FF will start open beta on 5/15/2009 and quick status on NTES’s new games

One can find my previous article on FF here:
http://chinese-net-gaming-stock.blogspot.com/2008/09/ntes-ff2-status-part2-open-beta.html

It is about time. The new FF went into closed beta on 2/1/2008. Most closed beta doesn’t last more than 1 year. In the above article, I predicted that FF will go into open beta at the end of 2008.

NTES sure take its sweet time. Finally, FF is going to conduct open beta on 5/15/2009. For more detailed information, see the following article:
http://news.duowan.com/0904/103892813170.html

By the way, I had always addressed this game as FF2 to make distinction between this new game (that is developed from scratch by NTES) to the FF1 that was licensed from a Korean company. But NTES address this game as new FF and its web address is http://ff.163.com/. Therefore, from now on, I will address this game as FF.

Everybody knows the exciting news of WOW and how it will accelerate the growth of NTES. But I don’t think most people know the exciting development of new NTES games.

Between 2005 and now (2009), only two games went into commercial operation. DT went into commercial operation in 2006 and XY3 went into commercial operation in 2007.

DT was a failure and the development had been stopped. XY3 had become a medium game and is pulling about $5M per quarter.

In 2008, both TX2 and XYW went into closed beta and monetization had started. But it was very low level monetization and they are definitely not in commercialization mode.

In 2006, NTES got caught in the transition from paying game to free-to-play game in China’s gaming industry; she has to pull all her games in development back to the drawing board and re-started the development cycle.

For 4 long years, NTES had virtually no new game (except a mediocre XY3) for growth.

But the waiting is over. In the next year or so, an explosion of new games will be in commercial operation.

Starting with DT, NTES had restarted the development of DT from its death bed. On 4/15/2009, it released its 2nd expansion pact.
On 5/15/2009, FF will going into open beta. For item-based free-to-play games, open beta is the same as commercialization.

On June 2009, NTES will get the license for WOW. Commercialization shouldn’t be too far behind.

On June or July 2009, whenever the movie “Transformer 2” will be in theatre, NTES’s new game BB will go into open beta.

The two games that went into closed beta in 2008, TX2 and XYW (both had already have 120k to 150k players during the weekend), shall go into open beta some times this year.

2010 will be a busy year for NTES also. Star Craft 2 will probably go commercial that year. In addition, 3 new games will probably be out that year. QN, DT2, and CSXY are all major titles. Keep a special eye out for CSXY, it has blockbuster written all over it.

I didn’t count the two Warcraft 3 games, I don’t think they will be successful.

Out of those 10 new major games (DT is not new, but its re-birth is new), most likely WOW will be a blockbuster. Besides WOW, some of these games will fail, but 2 or 3 may become blockbuster (like that of XY2 and XYQ) and others will be medium games (like that of XY3).

Therefore, while everybody is excited about WOW, the 9 other new games will probably have much more impact than that of WOW.

DT – NTES is going to re-start DT’s development

The last article on NTES’s game development can be found here:
http://chinese-net-gaming-stock.blogspot.com/2009/04/qn-another-new-major-mmorpg-game-by.html

DT was a game that NTES pinned a lot of hopes on. Unfortunately, when it is commercialized in 2006, it was the time when free to play games were the new trend in China. As a paying game, it floundered soon after commercial launch.

Let me provide a quick timeline of DT.

It is a 2.5D MMORPG martial art game. It is in-house developed and its game engine is in-house developed also.

NTES pinned a lot of hope on it. On 5/31/2006, it went into open beta. During open beta, it achieved a PCU = 160k. It was a tremendous achievement. But because it was a paying game when free-to-play games were all the rage at the time, by the time of commercial launch on 7/19/2006, it’s PCU has crashed down to 30k.

Worse yet, its PCU keeps on crashing. On 5/9/2007, NTES gives it one more chance and came out with an expansion pact. But it did little to regain old glory. Afterward, NTES completely stopped any development on the game.

For two years, there are absolutely no new content that were developed for this game. The gamers left in drove. This game is left for dead.

Given all the new games NTES is developing, including DT’s sequel, DT2, it is surprising that NTES re-started DT’s development. More details can be found from the following article:
http://dt.netease.com/viewthread.php?tid=406268&extra=page%3D1

On 4/8/2009, DT is going to come out with its 2nd expansion pact. This new expansion pact is just the beginning of many new development to come.

DT is going to be rejuvenated from its death bed.

