the above article. Many bots companies use in-game bots to get in-game items and experience points. It then converts them to in-game currency. They then convert the in-game currency to the real money.

I don’t know how effective this regulation will help cracking down on the pirate servers and bots. But if it can largely eliminate the bots, it will help out many games greatly. Many games are destroyed because of the proliferation of the bots. Many games are barely surviving because of the infestation of the bots.

Another important new regulation is that the lottery box might be outlawed.
http://tech.sina.com.cn/i/2009-06-29/04113217976.shtml

The lottery box might be considered as a form of gambling and gambling is illegal in China. I will describe the working of lottery box using an example. Player A wants a very precious sword. He can buy that sword with $100 through the in-game store. Or he can spend $1 to buy a lottery box. When he opens that lottery box, there is a 1% chance that the precious sword is in the box.

Therefore, the theory behind it is very similar to lottery in the US. I have no idea if this shall be considered as a form of gambling or not. But I do know this effect can’t be neglected.

GA is the first company that uses this concept. It caught fire right away. Now everybody does it.

This regulation will affect every company that use free-to-play item-based model. That means every company except NTES.

It is a good thing that this regulation comes at this time. If it comes 1 year ago, it could really devastate a lot of companies. But as players get more and more used to the concept of lottery box, they are being used less and less. It is becoming less of a feature for the game companies. As a matter of fact, GA just announced that they will stop using lottery box altogether (to meet this regulation):
http://tech.163.com/09/0630/03/5D1BUHQO000915BF.html

Now, I will summarize the effects of these regulations. The stoppage of in-game currency to real currency will negatively affect Tencent and SNDA games. Outlawing the lottery box will negatively affect all item-based games. Therefore, all Chinese gaming companies (except NTES) will be negatively affected. Most of NTES’s games revenues come from time-based games that are not affected. Finally, if the regulation can contribute to the elimination of the bots and pirate servers, it will greatly benefit all game companies.

WOW had already passed 3 fourth of the way in its approval process

2009-06-15T00:56:00.003-05:00

One can find my previous article on WOW here:

http://chinese-net-gaming-stock.blogspot.com/2009/05/ntes-will-get-wow-players-statistics.html

On 6/7/2009, the operation of WOW in China was officially transferred from NCTY to NTES. NTES then start to submit to Chinese government for the approval to operate WOW.

It is required to get approval from four levels of government agencies, the Culture Department, the local level News Department, the provincial level News Department, and the National News Department.

NTES announced that it will start to operate WOW starting at the end of July, see the following:

http://chinese-net-gaming-stock.blogspot.com/2009/05/ntes-to-operate-wow-starting-end-of.html

Some Wall Street analysts doubted that it would happen that fast.

From the following article:

http://it.sohu.com/20090615/n264529993.shtml

NTES had already received the approval from the first three departments (Beijing city News department counts as two levels of departments). It only needs one more department to go. In a period of one week, it had already gone through ¾ of the way.

It is looking more and more likely that NTES is going to start operating WOW by the latter part of June. This is definitely a good news.

Finally, for one who wants to see the official government questions and answers regard to this subject, go to the following (the link might not be there for long though):

http://www.bjppb.gov.cn/xxhd/zxwd/ckjd_new.jsp?subjectID=2

Conflicting signals from NTES

2009-06-14T01:42:00.001-05:00

One can find my previous NTES related article below:
http://chinese-net-gaming-stock.blogspot.com/2009/06/ntess-new-games-part-3-progress-of-new.html

I am still going to go through every NTES’s new game development, as some of you requested. But in the last few days there are two very important news stories that I shall address.

First, from the following two articles:
http://tech.sina.com.cn/i/2009-06-13/10373176394.shtml
http://www.financeasia.com/article.aspx?CIaNID=105381
CEO of NTES sold 2 million shares of stocks. It corresponds to 1.6% of the outstanding share capital and just about one day's worth of trading volume. It definitely is a lot of money. But the CEO still have a lot of shares in NTES, he held 46.3% of the company as of March 2008.

This is definitely not good news. This could be neutral in that he just needed the money now. Maybe he needs the money to start his pig farm. Maybe he needs the money to bride some Chinese government department. It could be many reasons why he just need the money now.

It is also equally possible that he felt NTES’s price represents a top (either short term or long term) and he is trying to cash out before the stock goes down.

I don’t know which case it is. But both represent legitimate cases.

In another development, NTES is currently embroiled in an ugly rumor. A blog reports that a disgruntled NTES employee is accusing NTES of neglect XYQ in favor of its hot new game, Blizzard’s WOW. See the following article:
http://linlinsong773.blog.sohu.com/118280571.html

Of course, it makes no sense. NTES got majority of its revenue from XYQ. Even with the addition of WOW, NTES will get more revenue from XYQ than from WOW. NTES is definitely not going to throw away its cash cow in XYQ.

In China, different game companies sling outrageous accusations against each other (through anonymous sources). This is no different. This accusation is so outrageous that it is not going to stick. But it does require announcement from NTES to dispel the rumor. Sure enough, the CEO of NTES made an official announcement the next day, on 6/11/2009. The following is the announcement from the CEO of NTES:
http://news.duowan.com/0906/108664529998.html
The announcement said that the rumor is completely false. It turns out that this employee doesn’t even exist. So the story ends there. It has no effect on the stock what so ever. So why am I mentioning about this story. Well, I found gold nugget in the most unlikely places. I just found one. In the second paragraph of his announcement, in order to emphasize how ridiculous the accusation is, he said the following:

“…..I want to tell everybody, at this point in time, every products of our gaming department are at their peak. Our old products are growing stably. In addition, our new products are beyond our expectation. ….”

I find the above statement extremely significant. The CEO of NTES is very media shy. Every statements he had made regards NTES had proven to be true. He would have never make statement like this except for this exceptional case. NTES made $114 millions in 1st quarter 2009. The analysts’ estimate for the 2nd quarter is $120 millions. Therefore, analyst’s estimates only reflect the stable growth of the old games. It doesn’t capture the unexpected strong growth of the new games.

On the surface, this contradicts with the first story (the selling of NTES’s CEO stocks represents a temporary top). Actually, it doesn’t have to be.

I know exactly what the NTES’s CEO means about their new product(s) is(are) beyond expectation. TX2 and XYW are growing fine. But the game he is talking about is the new FF.

I talked about this game in my last three articles. The popularity of this game definitely caught NTES by surprise (Interestingly, I was not surprised). As I mentioned in my previous articles, NTES provided very little marketing prior to the commercialization of the game. After the game goes commercial, as the game becoming more and more popular, NTES is doing major marketing for this game right now.

Starting this week, NTES is putting ads on all major game verticals for new FF. It is sending all its ground sales teams to internet cafes to promote this game.

This represents major expenditure that was not expected. Since new FF is an item-based game. It is not going to starting to make major money until the third quarter. The net effect is in the second quarter, there will be more expense for NTES. On top of that, the majority of WOW’s expense will probably occur in the second quarter.

The net result is there will be big expenses in the second quarter. At this point, no Wall Street analyst mentioned anything about the new FF. The great success of new FF is completely under everybody’s radar screen. Thus, nobody is going to know about this extra expense.

In the intermediate term (starting 3rd quarter 2009) and long term, NTES is going to surprise everybody on the upside. But in the short term, there might be negative surprise in that there might be more expenses than expected for the 2nd quarter.

