What is NTES's new game?

One can find the last NTES’s game related article here:

http://chinese-net-gaming-stock.blogspot.com/2009/04/ff-will-start-open-beta-on-5152009-and.html

A couple of days ago, NTES opens up a web site, http://xyx.163.com to announce a mysterious new game. It is just a graphic of the new game. But it is anybody’s guess which game is this. NTES will announce it in 7 days.

Lots of articles in many of China’s game portals have stories and guesses on which game it is:

http://www.marbridgeconsulting.com/marbridgedaily/2009-04-29/article/25831/gamers_netease_countdown_site_for_starcraft_ii_not_diablo_iii

http://games.sina.com.cn/o/n/2009-04-29/1829310418.shtml

http://games.qq.com/a/20090430/000043.htm

All the guesses started out with World of Warcraft. Then it becomes Diablo 3. In the last day or two, the consensus had become the Starcraft 2. These three games are major blockbuster-in-waiting games made by Blizzard, NTES’s new partner.

Well, I don’t think so.

First, I captured the screen to indicate the time. The screen is below:

Note the time, it still have 60 hours from the time of announcement. I don’t think this game is any of the above mentioned major games. I believe it is a minor game call MF. Its web site is as follows:

http://mf.163.com/

I am pretty certain I am the only one in the world predicting MF is the game.

In three days, NTES will announce the game. If I am right, I will write a brief article on this game.

The transfer of WOW to NTES

One can find my previous article on this subject here:
http://chinese-net-gaming-stock.blogspot.com/2009/04/is-there-breakup-between-ncty-and.html

Only 8 hours after I wrote the above article, more news came out regards to this subject. See the following news:
http://tech.sina.com.cn/i/2009-04-15/16483005806.shtml

This is the number 1 gaming related news in China right now. It is pretty certain that NTES is going to take over WOW by June 2009.

NCTY’s CEO allegedly send an internal memo to her employees and admit that NCTY is going to lose the license to operate WOW after June 2009. See the following for her letter:
http://blog.sina.com.cn/s/blog_4ada322d0100d3qa.html?tj=1

I am not going to translate the whole article. The whole article is more like a pep-rally.

But I will specifically talk about some allegations she had over NTES. First, she said that Chinese government makes it illegal for foreign game company to set up wholly owned or co-owned company in China.

Because NTES set up a co-owned (50/50 ownership structure) company to operate WOW, it makes it illegal in China.

NTES also offered to pay $22M for game servers and 1M for the game operators. NCTY rejected because the original cost of the server equipment is $73M. She is undignified that NTES would make such offer.

At this point, there are no official announcements from any of the three parties. Therefore, it is officially still a rumor. But I think the ship had sailed already.

The following is my take on the whole thing.

Let me get the most important point out of the way first. Without player statistics, an expansion pact has zero value. If Blizzard only signed one contract through the life of WOW (including all expansion pacts), I am certain that NCTY would have the exclusive right of the player statistics. But that is not the case. NCTY has to re-negotiate for every expansion pacts. Unless Blizzard hired the stupidest lawyer in the world, it would definitely write it into the contract that Blizzard has the right to the player statistics.

Put it in another way, if NCTY has the exclusive right to the player statistics, she would have all the leverage when re-negotiate contract extension for the expansion pact. Blizzard would be completely in NCTY’s mercy. If that is the case, don’t you think Blizzard would insist on one long contract through the whole life of WOW?

If one read the letter carefully, she never specifically said that NCTY is not going to deliver the player statistics to NTES.

No matter how she would use different sentence structure to give other implications, I don’t believe she can say it out loud or she will be subject to law suit.

Regards to that offer of $22M made by NTES to purchase servers and $1M for operators, I think it is probably NTES’s way to appease NCTY to make the transition smoother.

After NCTY loses WOW, its servers will be sold to other companies and it operators will be lay-off. NTES is going to hire these operators one way or another. That $1M is probably NTES’s good will offer.

For a bunch of 1, 2, 3, or 4 years old game servers (that would cost $73M if brand new), considering how fast the depreciation is for IT equipment, $22M sounds like a good number.

Frankly, I doubt NTES cares very much for these game servers. Either it spent $22M to buy used game servers to operate WOW from NCTY or from third party, it is probably not very important.

In terms of the illegality of NTES’s co-ownership company with Blizzard, I think she is just grabbing for excuses. The 50/50 co-ownership company was established in August of 2008. It certainly was legal then, why wouldn’t it be legal now.