It is clear NTES is going to fill every niche in China’s gaming market. All of these new major games will pretty much come out at about the same time frame. All of these new games are going to be coming out in the next few quarters. If I have time, I am going to provide a summary of all of NTES’s new games.

Ntes is developing new games based on DaTang

My last article on DT2 can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/07/ntes-dt2-and-ff2-go-into-beta-testing.html

It never ceases to amaze me how different NTES is from other Chinese and American companies. The following is another demonstration of the idiosyncrasy of NTES.

DT had been a failure for NTES. But the game is still in operation. But there are hardly any updates for the game. NTES decided to develop its sequel and on 7/21/2008, DT2 entered into Final Internal Beta.

But it turns out it is not the end of the story. From NTES’s forum:
http://dt.netease.com/viewthread.php?tid=379113&extra=page%3D1
http://dt.netease.com/viewthread.php?tid=379310&extra=page%3D1

From the above two posts, NTES is going to start to develop DT again. It is also going to build another game from DT. DT2 development will still be following its original schedule.

I think NTES is mimicking what it had done for the XY2 series of games. I am going to try to draw the two series of games. First, I will draw the XY2 series of games:


One starts out with XY2. It is a serious 2D paying game. Then it branches out to XYQ. XYQ is a cartoonish 2D paying game. XY3 is supposed to be XY2’s sequel. It is also a serious 2d paying game. XYW branches out from XY3. It is a free-to-play 2D game. While the graphics of XYW will be not be cartoonish, its game-play will be closer to that of XYQ and is much more light-hearted.

The XY2 series of games had been extremely successful. XYQ is a 2 million player’s mega game and is the most popular game in China. XY2 is another mega-game that has close to 1 million players. XY3 is pretty solid game while the just released XYW (according to the server statistics) looks to be NTES’s next mega-game.

NTES is going to duplicate what they did for XY2 for DT. Now I will draw the DT series of games:



DT was a game that was left for dead. But NTES is going to re-start the development of DT. DT is a 2.5D marshal art paying game. DT2 is supposed to be its sequel. It is going to be a 2.5D free-to-play game. The new game will be another 2.5D free-to-play game. It is not clear how the two new games will differ. Most likely DT2 will be a more serious game while the new game will have more light-hearted game playing features.

From the two articles, the new game as well as the DT re-development had both been under development for 10 months already.

All these new developments are pretty exciting. TX2 and XYW are brand new games. All the growing will happen in 2009. In addition, FF2 and DT2 will certainly come out in 2009 also. It is hard to know when the new game (derived from DT) will come out. The most likely time frame is later in 2009. In addition, DT will be re-developed.

NTES will be busying adding new games to its staple in 2009.

Those are exciting news. If it is any other companies, it would have sent tons of press releases to Wall Street analysts. But it is not Netease’s way. It lets its games designer tells a few thousands gamers.

Netease makes great games. It continues to make great games. But NTES's investors have to tolerate its aversion to any marketing.

NTES Games 4Q2008 Prediction

This is the final part of a long series of articles.

For the article on XYQ, it can be found here:

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

For the article on XY2, it can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/01/xy2-4q2008-prediction.html

For the article on XY3, it can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/01/xy3-4q2008-prediction.html

For the article on XYW, it can be found here:

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

For the article on TX2, it can be found here:

http://chinese-net-gaming-stock.blogspot.com/2009/01/tx2-4q2008-prediction.html

Now I have the revenue prediction for TX2 and XYW. I also have the ACU prediction for XY2, XY3, and XYQ. Later on in this article, I will convert the ACU into the revenue estimates.

But first, I need to talk about DT, FF2, and DT2.

DT is a failed game. Its revenue per quarter had been fluctuate around 0.6 million to 0.8 million. I will use an estimate of 0.7 millions of revenue for DT this quarter.

DT2 is still in closed beta testing as of now. There will be no revenue from this game in this quarter.

FF2 is in advanced stages of closed beta testing. It will most likely be released in the 1Q2009. But as of now, I don't think NTES is getting any revenue from this game yet.

XYQ is doing very well. It is still growing at a very healthy clip.

XY2 is a big surprise. An ACU QoQ increase of 24% is simply amazing. XY2 is just a breath away from being the second million players mega-hit game for NTES.

XY3 is disappointing. Its traffic actually decreased in this quarter.