In a nutshell, by combining the two stories, we can make the following conclusions. If the CEO of NTES just wants some money now, the stock of NTES will have great upside surprise in the intermediate and long term. If the CEO of NTES sold his stock because he is worry about expenses in the 2nd quarter, the stock of NTES will have temporary top in the short term but have great upside surprise in the intermediate and long term.

Thus, in the short term, it is either neutral or negative. But in the long term, this stock is tremendously undervalued.

NTES's New Games – part 3 – Progress of the New FF

2009-06-10T00:56:00.007-05:00

In part 2, I describe this game in detail. One can find it here:
http://chinese-net-gaming-stock.blogspot.com/2009/06/ntess-new-games-part-2-description-of.html

Now, I want to talk about the progress of this game. New FF went into Open Beta on 5/15/2009. Because it is an item-based free-to-play game, Open Beta means commercialization.

In keeping with NTES’s curious tradition, there is virtually no marketing effort for this game at all. About one week before the Open Beta, NTES began put some advertisement on 5 or 6 2nd tier game portals. As a result, new FF had an extremely underwhelming Open Beta. On the date of Open Beta, new FF only opened 4 new servers.

In comparison, SNDA started advertising for AION almost a year before the game went into commercialization. It had a terrific marketing campaign. On the date of its commercialization, it opened 80 new servers!

An example of how little marketing NTES is willing to spend for new FF, it won’t even put big banner ad on its own portal (www.163.com). What is even more interesting is that after the Open Beta, when it is clear that new FF is going to be a hit, NTES starts to put big banner ads in prominent locations on its portal.

This is got to be some kind of record. Maybe ABC should start marketing for NBA Finals after the games have finished, or maybe Toyota should market its 2010 Prius car in 2011.

One can find the promotional video for the new FF below:
http://v.zol.com.cn/video83972.html
, and the game is being advertised as the game for the 90’s new women.

I consider that as a brilliant marketing strategy. This game is pushed as a game for young women. It will have a lot of 18 to 25 years old young women. That will in turn attracts loads of 20 to 30 years old young men spending money like mad to please these young women.

At this point, there are three major in-game tournaments. The first is the fashion show tournament. The second is a tournament to find the best in-game photo/graphics. The third is the group warfare tournament. As one can see, two is catered to young women and one is catered to young men.

The following table provides the number of servers with respect to the date:

Date	Number of Servers	Notes
1/1/2009	20
2/1/2009	20
3/1/2009	20
4/26/2009	20
5/3/2009	23
5/10/2009	27
5/14/2009	30
5/15/2009	34	Open Beta
5/22/2009	40
5/28/2009	45
6/5/2009	50

From my previous articles, players had been playing the old FF for free for almost 4 years. The 20 servers are there to support the legacy players. On 4/26/2009, NTES announced that new FF will have Open Beta on 5/15/2009.

Due to the lack of marketing, only 4 servers are added on the date of Open Beta. But the game is adding players extremely quickly. Barely three weeks into the Open Beta, new FF had already required the use of 50 game servers. If won’t surprise me if it had already achieved a PCU of 120k to 140k.

From the above table, this is a game that gathers popularity not based on marketing or hype, but based on words of mouth. This is what a game with extremely long run time looks like.

In comparison, NTES’s TX2 had been in unlimited Closed Beta for 1 year, it has 37 servers. NTES’s XYW had been in unlimited Closed Beta for 9 months, it has 31 servers. Both are reasonably successful mid-level games. But new FF will eventually be many times more popular than these two.

While SNDA’s AION exploded right off the gate, new FF is like a wild fire that is burning stronger and stronger. Its growth is limitless. While I have great expectation for AION, I predict new FF will be even more successful in the long run.

Now, a few pictures of the new FF’s development team members (not all of the members are in the following photos):

Notice how many women are on the team.

Finally, more in-game pictures:

NTES's New Games – part 2 – Description of the New FF

2009-06-08T21:40:00.004-05:00

In part 1, I gave the background of this game. One can find it here:

http://chinese-net-gaming-stock.blogspot.com/2009/06/ntess-new-games-part-1-next-mega-hit.html

Right now, everybody is concentrated on WOW. WOW is a great game. It achieved a PCU of 1.02 million in 4Q2008. That is definitely a great achievement.

But guess what, there is another title under NTES that is even more popular. That game is XYQ and it had a PCU of 2.32 million!

If one compares XYQ with WOW, one can’t help but wonder how can XYQ, with its outdated graphics and juvenile cartoonish play style, be twice as popular as WOW. But that is just what Chinese players like.

Similarly, the two latest most popular titles, SNDA’s AION and NTES’s new FF occupies similar category as WOW and XYQ. AION is Korea’s answer to WOW. The new FF has the same cartoon like graphics and Q style playing feature. AION emphasizes combat while new FF is heavy into relationships.

New FF has a lot of similarity to XYQ. But there are also significant differences. New FF has western theme while XYQ is based on Chinese mythology. New FF is real time game while XYQ is turn based game. XYQ is 2D while new FF is a 3D game.

Don’t want to talk too much about in game features of this game. I am not into game like this. But I am more interested in how Chinese gamers like this game. Anyway, I don’t have much experience in playing this game. Let me just hit some major points.

Graphically, what can I say about this game. This game looks just like cartoon. It is much prettier than XYQ. That is to be expected since it is a much newer game. Graphically, this game can’t be compared to games like AION, WOW, or TX2. But that is to be expected because it is not suppose to be realistic looking.

It is a full-fledged 3D game. But because it is cartoon looking (a Q style game), it is very easy on game players’ computer. This game is playable on every computer. The camera angle can be either free floating or fixed. There are still a lot of gamers in China that are not used to play 3D games. Therefore, an option to allow user to fix the camera angle is very useful.

The control is pretty standard, use left hand W, A, S, D to control the movement and use the mouse to control the attack or action.

One unique feature for this game is the 3D combat. AION has 3D combat also. But players in AION can’t fly indefinitely; the character will start to drop to the ground after certain time. For new FF, there is no such limitation. I believe it is the first game in China that has unlimited flying feature. 3D combat is certainly interesting. A lot of time, you don’t even realize who had hit you as they come from players where your camera can’t see. It definitely takes a lot of practice to be good at 3D combat. At the beginning, you wish you have 4 hands, one hand controls the movement, one hand controls the camera angle, one hand control the attack and action, and one hand controls the skills. Eventually, one get better at it. This feature would definitely draw players in and keep them here once they got better at it.

But the biggest features are the romance and relationship related features. There are so many of those relationship-related features in this game. AION can’t touch new FF in this area at all. I am not big into relationship features so I am not going to elaborate on them. But one mischievous feature is that a player can just put another player (of the opposite sex) on his/her lover list. Therefore, it creates some interesting cases where a girl is married (in-game) to one guy while is on the lovers list of several other guys.

Similar to XYQ, new FF is a relationship based game. New FF is very similar to XYQ. XYQ has very interesting combat element thank to its turn-based feature. New FF has very interesting combat element thanks to its unlimited 3D combat. But in their cores, both games are relationship games.

In the next article, I am going to talk about the progress of this game. Now, some in-game pictures:

NTES’s New Games – part 1 - The next mega hit: the New FF

2009-06-07T21:33:00.000-05:00

One can find my last article on the new FF here:
http://chinese-net-gaming-stock.blogspot.com/2009/05/new-ff-had-great-open-beta-despite.html

There is a lack of new major hits in China’s gaming market in the last couple of years. All in a sudden, we might have two new ones hitting the market in the last two months. The first major hit is going to be SNDA’s AION. The second major hit is probably going to be NTES’s new FF.

