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.

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.

TX2 4Q2008 Prediction

My previous article on TX2 can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/09/ntes-tx2-status-part-2-official-closed.html

Tx2 is a new game. It starts commercial operation on 6/6/2008. It also had a new expansion pact on 10/29/2008. Therefore, one shall expect strong growth in the next few quarters. If the game is a mega hit, one shall expect strong growth for the next few years.

The acronyms first -

ACU = Average Concurrent Users

PCU = Peak Concurrent Users

QoQ = Quarter over Quarter

YoY = Year over Year

Now let us see how TX2 does in 4Q2008.

The server counts for the XY2 can be found in the following table:

There are 3 months in a quarter. Each month has either 4 or 5 weeks. I only use 2 days in a week. I don't do server count every weekend. I only put in the number where I have a server count in both quarter. I also pick 3 days of holidays in this calculation.

The 31.2% QoQ increase in ACU is very nice. NTES doesn't give out statistics for this game. Therefore, I don't know the PCU record for this game. Note that NTES doesn't have a company guideline on which information to publish, it depends on the each game's chief designer.

But I best guess is TX2 already has PCU of a minimal of 100k. Considering this game is only half years old, I full expect this game will grow to a major game of a quarter of million players (at the minimal). In the best case, it is not out of question that it could eventually achieve the popularity of World of Warcraft.

TX2』s chief designer doesn't give out ACU estimates also. My estimate is an ACU = 40k for 4Q2008.

TX2 is a free-to-play game. Therefore, I am going to calculate its revenue for this quarter. Again, NTES doesn't provide any historical revenue data for TX2. I will have to use other free-to-play game as guideline.

I will use Sohu's TLBB as a guide. During the 3 quarter in operation, TLBB had achieved a PCU of 500k while generated 23 million in revenue. This quarter (4Q2008) is at the similar stage in operation, the third quarter in operation. TX2 is a 100k game in this quarter. Therefore, my estimate for revenue is 23 * (100k/500k) = 4.6 millions.

By the way, if case anybody is wondering why is Sohu's TLBB can achieve a PCU of 500k while TX2 can only achieve a PCU of 100k at roughly the same period of their respective game life, the discrepancy is largely because Sohu really marketing its game while NTES tends to pinch pennies and tries to save the marketing cost. As a result, TLBB PCU reached its plateau right away while TX2 keeps on explosive growing.

NTES - TX2 status part 2 – Official Closed Beta on 9/24/2008

Part 1 of this article can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/09/ntes-tx2-status-part-1-1st-expansion.html

I had been quite critical of NTES’s management in their lack of marketing for TX2. From the way the game is played and the way it is received by the players, it is obvious that NTES has a potential mega-hit in TX2. But I thought with the lack of marketing for TX2, NTES could ruin a great game.

Well, I might be way too harsh on NTES. It is probably not a good idea to go against NTES on how a game is developed and is ran.

From the following article:
http://tx2.163.com/news/2008/9/5/4006_192234.html
and from the official web site of TX2:
http://tx2.163.com/

NTES is going to set 9/24/2008 as the date for the “Official Closed Beta” for TX2. They are going to opens up multiple game servers for the Official Closed Beta.

TX2 had been in commercial operation since 6/6/2008. But they never had a formal major marketing campaign to announce their “grand opening”. TX2 was supposed to be the next major project for NTES and I thought it is crazy for NTES to start commercial operation of TX2 without any major marketing campaign.

Well, it turns out there might be good rationale behind it.

Even though there were no mass of players playing TX2 on 6/6/2008. Unlike other games with massive marketing campaign and has a couple of hundreds of thousands of players within the first 2 weeks, TX2 never have that.

But it is building momentum continuously. It had slowly building so that it has 25 servers now. That would probably translate to a PCU of about 80k to 90k players. Unlike most other games that fade quickly after a few months, TX2 is actually getting stronger and stronger.

In addition, because it is only closed beta, there are still opportunities for NTES to do marketing if it is needed.

The jury is still out. But TX2 is starting to act more like a major hit that has long legs.

NTES - TX2 status part 1 – 1st expansion pact

My last article on TX2 can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/08/ntes-tx2-recent-status-3-marketing.html

Starting September 2008, NTES had started to release TX2’s first expansion pact. See the following site on the contents of the expansion pact:
http://tx2.163.com/2008/blcx/

This expansion pact is going to be released in three stages. Each stage will consist of about 3 to 4 major new functions. The first stage will be released on late August 2008. Out of three major functions, its most important function is the new battlefield playing feature will be released. In addition, multiple fighting-specific servers will be opened. Features emphasize fighting will force players to upgrade their equipment (swords, shield, elixir, etc). Those equipments cost money to purchase.