But XYW is the new star for this quarter. It has mega-hit written all over it. Even though its revenue contribution is very small during this quarter. But that is to be expected for a free-to-play game. Unlike paying games (where ACU and revenue have a linear relationships), a free-to-play game tends to explode exponentially during the first few quarters (from very low level of revenue in the first quarter to very high level in the next few quarters). XYW has all the marking to be the next mega-game after XYQ and XY2 for NTES. Most of all, I don't think NTES expected that, certainly not me.

XY2 has a very long lineage. It is one of the very rare mega game in China. Then NTES modified it and make a more cartoon-like game out of it in the form of XYQ. XYQ eventually becomes the number 1 game in China (some say in the world).

As XY2 getting long in the tooth. NTES builds its sequel, XY3, from the ground up. But somehow, XY3 is not as successful as NTES expected.

NTES made the decision to operate both games, XY2 and XY3, at the same time. But surprisingly, it is the older game (XY2) that starts to grow in an exponential way while the newer game languish.

NTES spent a lot of resource to develop the underlining game engine for XY3. NTES wants to get more out of its investment than just XY3. So they build the XYW. To everyone's surprise, XYW took off like a rocket.

Currently, NTES has four lines of games in its arsenals. The XY2 line of games will probably have 3 mega-hit games out of it. All four games are 2D turned based Cartoon style MMORPG game. XYQ is more cartoon-like while XY2 has more realistic cartoon drawing. XY3 is the same as XY2 except it is build on a brand new game engine. XYW is basically the same as XY2 and XY3 except it is the only free-to-play game out of the four.

The FF1 game is a failure so far. Hopefully FF2 will do better. FF1 and FF2 are cartoon like MMORPG games. They are free-to-play games. They are the only western themed games for NTES. They are also the only modern theme games for NTES. I expect FF2 will be released in 1Q (2Q at the latest) this year.

The DT1 game is also a failure. Again, hopefully DT2 will do better. The DTs are the so called 2.5D MMORPG games. They are highly realistic and very beautiful to behold. The underlining game engine was written in-house. DT1 is a paying game while DT2 will most likely be a free-to-play game. I think DT2 will be ready to be released by the 2Q2009. But there is a possibility that NTES will delay that for marketing reasons.

The fourth line of game is TX2. So far it is on its way to be a major game. Whether it be another mega game (half of million or more of players) is hard to tell. TX2 is NTES's first venture into the 3D MMORPG games. It is a free-to-play game. The game engine is licensed from an Australian company. Part of the reason of why this game might be hard to become a mega-hit game is because it requires users to have powerful computers to play this game. But I do think the revenue per users will be very high.

Now, let's find an estimate for the revenue for XY2, XY3, and XYQ. I will use the following table to calculate the estimate:

	1Q2008	2Q2008	3Q2008	4Q2008
XY2 ACU	152	149	170	211
XY3 ACU	46	51	48	48
XYQ ACU	583	627	675	713
Total ACU	781	827	893	972
Game Revenue	79.3	86.8	99.4
Revenue - DT	78.6	86.1	98.7	104b
(Rev.-DT)/ACU	0.1	0.104	0.11	0.107a

The 2^nd to 4^th row are the ACU number for the three games. When you adds up all three rows, you get the 5^th row, total ACU. The 6^th row is the game revenue. Assuming DT has revenue of 0.7 million per quarter, the 7^th row is the total game revenue – DT revenue. By dividing that number by the total ACU, it will give us the 8^th row.

From 2Q2008 to 3Q2008, (Rev –DT)/ACU ranges from 0.104 to 0.11. For the 4Q2008, I pick the middle number (0.107). By multiplying 0.107 with the total ACU of 972k, I got a Revenue-DT = 104 millions.

Now, we can find the total gaming revenue for NTES. It is calculated in the following table:

	Revenue
XY2 + XY3 + XYQ	104
DT	0.7
XYW	0.7
TX2	4.6
Total	110

Finally, we got the total gaming revenue of 110 million for the 4Q2008. Now, to get the total quarterly revenue estimate for the whole company, all one has to do is to add the estimated revenues for advertising and wireless services.

DT Status

My previous post on DT can be found here:

http://chinese-net-gaming-stock.blogspot.com/2007/02/netease-dt-new-expansion-pact.html

DaTang was a big disappointment for Netease. It is still in operation. But there is very little players playing this game. There is hardly any new content being developed and Netease is not marketing the game to attract new players. Netease is busying developing DaTang 2 as the first major free-to-play game from Netease. The original thinking is to make DT undergoing a slow and graceful death so that DT2 will replace it when it is ready.