AION’s success is probably not a surprise. A lot of Wall Street analysts had predicted. But nobody had given NTES’s new FF any look. Do people even know it exists? Do people know that new FF went into open beta less than one month ago (on May 15, 2009).

As many of you have requested, I am going to review all the new major games development in NTES. I am going to start by reviewing the most exciting new game, the new Fly for Fun (FF).

I had been following the new FF since February 2007. See the following link:
http://chinese-net-gaming-stock.blogspot.com/2007/02/netease-ff2-info.html

I had always intrigued by the potential of this game. By 2 years ago, I think this game might pull in 5 to 10 Millions per quarter:
http://chinese-net-gaming-stock.blogspot.com/2008/05/ff2-update.html

Two weeks ago, I thought this game has all the hallmark of major hit written all over it:
http://chinese-net-gaming-stock.blogspot.com/2009/05/new-ff-had-great-open-beta-despite.html

Now, I am ready to make my prediction. If one defines a mega hit as a game that achieves a PCU (Peak Concurrent Users) of more than 500 thousands, I predict the new FF will definitely achieve that milestone. In addition, I predicted that it will break though 500k in less than one year and will keep on growing.

There were lacks of major hits in China in the last couple of years. The condition is ripe in China for a few new major hits in the coming couple of years. I think two recent games will reach the major hits status (PCU > 500k). SNDA’s AION will get to that point a lot faster. A really successful marketing effort by SNDA and the severe disruption of its major competitor (NCTY’s WOW is closing down) will allow AION to reach that status by some times this summer. But as I suggested in my last article on AION, there will be limits to its growth.

I think NTES’s new FF will be the other major hit. There was virtually zero marketing effort by NTES for new FF. There was virtually no growth the date of open beta. But as times goes on, NTES becomes adding servers after servers. The growth is getting stronger as time goes on. It probably won’t get to the major hit status until later this year or early next year. But there is nothing to keep it from growing after that.

I believe, in two years, new FF will outperform AION.

Now, I am going to give the background information on this game. A Korean company named Aeonsoft made Fly for Fun. On July 2004, NTES licensed this game from that Korean company. On December 2004, FF went into open beta. Back in 2004, all games are paying games (time-based), open beta doesn’t mean commercialization.

But NTES is not satisfied with the game. They purchased the source code of the game. They also purchased the right to completely rewrite the game from the ground up. And they did just that.

Any other companies (either Chinese or western) would have closed the game down. But NTES kept the game going. Unlike today where open beta for today’s free-to-play (item based) games just mean commercialization. Back then, open beta means free. For four years, the players play this game completely free of charge.

NTES felt the game is lacking of features. These features can’t be added because its underlining game engine is too limiting. From December/2004 to June/2005, NTES tries to fix the game engine. By June of 2005, it determined that the software rewrites are too extensive and the game engine is not salvageable.

From June 2005 to July 2006, NTES rewrote the game engine and build one from the ground up. On July 2006, NTES did something really unheard of. It splits its development team into two teams. One will develop the new FF while another one will write an expansion pact for the old FF. Considering that players are completely playing for free, it is unheard of in either China or other places that a game company would devote significant resource to support its game players without any monetary reward.

The expansion pact will use the brand new game engine but will reuse all the graphics and the play features. The expansion pact will provides about 50% more playing features than the old FF. It is completed by April 2007 and FF players had been playing it until the arrival of the new FF.

Again, this is complete free to the players. There are no in-game items to buy. There is no time-based game card to buy. Anybody can play this game completely free. The fact that Netease is willing to do this for the players says much about Netease as a company.

As an investor, I don't know if I shall be laughing or crying. To an investor, this is just money down the drain. But to the ordinary players, Netease is doing something no just unheard of in China, but to the rest of the world also.

That expansion pact was a dead end. The other members of the development team concentrated on the new FF. By May 15, 2009, the game is finally finished and it went into open beta.

The new FF toke five years to develop. This is another trademark for NTES. Most companies in China popping out games like Ford mass produce cars. Companies like Perfect World can have 8 or 9 games in one year, or a company like SNDA that can convert all its games from time-based to item-based in 6 months, nimbleness are their forte. But most of their self-developed games are of lower qualities.

NTES is on another extreme. At the end of 2005, all game companies in China are converting their games from time-based to item-based (free-to-play). Companies like SNDA spent 6 months to convert all its games. NTES stopped development on all its new games. All new games developments are starting over from the ground up to meet the new requirement change. For more than 3 years (from end of 2005 to May 2009), NTES made only one new item-based game, TX2.

NTES is a company of extremes. It has great trouble when there is a major change in industry trend. On the other hand, all games it produces are of the highest quality.

Now I provided the background of new FF. In the next article, I will describe the new FF in more detail.

SNDA's AION review – part 5. How will the game do?

2009-06-05T01:02:00.003-05:00

One can find part 4 of my review on AION here:

http://chinese-net-gaming-stock.blogspot.com/2009/06/sndas-aion-review-part-4-hack.html

First, I will list the weakness of the game below.

The graphics in this game is top notch. There is really no complaining of this game graphically. But this game was advertised in China as the most technically advanced game in the world. But this game is definitely not the state of the art in terms of graphics. From the following picture, one can see that this game is based on the modified CryEngine 1 game engine. But games using the newer generation CryEngine 2 are out already.

A game using CryEngine 2 will probably be beyond the capability for most of Chinese player’s computers. But on the other hand, I wonder what would happen when Chinese players find out that this game is not the most technically advanced game.

The second thing that might hold this game back is its competition. WOW’s new expansion pact is going to be out pretty soon. I will assume that NTES will start operating WOW in June/June this year. It will probably get its new expansion pact out a couple of months after that. That could be a very dangerous time for AION. I am certain a lot of players will go back to WOW.

In addition, this game is not expected to be very popular in the west. WOW is still expected to be the overwhelmingly dominating game in the west. For average Chinese players, do they want to play a “western” theme game made by a western company and is number 1 in the west, or do they want to stick with a “western” theme game made by a Korean company and is a bit player in the west?

One reason WOW is so popular in China is because it can be a bragging right for average Chinese playing the best game in the world. To most Chinese, the best game means the number 1 game in the west.

There was a “cool” factor in playing WOW. Now, it is cool to play AION. But after the new expansion pact is released and as it becomes clear that AION won’t be popular in the West, the cool game will be back to WOW.

The third thing that might limit the popularity of this game is that this game is not as relationship based as some other popular Chinese games. For example, the craft system is extremely simple. There is really not that much fun to do crafting. That makes this game a combat dominated game.

The castle siege can happen many times. It means it would be impossible to hold a castle for any long period of time. If an opponent really wants to take your castle, he would just attack you at the most inappropriate time (2AM). Since nobody can hold castle, clans won’t try to grow by taking over more and more territory.

Therefore, there are little emotional attachment to any territory, it is easy for clan to go some places else (like another game).

In addition, because clans are not going to be able to hold a castle for long, they are not going to spend money and resources to improve its defense. Therefore, Castle warfare is purely depends on which side has more troupes. There is no strategy involved.