The second stage will be released in late September. Out of four major new features, the most important will be the maximum player level will be increased from 60 to 70. Of course, there will be new (more powerful) equipments that will come with the higher level. For example, a 70 level player with 40-level equipment will probably lose to a 50-level player with 70-level equipment.

The third stage of the expansion pact will only have one major feature. But boy, is that an important feature. It will be the signature feature of TX2. The castle siege feature will be released. This is scheduled to occur on October.

When NTES fired the old head designer of TX2 on 4/30/2007, I was actually happy they did that. I never thought the old TX2 could be a mega-hit. I never thought a paying game centered on castle siege can be a mega-hit.

Now after NTES revamped TX2 completely, TX2 becomes a free-to-play game. Castle siege will be absolutely ideal for a free-to-play game.

The new TX2 is now much more friendly to single player (players who are not part of a clan), but at its core, it is still going to be a game dominated by the clans. And Castle siege will be the singular calling card for TX2.

I regard the difference between paying game and free-to-play game as the difference between Communism and Capitalism. In the paying game, everybody is the same (just like Communism). Even if a player wants to spend more money, he can’t in the paying game because the cost is fixed (for old TX2, the cost is fixed at 0.4 RMB per hour). But in the free-to-play game, there is no limit on how much a player can spend.

In a normal free-to-play game, most players spend money on his character. But there is only so much one can spend to make his character powerful. Of course, TX2 also has pets/mounts/rides. That is another area the players can spend money on.

But to get big money from the super rich, TX2 will have to get the player to spend money not on himself but on his clan. The big money will be made on players who are willing to spend for the clan (that have thousands of members). This is where castle siege comes in.

TX can be translated as “under heaven”, “kingdom”, or “empire”. Just the name of the game will tell you that it is a global domination game. The game starts out with no empire or kingdoms. These clans are the kingdoms. To become the singular empire under heaven, the clans have to fight it out among themselves. There are multiple castles in each server. The clans will be fighting it out for these castles.

TX2 will be a game that will be completely unscripted. The game designers don’t control the story. The game players (clans) determine the story of the game.

One clan has to forcibly take the castle from another clan. When a clan takes over a castle, it also takes over the shops in the castle. It also needs to defend the castle. The castle needs to be fortified. The gate needs to be thickened. Specialized weapon need to be made. Those upgrades require special trade smith (carpenters, steel smith, etc.). It therefore keeps clans members busy. In addition to labor, these upgrades also require raw materials. Those raw materials will need to be purchased.

As clans starts to expand, specialty castle siege weapons need to be build. Again, those require labor from the clan members and money for the raw materials. Therefore, a successful clan leader needs to be both charismatic as well as rich. He also has to be willing to spend.

TX2, with castle siege at its core, will be a game that will satisfy both NTES and the super rich players. NTES gets to have those super rich players open their wallets. For the super rich players, they get to experience true power thru the game. They get to have thousands of clan members under their control. For the clan members, they get to experience camaraderie as well as be part of something bigger than they are. They get to shape the destiny of the future of the game. For non-clan players, they get to experience the life of a lone kung fu master during a war ravaged time.

And the best part is that nobody knows how the future holds. Game designers don’t control the story. Everybody have influence on the future of the game, but nobody determines it.

TX2 will be an intoxicating game to play. That will make it into a very popular game. More importantly, TX2 will be a game that attract rich players and help them to spend their money.

NTES - TX2 Recent Status 3. – Marketing

This is the third part of an article. Part 2 can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/08/ntes-tx2-recent-status-2-public.html

On 6/6/2008, NTES started the final “closed beta” of TX2. On 8/14/2008, during the 2nd quarter earning conference call, NTES call that was an “open beta”.

For the expansion pact, it would be released in three parts. The first part will be released by the end of August. The second part will be released by 9/24. The third part will be released by October.

The contents of the expansion pact are extremely substantial. In addition to the usual higher levels, new maps, new quests, new assignments and new equipments typically found in an expansion pact, it also has multiple new combat systems. Most importantly, it would come out with the calling card of TX2, the castle siege system.

For companies such as SOHU or GA who are much more sophisticated in marketing, they would have combined the three parts into two parts. Then they would have released it in two parts. The first part would be called open beta and second part called the first expansion pact. Then they would market the heck out of it. They would had start the marketing 6 months before the open beta. Have a great opening. After a couple of months, when the traffic is slowing, they would come out with an expansion pact (with another big marketing campaign).