But interestingly, I think there is a complete change of thinking on DaTang within the management of Netease.

The developer of DaTang announced the new direction of development for DaTang. It is very short but has tremendous amount of information. The link is as follows:

http://dt.netease.com/viewthread.php?tid=276431&extra=page%3D1

The developer of DT had been hinting of new direction in several postings in the last two months. Together with the above posting, I am starting to get a more complete picture.

My translation and my though is as follows:

- There will be no new contents announced until Chinese Spring Festival (Feb 7^th, 2008).

- During November and December, 2007, Netease hired a lot of new programmers and developers to DT’s development team.

- Major contents will be released around Spring Festival.

- Netease will start major marketing push for DaTang after the Spring Festival.

- A big area of the new content is to provide more material for the new players.

- More activities.

- More features.

I am starting to get a full picture now.

Based on my server count, it is clear now that XY2 and XY3 had been successful. Originally, Netease planned to use XY3 to replace XY2. But now, both XY2 and XY3 are doing great and are two stand alone games.

XY3 is used to attract new users and XY2 is used to keep the old players. It is clear based on the server count that the combination of both games had exceeded the old XY2 by itself.

It is interesting to observe the Chinese market. Unlike other market, Chinese don't seem to mind playing the prequel and sequel at the same time.

I believe Netease is going to do similar thing with DaTang. Rather than using DT2 to replace DT, I believe Netease is going to make these two games separate (though related) games. DT will be a paying game while DT2 will be a free-to-play game.

Like XY2 and XY3, both DT and DT2 will be developed by two separate and distinct teams. DT2 is probably not going to be ready until 3Q or 4Q. But Netease is going to do some major push for DT after February 2008.

2008 is going to an important year for Netease. XYQ is still growing (last PCU record occurred on 12/2/2007), though slowly. XY2 is starting to grow again. XY3 is also growing. They are going to do a major push for DT in the 1Q and 2Q. After that, TX2 is going into commercial operation. FF2 will probably go commercial some times in the first half of 2008. Finally, DT2 will probably be out in the 2^nd half of 2008.

And let’s not forget about the Olympics and all the advertising dollars that will go to Netease (as the number 3 portal in China) as a result.

2008 is going to be an interesting and profitable year for Netease.

Netease - A great article on NTES

There is a great article on the inside thinking of NTES. It is based on an interview with the vice president of Netease on 1/23/2007.

The link:
http://news.17173.com/content/2007-01-29/20070129110516290,1.shtml

Summary:

- Both XY2 and XYQ hit a rough spot after the Japanese flag incident. But they are growing again. XYQ hits an all time high on December while XY2 hit an all time high on October.

- In 2007, XY3 will be replacing XY2. XY3 will have a completely new engine and graphics. All of XY2’s player statistics will be ported to XY3.

- Haven’t start the sequel to XYQ yet. But XYQ will have an expansion pact in January.

- Doing fundamental research on mobile games. But no plan in sight to have an actual game out.

- DaTang2 will be free-to-play. Has not made a decision on whether Fly for Fun 2 will use free-to-play model yet, but mostly like will also.

- Has no plan to export game.

- Feels the core value of the management is to provide employee a fun working environment.

- Doesn’t believe that player will play Netease’s game because it is made by Netease. Believe players play Netease’s game because of the games themselves.

- Talked about the popular ZhengTu game. Says Netease is trying to learn from ZhengTu in how to marketing the game and how to promote the game. Feels by seeing how ZhengTu doing its on-line game, Netease can learn a lot from it.

- Give prop to Shanda for completely change their games to free-to-play models.

- TX2 will probably in commercial operation on March 2007.

Netease - DT - New Expansion Pact

DaTang is the disappointing new game from Netease. Its new expansion pact is going to be released in a period of about 4 weeks. It is going to be break up into two parts and each part is going to be released in two weeks.

The first part of the new pact is released on 1/16/2007. It is to be released on two servers only. If no major bugs were detected, it will be released to the rest of the servers next week. The second parts of the expansion pact will be released next.

The link that provides the details of the nine major functions on the first part of the expansion pact:
http://dt.163.com/news/2007/01/2-9-20070116235843.html

The second part of the pact comes out over two weeks, on 2/6/2007, and 2/13/2007, the info:
http://dt.163.com/news/2007/02/2-9-20070206205319.html
http://dt.163.com/news/2007/02/2-9-20070213175404.html