WOW approved by ministry of Culture

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

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.

NTES will get WOW players statistics

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

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.

Impact of Aion on WOW and vice versa

One can find my last article on Aion here:

http://chinese-net-gaming-stock.blogspot.com/2009/04/aion-has-1-million-paying-accounts.html

It is pretty certain that SNDA got a winner in Aion, at least for the short term. I need more observation to make any judgement on how well it would do say 5 years from now. But one thing is certain, at least for the next 6 months, this game is going to make tons of money for SNDA.

If I have time, I could write my impression of the game playing features of Aion. But I might not have the time.

Anyway, I came across a pretty neat information that might be useful to the shareholders of NTES and NCTY.

The following has the players distribution across different provinces in China. The article is below:

http://sqatiresearch.blog.sohu.com/114319951.html

In the above article, there are 3 graphics of players geographical distribution for the three different games. The first graph is for Aion:

The second graph is for WOW:

The third graphic is for Lineage 2:

From the above three plots, SNDA’s Aion is popular in the Southern Guandong province and Eastern province.

On the other hand, the strength of WOW comes from central Eastern provinces.

From the third graphics, the strength of Lineage 2 is very similar to that of Aion. That made sense because both Aion and Lineage 2 are developed by the same company, NCSoft of Korea.

Lineage 2 was licensed to Sina, but Sina no longer run the game.

People always thought that these two games are direct competitor of each other. I think there are a lot of overlaps. Some WOW players will be going to Aion. Many Aion players will return to WOW when WOW’s next expansion pact comes out.

But the above three graphics showed that it is possible for both games to co-exist because there are differences where the players come from.

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.