But that is not NTES’s style. They tried to do it for DT and DT was a failure. They are going back to their root. They are not doing big marketing campaign at all.

It becomes clear to me that TX2 didn’t have the same big opening of NCTY’s WOW or Sohu’s TLBB. But that is by design.

Netease ignored all kind of opportunities to do marketing campaign. They did very little marketing for their final close beta on 6/6/2008. They don’t even bother to have an official open beta and go straight to the first expansion pact. And so far, they are not doing much marketing for the expansion pact as well.

So there are two ways to gauge the success of TX2. If you are expecting a great opening like that of GA’s ZhengTu, NCTY’s WOW, or Sohu’s TLBB, TX2 is a failure.

But if you are expecting a slow and steady growth until it becomes a mega-hit such as NTES’s XYQ and XY2, then TX2 is right on schedule.

NTES - TX2 Recent Status 2. – Public Relation

Part 1 of this article can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/08/ntes-tx2-recent-status-1-not-slowing.html

Given this background, you would think NTES’s management could have easily explained what happened. A great opportunity for them to do so is on the 2nd quarter earning conference call on 8/14/2008.

Let’s see what happened on the 2nd quarter earning conference. First, they stopped giving revenue breakdown per game (even though they had always done so before). This continues a pattern where they are providing less and less information to the wall street analysts.

In the question and answering session, an analyst specifically asked a question on the expansion pact schedule. Netease managers refuse to provide exact date.

The very next date, 8/15/2008, NTES announced on their web site they are coming out with the expansion pact of TX2 by the end of this month. See the following link:
http://tx2.163.com/news/2008/8/15/4006_191589.html

During the earning conference, another analyst asked about the “perceived” recent weakness of TX2. Rather than explaining that is due to the strength of Netease’s anti-piracy technology, Netease’s management sneered and said something to the effect of what weakness and what confusion. That wall street analyst had to bring up the announcement made by NTES’s CEO that TX2 would be a million player (in PCU) mega-hit in one year. NTES’s management then basically just repeat that announcement again. No additional information is provided.

I know NTES’s management are all programmers and engineers. Their antipathy and aversion to the bean counters of wall street is palpable.

Of all the Chinese game companies, NTES had always been the one that provide the most information to their game players. It continues to be the case. They are open and friendly to the game players.

But it is also the company that would freeze out the wall street analysts.

NTES - TX2 Recent Status 1. – Not slowing down

My last TX2 post can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/07/ntes-ceo-predicted-pcu-of-more-than-1.html

This is going to be the first part of a three part article.

NTES just came out with the announcement of a new expansion pact for TX2. Usually, I don't write much about expansion pacts. But the timing of this expansion pact and how it is announced says a lot about NTES the company.

Recently, about a couple of weeks ago, a wall street analyst came out with a warning that TX2 is not doing well. It knocked the stock down from $25 back to $21 or $22 in the next couple of days.

If you do the server count, you would have observed this already. There were weakness to TX2 server statistics. The server count seems to indicate that the number of players playing TX2 is decreasing.

Well, what those analysts didn't realize is that it is actually related to the strength of all Netease's games: all Netease's games have very strong anti-piracy features.

Starting about couple of weeks ago, NTES starts to put features into TX2 to combat players that use pirate servers. Those players who use pirate servers get to level-up extremely quick and are able to get lots of power-ups.

They destroy the balance of the game and most importantly, they don't pay anything to Netease.

This is a problem that infects all MMORPG games in China. This problem had destroyed quite a few games in China. But Netease had always be one of the best in combating it.

If you monitor TX2』s server counts, you would have notice an immediate decrease in the number of players. But that is a GOOD thing.

The following is the link to the announcement that shows all the players that were banned from playing TX2 because they were caught using pirate servers:

http://tx2.netease.com/viewthread.php?tid=393497&extra=page%3D1

Of course, the actual number of users who use pirate server is a lot more than shown in the above link. Most of these players either stopped using pirate server (so not to be caught) or left TX2 completely.

But it is something a successful game has to go through. Many popular games failed because they can't find players using pirate servers. It looks like NTES is pretty successful in its attempt at combating piracy.

I consider this a good thing for the long term success of TX2.

NTES – DT2 and FF2 go into Beta testing

My last post on DT2 can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/07/ntes-two-new-games-went-into-closed.html

My last post on FF2 can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/05/ff2-game-information.html

My last post on TX2 can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/07/ntes-ceo-predicted-pcu-of-more-than-1.html

My last post on XYW can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/07/ntes-two-new-games-went-into-closed.html

It is exciting time for NTES. All its major games are going to be out at about the same time.