That leaves free-roaming PvP. Well, what's there to say? You run around, you kill people, people run to guards, people bring friends, you run, come back, kill more people. Not much more to say honestly. No complaints but nothing that immediately stands out as amazing. Just more abyss points and sometimes some pretty epic skirmishes.

Therefore, what we have is a game that is not strong on relationships, but is designed to be strong on combat, except the combat is not as fun as it could be.

Do I feel this is a big problem? It might not be. I think NCSoft will keep on introducing more combat options. Even though combat can be lacking right now, but I think it is something that will probably be fixed in the not too distant future.

The biggest reason that will limit the popularity of this game is NCSoft’s inability to control bot players. NCSoft had a history of having trouble with bots. After one month of operation of Aion, it is clear that they will have problem with bots in this game as well.

No matter what they do with GameGuard, bot makers would break the code and provide work around in no time. Most of the bots won’t be controlled by regular players. Most of the bots will be controlled by gold farming companies. For those companies, it is how they make their living. They are not going away.

But does this mean AION is doomed in China? No not at all. I honestly believe that Chinese players are a lot more tolerant of bots than their western counterpart. They don’t like it, but they will tolerate it.

Another important thing to remember is that these bots makers have to pay money to SNDA and NCSoft just regular players. As long as SNDA can keep bots under levels tolerable by the regular players, it is making money from both the regular player and from bots.

In the final analysis, if one defines a mega hit as a game that can achieve a PCU of 500k, I think AION is good enough game to become a mega hit. It is just a wonderful game to play.

On the other hand, because of the weaknesses I addressed above, it will definitely not achieve the level of success WOW will achieve. In summary, I think AION will be a mega hit. But it will encounter strong limit and it will be hard for it to become 1 million (PCU) player game.

SNDA make it virtually impossible to track server statistics. Unlike NTES or SOHU, where they allow players to know exactly how busy all the servers are, SNDA is on another extreme. SNDA won’t even let you know how busy the server you are on is. I don’t understand why SNDA is doing this. SNDA makes it virtually impossible for people to know the health of any of its games. I have absolutely no idea how many people is currently playing this game. I can’t even provide an estimate.

Finally, AION is the first successful game in the last 2 to 3 years that uses the paying game model. It is also the most expansive paying game in China right now. The fact that it is so successful indicates that paying game (or time based) model is still workable as long as the game is good.

SNDA's AION review – part 4. Hack

2009-06-05T00:57:00.003-05:00

One can find part 3 of my review on AION here:

http://chinese-net-gaming-stock.blogspot.com/2009/06/sndas-aion-review-part-3-bot-bot-more.html

If bot is not bad enough, we now have hack. More specifically, there is now speed attack hack. From the following link:

http://aion.sdo.com/web3/news/news_content.asp?channel=1&id=2865&CategoryID=1001

SNDA will pay $800k rmb to whoever gives them information of the speed attack bot maker.

What is Speed attack hack? There is actually video of this particular hack, see the following:

http://www.youtube.com/watch?v=dVST7QBlwS8

In the above video, at the 10 second mark, the female fighter dish out 7 or 8 attack skills at the same time. At about the same amount of time for a normal player to dish out 1 attack skill, she is able to dish out 7 or 8 skills, there is no way anybody can survive her attack for more than 3 seconds.

This of course completely destroys the game balance.

Personally, I think this problem will eventually be solved. No game is perfect. As long as NCSoft is willing to continue updating its game, it will be fine.

Now, a couple of more in-game picture:

SNDA's AION review – part 3. Bot, Bot, more bots

2009-06-03T22:21:00.003-05:00

One can find part 2 of my review on AION here:

http://chinese-net-gaming-stock.blogspot.com/2009/06/sndas-aion-review-part-2-strengths-of.html

Bots are automatic programs that a user can use to control an in-game character without the user’s presence. Why would one use bots?

A regular user can use bot to level up fast. One has to eat and sleep some times. When he is away, he could use bot to kill monsters and gather experience, etc. But regular users are not really the main culprit. The ones that are impossible to block are the profession gold farmers. If somebody wants to farm gold, he could just have his computer running 10 bots and having all ten of them killing monsters and collect in-game items and experience points. He then sells them to regular players for real money.

Bots are bad. They don’t interact with normal user. It might take items from you after you killed a monster. An area with lots of bots can give one a feeling of a town full of zombies. Worse of all, a game with a lot of bots can cause severe inflation of in-game economy.

Bots were everywhere. There were the times when you cannot go to any land area outside the abyss without seeing bots dominating everything in sight. Bots in chains are so easy to spot too, they have targets on mobs before they appear on screen, they almost always have blue gear or are 5+ levels above the monsters they are killing, they get stuck on the most basic terrain obstructions any normal player would jump over.

The worst part about it is you could be killing a monster, have it down to like 40% health, then they come and start attack and somehow get the kill reward and loot.

I even found one stuck in a tree trying to kill monsters. I left and came back two hours later and the same bot was still stuck in the same tree.

The following is a video where 3 bots got together to farm gold:

http://media.17173.com/aion/zt/aionwg.shtml

On 4/29/2009, SNDA updated the servers with "GameGuard" an anti-botting program. After that, it definitely helps. A lot of bots are gone. But a week later, a lot of bots come back.

Out of three servers that I have access to, one is full of bots while two others have very few bots (they are there, just very few).

But what is nProtect GameGuard? nProtect GameGuard is an anti-cheating rootkit developed by INCA Internet. It is installed alongside many Asian massively multiplayer online roleplaying games (MMORPGs)s such as AION, Lineage II, 9Dragons, Cabal Online, Phantasy and Ragnarok Online to block malicious applications and common methods of cheating.

Many hackers attempt to find ways to compromise GameGuard in new ways. nProtect GameGuard constantly updates itself and provides new protection against the latest threats. Even though it boasts such effectiveness, but hackers can break or bypass GameGuard faster than it gets updated. Thus, it renders the system quite useless, especially from the number of sites out there utilizing 'bot' programs to flood the game to farm the in-game currency & rare items, which are then sold for real money. Such sites and 'bots' have been known to be up and running again, having bypassed GameGuard, within an hour of its latest update.

In Lineage II, Cabal Online and Ragnarok Online, GameGuard is usually bypassed in a matter of hours after an update. In 9Dragons situation was ever worse - in spite of GameGuard's constant updates, Vietnam players continued to hack the game which resulted in the blocking all of Vietnam IPs.

On some games such as MapleStory, the game itself does a hash check of the GameGuard revision currently running and will exit if it does not match the hash on the server side.[citation needed] This is a security measure from nProtect GameGuard to ensure that GameGuard has not been hacked and nProtect GameGuard should update to the latest version under normal circumstances. But it can be easily compromised with packet software, such as Russian PacketHack which is designed for packet interception and hacking on net-driver level.

NCSoft’s game always have trouble with bots. The possibility that AION will be bot free is very low. Therefore, the question is not whether it can remove the problem. The question is really if NCSoft and SNDA can manage its bot problem and minimize its impact.

Now, a few more pictures:

SNDA’s AION review – part 2. Strengths of the game

2009-06-03T00:31:00.002-05:00

One can find part 1 of my review on AION here:
http://chinese-net-gaming-stock.blogspot.com/2009/06/sndas-aion-review-part-1-game-basics.html

Overall, I will list the strength of the game below.

