The9's Third Quarter Revenues Drop 94% After Losing WoW

Shanghai-based MMO operator and developer The9 Limited says year-over-year revenues for its third quarter (ending September 30th, 2009) fell by 94 percent after the company's local license agreement with Activision Blizzard for World of Warcraft expired, taken over by rival publisher NetEase. The9 reported third quarter revenues of RMB25.5 million ($3.7 million), 91 percent less than its second quarter profit of RMB287.9 million ($42.2 million), and 94 percent less than the RMB408.4 million ($59.8 million) it enjoyed during the same three-month period last year. The MMO company served as World of Warcraft's distributor and operator in China since mid-2005, but Activision Blizzard chose not to renew its contract with The9 last June, instead partnering with NetEase, which also signed on to operate Warcraft III and StarCraft II in the region. Activision CEO Bobby Kotick said the new relationship would "promote a consistent level of quality and service" for the three titles in China. World of Warcraft's transfer to NetEase hasn't been without problems, though, as it required two months' downtime and a long closed beta while undergoing regulatory approvals and content edits. Then earlier this month, an apparent power struggle between two Chinese government groups resulted in regulators ordering NetEase to suspend the MMO and refuse new accounts due to "gross violations" of rules. Though it's no longer operating World of Warcraft and now running with only a fraction of its former profits, The9 remains optimistic, as revenues for other titles in its catalog (e.g. Soul of the Ultimate Nation, Granado Espada, FIFA Online 2) increased 55 percent in 3Q compared to the previous quarter. The company notes that its non-WoW games attracted a total of 3.4 million active users (108,000 paying accounts) in the third quarter, an increase from last quarter's 3.2 million active users (73,000 paying accounts). The increase in active users and paying accounts came mostly from Soul of the Ultimate Nation and web-based card game Jiu Zhou Zhan Ji. The9 currently has several titles in its development pipeline, including MMORPGs Road Fighter and Miracles Ultimate X, casual action game Tiny Tribe, and an online 3D casual RTS called Monster of War. To support those projects, the company said in its earnings call that it will grow its headcount from 330 employees at the end of Q3 2009 to 350 by the end of the year. "Although our revenue loss cannot be recovered within a short period of time, we are glad to see that our research and development capabilities continue to strengthen as a result of our investments," said The9's CEO and chairman Jun Zhu. "Our proprietary games have shown substantive progress and a strong potential to be well received by Chinese game players." The9's president Xiaowei Chen adds, "It is encouraging that in the third quarter 2009 there has been sequential growth of 55 percent in net revenue attributable to our current games. This was achieved due to the enhancement of our game portfolio diversification, and we will continue our intense turnaround efforts."