TX2 went into Closed Beta on 6/6/2008. It is open to everyone and the game characters won't be deleted. Actually, it had already started commercialization already. The game is doing well and is growing steadily. It didn't grow like a block-buster. But that was planned. NTES was not looking for explosive start, but rather slow and steady growth until it reaches PCU of 1 million in 1 year (according to Netease's CEO).

It already started charging for in game items already. More excitingly, starting with a couple of weeks ago, players can now buy treasure boxes. This is similar to GA's ZhengTu game. The treasure boxes are really just online lottery system. It function like online gambling. It is like a slot machine. Every times it opens, items with different values rotates. The probability of getting really good item is very low, but also very tempting. Therefore, it is hard for players to only buy one. They buy one after another until they hit a good item. It may not have very good reputation. But players just can't stop spending money on those.

XYW started Closed Beta on 7/5/2008. In this game, NTES follows the traditional definition of Closed Beta by limiting the number of players. It will delete the game character after the Closed Beta. There is also no commercialization.

DT2 is a new free-to-play game. It went into Final Internal Beta on 7/21/2008. It is not clear whether NTES will kill off DT. It maybe possible that NTES will have both games operating at the same time, with DT2 the free-to-play game and DT the paying game.

Usually, the Internal Beta is limited to players working for NTES. But NTES uses outside players for this Beta. It is limited to about 1000 invited guests. The game characters will of course be deleted after the current beta testing.

Most likely, after the Internal Beta, DT2 will have Closed Beta and Open Beta.

FF2 is a pretty interesting game. It went into Closed Beta on 7/22/2008. It is open to everyone. But the game characters will be deleted. I don't believe it will be commercialized at this point.

I think FF2 will prove to be a very popular game. It will be cater to young players and female players. It might not be able to get a lot of money per players. But eventually, it could be a 5 to 10 million per quarter game.

Now, I am going to make a table on the characteristics of Beta testing on all four games:

Game	Date	Type of Beta	# of players	Delete game Character?	Commercialization
TX2	6/6/08	Closed Beta	Open	No	Yes
XYW	7/5/08	Closed Beta	Limited	Yes	No
DT2	7/21/08	Internal Beta	Limited	Yes	No
FF2	7/22/08	Closed Beta	Open	Yes	No

As can be seen from the above table, it is all over the map. There is no consistency in how NTES determines what is Closed Beta and what is Internal Beta. It is probably up to the chief game designers of each game to decide what he/she wants.

It may be confusing to the investors. But as long as NTES comes out with great games, that is all I care.

With all these major title coming out at about the same time, the next few months is going to determine the future of NTES.

Finally, one can download the official trailer of DT2 from the following address:

http://czdldt2.163.com/dt2/dt2_1024.wmv

NTES – CEO predicted PCU of more than 1 million players in 1 year for TX2

My last story on TX2 can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/07/ntes-two-new-games-went-into-closed.html

First, the CEO of NTES thinks that TX2 is doing great. He predicted that it will be the next block-buster and will have a Peak Concurrent Users of more than 1 million one year from now. See the following story:

http://news.duowan.com/0807/80152940636.html

I always appreciate comments and emails. Some of the comments I had received recently had not been friendly. I was accused that I was way too harsh on TX2’s prospect.

I think there is a misconception. I think TX2 is a great game. In terms of technology and game design, it is probably the single best game in China right now. In terms of playability, it is still weak. But that is purely because of its young age. NTES is busying adding features to it right now. I have no doubt that it will have tremendous amount of playability features in one to two years.

My problem is in NTES’s aversion to marketing.

I think there is some kind of bunker mentality within NTES.

Both XY2 and XYQ had a rough start in their life. NTES had to slowly working on both games before both games caught on 6 to 12 months from the start of commercial operation. More recently, DT1 was heavily promoted, but it was a commercial failure.

XY2 and XYQ happened 4 to 6 years ago. The competition landscapes had completely changed. Whatever works at that time might not work now. Just because DT1 was a failure doesn’t mean NTES shouldn’t do marketing. (I think DT1 just got caught in a time when China’s game environment was changing from paying game to free-to-play game and DT1 is a paying game).

More importantly, all the recent successful games by all other game companies was achieved with the help of heavy marketing campaign.

For example, Sohu has the largest game portal in China, 17173.com. Sohu also has two major games (the existing TL and a new game). Sohu is not just marketing on its own game portal, it also heavily markets its games on other major game portals.