Graphically, this game is definitely the most beautiful game on the market today as far as I know (I could be wrong here because I am not a big gamer). In addition, this beauty can be played by players with only medium level computers. Any reasonable 3 years old computers can play this game with no problems. This is very important in China because a lot of Chinese players still have computers that is not quite on par with those in the States. This juggling act is extremely difficult to pull off. NCSoft pulled it off.

NCSoft pull it off by using an older generation of game engine. It also cut some corners by modeling the terrain using very little polys. But that is ok.

The sound and music of this game is very well done. The story line is epic and the quests and missions fit the story line well. While the missions and quests themselves are not ground breaking, the overall story make going through the missions and quests enjoyable.

When a player starts to play this game, the overall design of this game will get the players through the levels. It will be a very enjoyable experience for the players to level up. By the time the players become high level players, hopefully, they will start to join a clan and start the relationship part of the game. When they start to make friends, these players start to become long time players rather than just 2 or 3 months players.

There are also 2 unique features that are not available to other games. The first unique feature is the PvPvE. By introducing a third computer controlled race, it definitely adds more uncertainty to the game. The other unique feature is the flying part. Even though there is no flight specific combat system, I am sure users will figure out ways to take advantage of it. It definitely introduces something different.

Overall, as a gamer, I would call this game a very addictive and intoxicating game. SNDA had done a masterful job in marketing this game. Every Chinese game player knew of this game. This game is highly anticipated in China. This game is going to become a blockbuster in no time. But can this game last?

Finally, let me show more pictures of the game:

SNDA's AION review – part 1. Game Basics

2009-06-02T00:13:00.004-05:00

One can find my previous article on AION here:

http://chinese-net-gaming-stock.blogspot.com/2009/05/impact-of-aion-on-wow.html

Now is the time to write a review of the game AION. I will also provide its latest status. Finally, I will give a prediction on the popularity of this game going forward.

Firstly, this review is not a review for computer game players. This review is purely for investment purpose only.

I have no idea how many parts this review will have. But I will just keep on writing until I run out of things to say. In the first part of this series, I will talk about the basic game play of this game.

The game is developed by a South Korean company named NCSoft. They definitely spent a long time and lots of effort to make this game. Starting the game players must choose between one of two factions, the Elyos or Asmodians. One faction are basically angels that live in regions comprised of forests and deserts while the other side are vampire-gargoyle’s that live in the twilight lit regions containing forests and frozen wastelands.

After choosing your faction you choose one of 4 classes which fall into the basic fantasy archetypes of warrior, scout, mage or priest. Each class branch’s off into 2 more subtype’s at level 10 ensuring at least a modicum of variety. The following are the two races and the 8 subtypes.

Two Races:

Heaven = Elyos race (race that is angel like)
Devil = Asmodian race (race that has black raven wings)

8 Subtypes:

Gladiator - Close combat person who does alot of damage
Templar - Close combat person who uses shield and tanks monsters (holds aggro)

Ranger - Ranged person who uses bow and arrow
Assassin - Close combat person that uses daggers

Sorcerer - Magic user that uses fire
Spiritmaster - Magic user that has spirit pet

Cleric - Primary healing person with few buffs
Chanter - Primary group buff person with few heals

Character creation itself is very well done. There are sliders for both the face and body allowing you to customize every part of your characters appearance.

The craft systems are pretty standard affairs. It can’t get simpler. The NPC's actually provide you with "Crafting Work Orders" that give you items to make stuff over and over and over again. Again, the game gives you the stuff to make for free to get your crafting up...for free... The crafts are listed as follows:

Crafts:

* Weapon Smith - Swords, Dagger
* Alchemy - books, and Potions
* Jewelry - Bows, Stave, and Jewelry
* Armor Smith - Plate armor, Mail armor, Shield
* Tailor - Leather armor, Cloth armor, Belt
* Cooking - Food
* Gathering - Obtain resources

Once in game the player will follow a linear mission line much like other mmorpg’s before it. There are missions and quests. The quests are stand-alone quests while the mission is just several quests stringed together. The missions are about 80% “go kill x monsters” with only 20% of the quests actually doing something interesting outside the scope of killing monsters.

They are taking a lesson from WOW (World of Warcraft). While the quest system may be nothing new it’s still a nice improvement over other popular Korean games that contain no or little quests to keep the player going. While the quests and missions are interesting, what is most interesting is the overall story line. All the missions and quests are part of a very engaging story line.

It was definitely a very pleasant experience for the first 17 level. Some people did start to complain afterward. But I think the reason is because NCSoft wants the players to start joining the groups. For players who like to go it alone, the game could get very difficult after level 17. But for most other players, the game is still fun afterward.

At level 25, players can enter the abyss where the coveted PvPvE is supposed to take place. Abyse is the name of a special area in AION where PvP (Player vs. Player) is allowed. All areas outside of Abyse are PvE (Players vs. Environment) areas. Therefore, after level 25, players who like to fight go to Abyse while players who is into role playing stay outside of Abyse. However, players will quickly find that the abyss for the large part is a few quests and then grinding with the option to be ganked by enemies 5 to 10 levels higher than you. This leave’s players with the option of grinding monsters in the abyss who give abyss points that raise your PvP rating or going back to the normal PvE maps and doing quests there to level up.

One unique feature of this game is the PvPvE. While other games have both PvP and PvE, NCSoft went one notch further. In this game, there are actually three races. But the third race can’t be controlled by players. Therefore, when you are combating with another player, the third race might just join in. This creates much uncertainty. The computer controlled players are not as intelligent as a real player. But the AI (Artificial Intelligence) of the computer players is definitely not as bad as some other games.

Combat in Aion is a twist on the classical mmorpg combat system. Players have their standard auto attack along with skills that are used by clicking on them in a hotkey bar or pressing the hotkey for that skill. The one unique feature of Aion is the ability to fly and fight in 3 dimensions. There is a time limit on flying that is supposed to make flying a more strategic aspect. The time limit in reality just penalizes players who are too poor to pay 50k an hour to fly permanently during combat.

There are castle sieges in this game. The castles or fortresses can be attacked through the strategic points. The castle siege can be done much more often than most other games that limited you to a certain time of the week or required you to register a week in advance to siege a fortress. This means that there are a lot more castle sieges happening. Of course, the down side is it is impossible to hold a castle.

Graphically Aion is a step above current mmorpg’s in some cases and below in others. The landscape and character details are stunning. However, the terrain looks quite bad. The terrain itself is very low poly. But really, not too many people are going to staring at the ground. This is probably not a big deal.

Some graphical special effects are just gorgeous. The weather effects in the desert, as well as snowy areas are awesome. I love the heat hazing over everything in the desert.

Besides the glaring graphical weakness in its terrain system Aion has otherwise impressive graphics. Many little critters wander the land and NPC monsters such as wolfs will actually eat the smaller critters. The landscape’s are almost never the barren wastelands you see in other mmo’s and are populated with tree’s, NPC characters and many buildings or ruins. Lighting is well done; many times you can see rays of light passing through trees at certain angle’s. All in all, I will say graphics is definitely the high point of this game.

And what is the most impressive thing is that all these eye candies can be run from some 3 years old computers. NCSoft had accomplished a very difficult balancing act, a great looking game yet it doesn’t put too much strain on users’ computer.

The sound in Aion is very well done. Shields clank when you block an attack and for the most part weapons sound at least like some sort of weapon. The background music in Aion is extremely well done as well. Each area has many different tracks all of which fit with the theme of the area very nicely. Music ranges from your standard classical to guitar driven battle music. In the desert maps Middle Eastern inspired music play’s and in the abyss fast paced techno can be heard in areas. All in all, the music and sound of the game definitely adds a lot to the atmosphere of the game.