But just like my one concern, as I wrote in my last article, she can definitely purposely corrupt (say 1% of the users statistics) the player statistics before she delivered to NTES.

The possibility of her doing that is rather low. NCTY does need to license other games. If words go out that she does that on purpose, NCTY is not going to get many licensed games in the future.

But the possibility is still there. NTES does have to guard against it.

Most of the current NCTY’s WOW operators know that they are going to work for NTES. It will be important for NTES to communicate to them to guard against player statistics corruption. It would be very helpful if NTES can obtain those player statistics through other means. It won’t be hard. The people who has access to these statistics know who they are going to work for 3 months from now.

Finally, I can’t say enough about how dumb is NCTY’s management. Blizzard’s WOW provides more than 90% of NCTY’s revenue, and NCTY allows Blizzard’s mortal enemy (EA) to control 15% of NCTY’s shares.

What was NCTY’s management thinking?

Is there a breakup between NCTY and Blizzard over WOW license?

One can find my last article talking about NTES and Starcraft 2 here:

http://chinese-net-gaming-stock.blogspot.com/2008/07/ntes-may-get-right-to-startcraft-2.html

It is all over in China right now. For about one month, there are more and more rumors of a breakup between NCTY and Blizzard.

The issue is over whether NCTY will get the license for WOW's latest expansion pact, 「Wrath of the Lich King」. The current license between NCTY and Blizzard will run out by June 2009.

All the time, NCTY had been telling everybody that the negotiation is on-going and going very well. It is just a formality for NCTY to get the expansion pact and continue to operate WOW. The only hurdle is that Chinese government might have some trouble in approving the expansion pact into China.

As matter of fact, NCTY even operate the web site for the 「Wrath of the Lich King」. It's address is: http://www.wowchina.com/wrath and it has the following web page design:

But after 3/30/2009, anybody who click on the link http://www.wowchina.com/wrath would notice that that official Chinese web site had been taken down.

That's when the rumor really started.

But yesterday, all major gaming portals are reporting the newest rumor. One can find those articles here:

http://tech.sina.com.cn/i/2009-04-14/19413002254.shtml

http://newgame.duowan.com/0904/103662823738.html

http://news.duowan.com/0903/102330247748.html

http://it.sohu.com/20090415/n263393523.shtml

http://it.sohu.com/20090414/n263389007.shtml

The essence of the rumor is that Blizzard will break up with NCTY and let NTES license and operate the WOW after June 2009.

In addition, there really was never doubt that Chinese government will allow the expansion pact (with some modifications).

Again, it is just rumor. As it turns out, the rumor probably comes from an analyst from Pali Research. You can see what that analyst said in the following article (the article is in English):

http://www.p2pnet.net/story/19225

I don't know whether it is just an opinion from that analyst. But it is also possible that analyst has some inside source in NTES, NCTY or Blizzard.

It is easy to see the pro and con of why Blizzard wants to switch partner. There are many pros, and only one con.

There is a big reason why Blizzard doesn't want to switch partner in June 2009. Wrath of the Lich King is not a new game, it is an expansion pact. Therefore, the new partner has to get all the WOW players statistics.

I am certain Blizzard thought about it the last time it extend the license to NCTY. I am certain there are clause in the contract that NCTY will have to provide the players statistics to Blizzard if the license is not renewed.

But how can Blizzard be certain that NCTY won't provide only partial or even incorrect data to Blizzard? Blizzard will be taking a big chance to switch partner in mid-stream.

But there are many good reasons why Blizzard would change partner from NCTY to NTES. I will list them as follows:

1. NCTY had become the partner for EA. Because EA and Blizzard are mortal enemies, Blizzard are literally sleeping with the enemy.

2. By signing up with NTES to operate Starcraft 2 and Warcraft 3, Blizzard and NTES had become partners.

3. Why prolong the agony by keeping on sleeping with the enemy?

4. Starcraft 2 and Warcraft 3 are single player PC games. It is impossible to make money from single player PC games in China. The idea is to make money through battle.net. Players will be paying access to battle.net (either through time based or item based) for battle matching Starcraft 2 and Warcraft 3 games. But do you get it started? The best way is to use a popular game to get people started on battle.net. What is more popular than WOW.

5. In essence, Blizzard can use WOW to push battle.net. From there, it can then monetize Startcraft 2 and Warcraft 3.

At this point, everything is still rumor. But if this rumor is true, it would be devastating to NCTY. Blizzard will be taking a big risk, but a risk with potential of high return.

But the big winner will be NTES, it will be laughing to bank with three great titles (Starcraft, Warcraft 3, WOW) in its name.