All other major game companies also do heavy marketing campaign for all their games.

Most of these heavily marketed games failed. But on the other hand, in recent years, ALL successful games were promoted heavily.

I think NTES is living in a cocoon and can see only what it wants to see.

As a long term NTES investor, I hope NTES can break out of it. NTES is going to have 4 or 5 major games coming up. Please maximize their chance to success. Don’t kill off their chance of success just because NTES wants to pinch pennies by saving marketing dollars.

NTES – Two new games went into closed beta

My last update on the new game of XYW can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/06/another-new-game-for-netease.html

My last update on TX2 can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/06/tx2-commercial-operation-before-open.html

My last update on FF2 can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/05/ff2-update.html

NTES had been very slow in releasing games in the last 3 to 4 years. It only release two major titles in the last 3 years, DT two years ago and XY3 last year. DT was a complete failure while XY3 is growing at a very slow pace. The verdict is still not out on the XY3 yet.

But for some reason, the second half of 2008 and first half of next year will promise to be somewhat of a watershed period for NTES. It will have four major titles all coming out at about the same time.

First, on 6/6/2008, TX2 went “unlimited and open closed beta”. It start to charge players money for items. It is about a month now and all indication had shown that the game itself is a great game. Players love it and it is very sticky. Unfortunately, NTES resorts to its old psychotic aversion to marketing its games so the growth had not been exponential. It had its sales team going to many internet café to push for TX2. But NTES’s ground sales team is no where close to the effectiveness of the ground sales team of Giant Online (for example). In addition, there are no advertising on buses, subways, LCDs, street signs, internet gaming sites, or TV programming, etc.

As a result, the growth of TX2 had been slow so far. But still, it is still on a solid growth path.

Another game, FF2, had been in closed beta since 2/1/2008. FF2’s development team had been very secretive about its progress. But I got the feeling that, if NTES wants, it could get it out in the next couple of months. I suspect the only reason it is being hold back is not to get every major title out at the same time.

From the following two articles:

http://game.21cn.com/online/news/2008/07/01/4899043.shtml

http://tx2.163.com/news/2008/7/1/4006_190200.html

Another major title, XYW, will go into closed beta (with several thousand players) on 7/5/2008. XYW is somewhat of a composite of XY2, XY3, and XYQ. It is build on the same game engine of XY3. It will have a graphic style of XY2 (cartoonish but not too cute) and many playable features of XYQ. Of course, it will be free to play and therefore will emphasize player combat more while the other three existing games emphasize community features more.

From the above two articles, another major title, DT2, will go into closed beta in July 2008. DT2 is another free-to-play title. For a while, I had thought that DT2 would be NTES’s first free-to-play title (either DT2 or FF2), but it turned out not to be the case. It took NTES two years for DT2 to come out. I don’t know why it took so long. I had thought that DT2 is just a minor re-write of DT and just a straight conversion from paying game to free-to-play game.

Obviously, that is not the case. This speak volumes about NTES the company. There is no cookie cutter for any of its games. Every games is a major undertaking. They strives for excellence for every projects.

It is just too bad the senior managers are not willing to spend the marketing dollars to push its new games.

TX2 had been under development for about 5 years now. It still have an open beta to go. FF2 had been under development since June of 2005. By the time it comes out, probably later this year, it would be 3.5 years of development.

DT2 had been under development for two years. If it comes out later this year, it would be 2.5 years of development.

The speed of XYW’s development surprised me a little. It had only been 6 to 9 months of development. I think the reason XYW can be out so fast is because NTES doesn’t have to re-develop the underlining game engine from the ground up.

TX2 had to go through two stages of engine development work with its Australian game engine developer to optimize its game engine. FF2’s game engine is complete re-wrote from the ground up. The original DT’s game engine is in-house developed. I am certain they did a lot of game engine upgrade for DT2 also.

But for XYW, it is different. NTES spent a lot of money and effort to develop a brand new game engine for XY3. But XY3, though a somewhat successful game, didn’t become a blockbuster. Therefore, NTES decided to use its brand new game engine to develop another game. That game is XYW. The analogy will be that the foundation is build and only the floor plan is changed.

Perfect World had been doing this for all its games. They use the same game engine and spitting out new games like automobiles from an assembly line.

Going back to NTES. If one purely based on development schedules, I am certain all 4 games could go into commercial this year. But for factors such as no competition with its own games, NTES might want to stagger the release date so that one or two of the major titles could come out early next year.

Anyway, it is exciting time for NTES. I only hope NTES’s senior managers can provide more marketing help to its games.