Finally, let me put some in-game graphics to illustrate what the game looks like:

NTES will get WOW players statistics

2009-05-30T08:55:00.000-05:00

One can find my previous article on this subject here:
http://chinese-net-gaming-stock.blogspot.com/2009/04/transfer-of-wow-to-ntes.html

Just a quick short article before I start to write a player review for the new hot game, SNDA’s AION.

From the following article:
http://news.17173.com/content/2009-05-30/20090530115813988.shtml

It is an official news release from the NTES’s WOW team that Blizzard and NCTY had reached a formal agreement for NCTY to provide all WOW players’ statistics and game data to Blizzard.

On 6/7/2009, right before WOW shut down on NCTY’s game servers, Blizzard will take a snapshot of all players’ data. Therefore, all WOW players game data (including the left over un-used game card value at that point in time) will all to saved and transferred to NTES.

Even up to a short time ago, a lot of Chinese articles assume that Blizzard can’t get players data. But just like what I had expected all these time, no matter how badly NCTY wants to cling onto WOW, Blizzard would have make sure this is stated in the contract. I never thought this will be much of an issue (contractually).

Anyway, it seems the last unknown is answered and the last troublesome spot has been avoided.

But unlike almost everybody in Wall Street, I am much more excited with NTES’s staples of upcoming new games.

Yes, NTES will make a bundle in WOW, but I think the money from WOW will pale in significance compare to that of these new upcoming games (starting with the new FF). Hopefully, I will have some free time to write about these new games.

NTES to operate WOW starting at end of June

2009-05-27T21:29:00.001-05:00

One can find my previous article on this subject here:
http://chinese-net-gaming-stock.blogspot.com/2009/04/transfer-of-wow-to-ntes.html

There are quite a few recent developments regards this subject; I will go through them here.

First, there are reports of mass migration of Chinese WOW players to Taiwan. One can see the following link:
http://tech.sina.com.cn/i/2009-05-26/08123124170.shtml

I heard some analysts thought that it is bad news for NTES. Do any of them even play games besides doing finance?

The reason some Chinese players play WOW in Taiwan is because Taiwan already has the new expansion pact. Let’s take an average Chinese WOW player. He played for 2 years and had achieved level 100 in WOW. There is temptation for him to play in Taiwan to get accessed to the new expansion pact. But there is zero reason for him to stay after China has the new expansion pact.

He is not going to re-do the last two years for him to get back to level 100. All his friends are in China. If anything, this is good for NTES. It means these players are not playing other games (such as SNDA’s Aion). These players are going to be back to China the second NTES get the new expansion pact for WOW.

Another story is that NCTY had filed two court cases against Blizzard. The two cases are going to be heard in courts in Shanghai on 6/18 and 7/8. See the following for more details:
http://tech.sina.com.cn/i/2009-05-26/17563126614.shtml

This is potentially bad news for NTES. It will not benefit NCTY in any way, but it is going to do it anyway.

This is potentially bad news. But for two reasons, I don’t think this is going to be a big deal. First, the cases have no merit. NCTY had a contract with Blizzard. The contract expired and Blizzard has the right to pick another company.

But the most important reason these two cases are not going to amount to much is who is NTES’s CEO. In case people don’t know, NTES’s CEO is also a powerful politician. He is a representative in National People’s Congress. In the United States, we call them House Representatives or Senators.

To see how powerful he is, in the following article, he browbeats the minister of Culture of Guandong when the minister questions the addictive nature of PC games:
http://www.yezizhu.com/pa/htmldata/8/4282/4892/5496/2008_01/153790_1.html

If he can do that to a department head, do you think a little court judge will dare to do anything to him?

Finally, the CEO of Netease and CEO of Blizzard published an open letter to Chinese WOW players today:
http://tech.sina.com.cn/i/2009-05-28/01573131130.shtml

In the above open letter, it said that the first server group for WOW will open at the end of June. All WOW servers will start to operate a few weeks after that. All servers are brand new and of the latest and best variety.

Some Wall Street analysts had predicted that WOW will restart in August or September. Now we are going to be a full two months ahead of estimated schedule.

After this article, I am going to talk about two new potential blockbusters in China. I hope I can write a player review of SNDA’s AION. Then I will write about the next major hit for NTES that could eventually be more significant than WOW. Yes, I am talking about the new FF.

Sohu's new integrated multimedia Platform

2009-05-20T00:17:00.002-05:00

I prepared this article about one month ago. But I miss placed this article until now.

One can find my last article on Sohu’s marketing campaign here:
http://chinese-net-gaming-stock.blogspot.com/2009/04/sohu-major-marketing-push.html

From the above article, Sohu is conducting a major marketing push to inform average Chinese of Sohu’s new integrated multimedia platform.

But what is this platform. Mr. Charles Zhang, the CEO of Sohu talked about it in the following article:
http://tech.163.com/09/0409/01/56E16DNS000915BF.html

It is an integrated platform consists of many components. Sohu is no longer just a portal. Sohu has many multimedia products that would entice the users.

It has the portal and blogs that can draw the users. By May of this year, Sohu will have its SNS (Social Network Service) product. All of them will be integrated.

In addition, Sohu had recently developed the HD (high definition) video channel. It includes the HD TV channel and movies. Sohu had purchased the IP right to those video contents.

Sohu’s biggest push is in the area of software applications. A major push will be in the area of Sogou Search, Sogou Pinyin Input Method, and Sogou browser.

Thus, Sohu is no longer just a portal. A portal is more like a channel. Sohu has many channels. Portal, blog, SNS, video, search, Pinyin method, browsers are all channels that an average user can use to access Sohu.

One can think of this as a spider with many legs. The portal is only one of its legs. A user can get to Sohu’s integrated platform through any of its legs (blog, video, PC applications, etc.).

It is going to be exciting time for Sohu.

New FF had a great Open Beta despite horrible marketing effort

2009-05-18T02:48:00.000-05:00

One can find my last post on the new FF here:
http://chinese-net-gaming-stock.blogspot.com/2009/04/ff-will-start-open-beta-on-5152009-and.html

As I mentioned in the above article, new FF had an Open Beta on 5/15/2009. But before I get to its status, let me answer one question.

A lot of you had asked for my comments on the upcoming 1st Quarter 2009 numbers. First, I am horrible at predicting any short term price movement. Second, I no longer feel comfortable in providing server statistics. My last prediction (4Q2008) based on the server statistics had proved badly. I need to work out the seasonality factor and having more clarity in NTES’s games monetization schedule before I can provide any good prediction. For example, both of NTES’s two new games (TX2 and XYW) had already started monetization. But both of these games are only in closed beta. Therefore, they are not really in commercialization stage yet. One can buy in-game items in the online store. But these items have very little power. Thus, NTES is just testing out the in-game mechanism of the online store. They are not really in the stage to make much money yet.

But as I mentioned before, my server statistics had show weakness in existing game in XYQ. XY2 is still growing nicely but is unlikely to compensate for the weakness of XYQ. From Yahoo’s analysts estimate, NTES is estimated to have 1Q2009 revenue of $116.29 million. I really don’t think NTES will meet that estimate.

But there are two unknowns. First, I just don’t know when NTES is going to really start to commercialize TX2 and XYW. If it starts to develop powerful in-game items, both of these games will start to contribute major money. Its first quarter will easily exceed that of analysts estimate. I don’t think so. I think they will only start to commercialize when both these games go into Open Beta. But you never know with NTES.

Another unknown is the up-front cost of operating WOW. NTES is probably going to announce a one-time charge for manpower and material to support its upcoming WOW operation. Are they going to do it in the 1Q09, 2Q09 or 3Q09?

Therefore, I think NTES will have weak near term numbers. But on the other hand, NTES is at the start of a major 2 years run. It has 3 new major licensed games (WOW, Startcraft 2, and maybe Diablo 3). It will have 8 new major games out in the next one to two years.

In addition, NTES is undergoing major efforts in its portal business and 3G wireless MVAS (Mobile Value Added Services). Yahoo’s FY2010 estimate is only $666 million. That is way too low. The analysts are not taking into its 8 new games and its effort in 3G and portal.

In a nutshell, I am concerned about its 1Q2009 number but is wildly optimistic in its prospects starting in 2Q2009 and through 2010.

Now, going back to the subject of this article, new FF had Open Beta on 5/15/2009. Despite a horrible marketing campaign, new FF had a great Open Beta.

For most other companies, marketing campaign started a year before Open Beta. Major marketing starts to pick up one or two months before the Open Beta.

But NTES is famous for underwhelming marketing effort. I think NTES’s CEO has some psychological aversion to marketing and money pinching.

For new FF, the marketing effort starts about 1 week before the Open Beta. It put some very minor marketing on 4 or 5 2nd tiers game verticals. That is the extent of marketing effort for new FF.

In addition, there are virtually no new contents specifically for the Open Beta. One major complains for the closed beta players is “Where is the beef?”

Even with such lack of marketing and content, the response had been nothing short of amazing. Within two days of Open Beta, new FF already had 37 game servers. All other secondary measures had also shown that new FF is a major hit with Chinese game players.

It is ranked number 14 in Baidu’s game ranking based on its search statistics. More than 270000 players had signed up with new FF/QQ joint promotional effort to play new FF, see the following web site:
http://act.qzone.qq.com/ff163/

So far, the playing experience had got high mark. It may still be a little too early to tell, but this game has all the hallmark of major hit written all over it.

It is late and I am tired. When I have more time in the next few days, I will write updated status of this game.

Sina next great new frontiers – e-commerce and 3G

2009-05-14T21:08:00.000-05:00

One can find my last article talking about WVAS (Wireless Value Added Service) here:
http://chinese-net-gaming-stock.blogspot.com/2009/04/date-ntes-had-been-waiting-for.html

Whenever there is a new revolution, people usually fixated their view on the thing they can see. But in most cases, it is the companies that deals with the content and information that comes out ahead.

During the PC revolution, people talks about Gateway, Dell, HPs, but it is Microsoft that become the symbol of that era.

During the internet revolution, people can see what Cisco is doing. But it is Google that symbolize that era of technology development.

Today, as we going into 3G, everybody talks about the carriers such as China Mobile or the hardware maker such as Nokia, but most likely, the real winner is the content providers. In this case, the real winner might be some WVAS player.

In the following article, the CEO of SINA talks about what areas will SINA emphasize in the next 10 years:
http://news.cnyes.com/stock/dspnewsS.asp?fi=\NEWSBASE\20090414\WEB2181&vi=33865&date=20090414&time=16:20:40&pagetype=usastock&subtype=home&cls=usastock_totalnews

First, he talks about the state of 3G in China. Before, China Mobile was a virtual monopoly. But now, there are three big carriers. As more and more Chinese uses 3G and its contents, SINA, as a WVAS provider, will greatly benefit.

Second area of great potential growth is in the area of ecommerce. Right now, no portals make money in ecommerce. Sina’s online store is not doing great either.

But ecommerce is the wave of the future. Right now, Sina is busying develop infrastructure. There will be explosive growth in ecommerce.

As far as I know, Sina is the only portal that openly talks about the potential of ecommerce. It does make it natural for Sina to become the amazon.com of China.

Sina correctly selected its two great growth areas. But it also makes its recent purchase of FMCN so confusing. Situation in China are changing so fast that 3G and ecommerce has arrived. They are waiting for the right company to take advantage of. But none of them have much to do with outdoor advertising.

Gobbling up FMCN take attention away from Sina. Sina shall be concentrating on the next two great potential growth areas.

NTES’s other new game, MF

2009-05-13T22:47:00.000-05:00

My previous article on this subject can be found here:
http://chinese-net-gaming-stock.blogspot.com/2009/05/what-is-ntess-new-game.html

At the beginning of May, NTES announced a new game. But it won’t tell people what game it is. It wants people to guess. It created a web site: http://xyx.163.com to provide hints of new game.

(By the way, if one goes to the above web site now, it is showing another new mystery game from NTES. This is an indication of the tremendous activities of NTES’s gaming division.)

While everybody else in China was guessing some kind of major licensed games made by NTES’s partner, Blizzard, I believe it would be an advanced casual game, MF.

It turns out I was right. But a few hours after I published the above article, a lot of other game verticals in China also guessed the same thing. So I was not ahead by much.

As it turns out, I was right. That new game is the advanced causal game, MF.

The following is a promotional video of the game:
http://www.weplay.cn/c1/Mjg0PT5sI24gLA.html

From the above video, one can tell this game is a side-scrolling game, or a platform game. For those too young to know what those games are, these are the old (and I mean OLD) style games such as Super Mario Bros, a game all the way back to 1985.

I guess one would have the logical conclusion that why would anybody play such an old styled game. Well, it turns out that those advanced casual games are all the rage in China right now. SNDA has a big presence in this area. Tencent is king in this area.

Tencent just made $155.2M in the 1st quarter 2009 selling users playing these types of games (in comparison, NTES only made $98.6M in its latest quarter, 4Q08, from gamers).

Its most advanced and popular game, Dungeon and Fighter, DnF just had a Peak Concurrent Users of 1.8M on 5/4/2009.

One can see what the game looks like in the following video:
http://act3.games.qq.com/games/686/show.php?id=672
http://www.weplay.cn/c1/PTw_OiUgbiFoJCU.html

As one can see, the graphics and gameplays of this game is not much better than the Super Mario Bros. of 1985. Yet, games like those makes Tencents $155M in the latest quarter.

So, does that mean the release of MF indicated that NTES is going to dominate the area of advanced casual gaming? I don’t think so.

Tencent’s games are not exactly ground breaking or even good to play. The biggest reason those games are popular is because they are tied to Tencent’s core Internet Messaging product, QQ.

Tencent offers its core product, QQ, for free. But it ties so many other products to it. Now, it becomes the number 2 player in games, a top player in MVAS, and the number 3 portals, all of that thanks to the tie up to the QQ IM product.

So, in a nutshell, while Tencent can make any 2nd rated advanced casual games popular by simply tie them up to QQ, other companies have to come out with truly ground breaking great games to compete.

Of course, the above market phenomenon only applies to advanced casual games. For MMORPG games that NTES excel in, this doesn’t apply. For NTES’s major games such as XYQ and XY2, they are like self sustaining living communities. Most people are playing these games because their friends are playing in these games. Therefore, they are immune to the threat of Tencent.

But for an advanced casual game such as MF, it will be difficult to compete. One can find more information about MF in the following links:

You can download three videos of MF from the following 3 links:
http://mf.163.com/download/images/01.avi
http://mf.163.com/download/images/02.avi
http://mf.163.com/download/images/mf.flv

An interview with the head designer of MF:
http://tech.163.com/09/0507/00/58M0V13D000915BF.html

NTES's Portal business's rebirth – part 3 – Targeted ads

2009-05-09T00:44:00.000-05:00

This is the 3rd part of a 3 part series on what NTES is doing to rejuvenate its portal business. Part 2 of this article can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/05/ntess-portal-businesss-rebirth-part-2.html

Netease just start a new service that will allows for precision targeted advertising. That service can be found here:

http://jz.163.com/

This service can potentially cause major upheaval in the internet advertising field. Two biggest areas in internet advertising is search and portal. They targeted two different kinds of clients. The portal targets brand ads. Its clients are big cooperation. Search on the hand, because it can target very specific sector, is catered to small and medium companies.

NTES provides blogs, photo album, and email services to its users. These services are free to the users. But they do provide their personal information to NTES. Information such as their ages, their locations, their sex, their hobby, their likes and dislikes, are very useful information. That information can therefore be used for highly segmented targeted advertising. Therefore, this is great for small and medium companies.

Therefore, NTES just come out with a way for the portals to grab businesses away from the search engines.

At this point, NTES is targeting this service for SME (small and medium enterprises). NTES has 300 million email accounts, 80 million blog accounts, and 23 million photo album accounts. Therefore, it represents a very attractive target for advertising to the millions of small businesses in China.

NTES just start this service, to avoid too much inconvenience to their users, the ads will be put in a few places at the beginning.

At this point, I don’t think NTES will get a lot of new revenue at the beginning. But if other portals start to follow suit and start to do this, it would allow all the portals to put more ads in more easily observable locations. By then, it would really become a threat to the search engines.

NTES’s Portal business’s rebirth – part 2 – Cooperate Email

2009-05-08T00:04:00.000-05:00

This is the second part of a 3 part series on what NTES is doing to rejuvenate its portal business. Part 1 of this article can be found here:
http://chinese-net-gaming-stock.blogspot.com/2009/05/ntess-portal-businesss-rebirth-part-1.html

From the following article :
http://it.sohu.com/20090325/n263005508.shtml

The 2nd thing NTES will do is to monetize its email business. NTES has virtually monopolized the email service in China. But they had never really trying to monetize this service. On 3/25/2009, they are starting a new service for companies. They will provide enterprise email account. They will guarantee the email in this service.

This service will also try to intercept spam emails. Any company that uses Netease’s service will be compensated if there are any lost emails or in-sufficient spam blocking. NTES will set aside $10M rmb this year for compensation.

Companies signed up with NTES will also receive other services including bigger email capacity, email virus protection, and email monitoring.

In a separate article indicating the dominating position of NTES in emails, Netease’s Email users exceeds 300 million
http://tech.163.com/09/0330/00/55K53EOR000915BF.html

From the following article,
http://big5.xinhuanet.com/gate/big5/www.zj.xinhuanet.com/newscenter/2009-04/02/content_16144993.htm

Only 10% of China’s cooperation has its own email system (compare with 60% outside of China). Therefore, this can potentially be a lucrative business.

NTES's Portal business's rebirth – part 1 – Relocation

2009-05-07T00:28:00.000-05:00

This is the first part of a 3 part series on what NTES is doing to rejuvenate its portal business.

My previous article on China’s portal business can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/03/chinas-internet-advertising-market.html

In the past few years, NTES had been concentrating on web gaming. Its portal business had been neglected. Therefore, Tencent’s portal had leapfrogged NTES. NTES’s portal is only the 4^th most popular portal in China.

This year, NTES is going to put major effort to rejuvenate its portal business. In the next 3 articles, I am going to detail what NTES had done in this regards:

First, they are relocating part of its portal business from Guangdong to Beijing. From the following article:

http://media.people.com.cn/BIG5/8800087.html

NTES’s CEO said that they are going to put major effort in its portal business this year. Its news department will be relocated to Beijing. About 100 of its employee in the news department will be involved. Beijing, being the center of China, is where all the news occurs.

To me it makes perfect sense that you put reporter where the news are. I wonder why it takes so long for NTES to do this. But this is definitely a right move.

CYOU – Why does Sohu have to set CYOU free?

2009-05-05T22:59:00.000-05:00

This is my first post on CYOU. My last post on Cyou’s game can be found here:
http://chinese-net-gaming-stock.blogspot.com/2009/02/sohus-surprise-new-game-dj2.html

I wrote this article a while ago. For some reason, I never got the chance to put into my blog. It may be a little late. But here it is.

After Sohu decided to split up its game division and having an IPO for its gaming division, its stock had been under great pressure. All of the Wall Street analysts hated it.

Why are they so short-sighted?

Many years ago, Charles Zhang, the CEO of Sohu knew of a young and talent engineer named Robin Li. He wanted very much to hire Robin to take charge of Sohu’s search engine business. He did everything he could to convince the young Robin Li. But eventually, Robin wants to be his own boss and starts a company called Bidu.

If the Mr. Charles Zhang had offered Robin Li the same deal that he offered to Mr. Tao Wang, the CEO of Cyou, Robin would probably agree to work for Sohu. If that was the case, today Sohu would own 70% of Bidu. How much would Sohu worth now if that is the case?

From the following articles,
http://tech.163.com/09/0409/01/56E16DNS000915BF.html
and
http://tech.163.com/09/0409/03/56E9785F000915BF.html
and
http://tech.163.com/09/0409/04/56EAL64Q000915BF.html
and
http://it.sohu.com/20090413/n263356894.shtml

Charles Zhang talked about the decision to split off Sohu’s gaming division.

Even way back in 2002, Charles knew of the importance of MMORPG gaming in China. He license games and develops in-house games, but Sohu’s gaming business continues to flounder. Mr. Charles Zhang was so desperate, he went to Great Wall, puts on a ancient knight costume and hop on a horse. It made some nice PR on the news in China. But the game sucks and people still don’t want to play.

Each MMOPG game is heavily influenced by its chief game designer. Just like a director for a movie, the chief game designer determines the overall feel and the general direction of the game. Just like movie directors, those hot shot chief game designers have ego the size of Texas.

By 2004, Mr. Charles Zhang finally find a hot shot named Mr. Tao Wang. Mr. Wang had a great resume. He developed PC games as a software developer. He was the chief game designer for internet games. He then become vice President of a company who is responsible for game operation and distribution. Then he became the top guy in Sina responsible for gaming operation and development.

In 2004, Sina is number 1 and Sohu is number 2. To a guy like Mr. Tao Wang, to become the top game guy for Sohu would equate as a demotion.

Mr. Charles Zhang can see the future in the gaming business in China. But he just can’t find the right guy to do it. Finally he found Mr. Tao Wang. Eventually, they worked out the agreement. Mr. Tao Wang basically guaranteed the success of Sohu’s gaming business and Charles allows Mr. Wang to be his own boss through the IPO of Cyou.

In addition, with the IPO of Cyou, it also allows Cyou to attract more top level chief gaming designers. By providing more share based compensation, it allows these finicky game designers the monetary rewards they can’t refuse.

Today, more than 50% of the revenue for Sohu comes from its gaming division. Without Mr. Tao Wang, these revenue would not have been there. I for one am extremely happy of the decision that Charles had made.