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The9 (NCTY): how gurus and financial press can miss the point and mislead us: how many years of Word of Warcraft lisence for China does NCTY have? January 25, 2007

Posted by deminvest in China stock, NCTY, Single stocks, stock I own, stocks.
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I have great limits as investors, but there are times when I am surprised about how limited the official financial press and some gurus also are.

The9 NCTY was nominated by gurus at fool.com The Best E-Commerce Stock for 2007: The9

I got curious and looked on Google Finance and Yahoo Finance and I fond out 2 main things:

1) more than 99% of The9’s revenue in the most recent quarters comes from famous “World of Warcraft” licensed in exclusive to The9 for China

2) Due to the huge planetary success of “World of Warcraft” this company is obviously having great quarterly Revenue Growth (yoy) of 26.30% and impressing quarterly Earnings Growth (yoy) 70.80%.

3) nobody seems to care about the fact that license agreements usually are limited to a certain number of years. Nobody seems to worry for how many years this license was signed. They tell to us, the people: “Th9… owns the Chinese rights to the world’s most popular on-line role-playing game”, they rate NCTY “outperform”

What will happen of this reseller Vivendi’s software if Vivendi decides not to renew license agreement?

Now let’s play a little game with me… try to find this out, using the Internet and official financial press:

For how many years does The9 (NCTY) have exclusive license for “World of Warcraft” in China?

If you can figure out, please post it as comment, otherwise I will post on a comment my source of information and tell you for how many years they do have this licence.

According to that info, we will decide whether I should buy NCTY or not.

Comments»

1. duh - January 25, 2007

You shouldn’t be blogging about NCTY if you can’t even do the simplest research. Everyone knows The9 has rights to World Of Warcraft for 4 years (starting from when they acquired/launched). In the words of WoW, GG NUBCAKES KTHNXBYE!~~

2. deminvest - January 25, 2007

Starting when?
Finishing on which year?
The source for that info?

“Everybody knows” is not enough to put my money on NCTY…

And… I am not blogging because I “can do” … I am blogging because many people like me “can’t do”… And still we do our best to learn something and make our decisions (that may still be wrong) with a little more knoledge.

3. duh - January 25, 2007

Sorry about that mate, I was just being an asshole. I thought this blog was the Republian Investments By The Corporations For The Corporations. But since you are a democrat I will be nice.

http://bbb.typepad.com/billsdue/2004/11/more_details_on.html
http://www.corp.the9.com/news/2005/news_050707.htm
http://72.14.203.104/search?q=cache:9Bls1Ptyi3QJ:bbb.typepad.com/billsdue/files/NCTYFCApr72005.pdf
http://sec.edgar-online.com/2005/06/30/0001193125-05-135664/Section5.asp

“On February 3, 2004, Vivendi Universal Games granted C9I an exclusive license to localize and promote WoW in China. … The license term commences on the date of the license agreement and expires on the fourth anniversary of the date of the commercial launch of the localized WoW.”

“Shanghai, China – July 7, 2005. The9 Limited (Nasdaq ticker: NCTY) today announced that it has recently signed a term sheet to purchase the 31.1% minority interest in China The9 Interactive Limited (“C9I”) currently held by the joint venture partner, China Interactive (Singapore) Pte. Ltd. (“China Interactive”). C9I holds an exclusive license from Vivendi Universal Games Inc. to operate World of Warcraft (“WoW”) in mainland China.”

Google has more information, try searching for “the9 warcraft” or “c9i warcraft”.

As to your worries about if Blizzard will jump ship and pick another regional operator in China, I believe that would be a radical move for VU. No one would trust them for future games if they gave away Burning Crusade expansion to another operator while The9 is still running vanilla WoW.

As for what happens after 4 years, WoW is a quality game that will probably last for longer than that timeframe. Most likely The9 will aggressively pursue renewing the license, and pay dearly for it (like they are now, 22% royalty on face value of WoW game cards).

Another operator could try to swoop in and overbid, but think about what would happen to the 4 years of accumulated account/character data of all those hardcore chinese gamers. For mmorpgs, those bits of data and the community of players is what keeps people coming back. It would be a nightmare to transfer that data over to a new regional operator, if The9 would even allow it.

Good luck~

4. deminvest - January 26, 2007

The exact answer is “license expires in June 2009”.

Thanks Duh your help is very welcome. You obviously know this stock much better than me and your information is really valuable for us prospects investors.

Your sources are much more valuable than the only blog I had found:

http://china-netinvestor.blogspot.com/2004/11/the9-commits-74m-for-wow-world-of.html

It is still surprising how professional analysts don’t mention “June 2009” in every prospect regarding this company that gets 99% of its revenue from that expiring license in 28 months.

Concerning your opinions about what will happen in June 2009 (two years and 4 months from now), my opinion is simple:

Vivendi will sit in the negotiation room with a gun on the table.

In a couple years China may become main market for World of Warcraft, and WoW belongs to Vivendi. They can kill The9 drying its main revenue stream.
Vivendi could manage to come out with a new explanation, like “The Burning Crusade” coming out now. That would make existing profiles less valuable.
You are right, some users would complain, but most of them are so addicted that they would simply go back to level 0 and start playing again, especially if Vivendi compensates them with some promotions like 3 free months…
Why should Vivendi accept to get 20% when they can get 100%? Operating powerful Servers is no big deal for a company like Vivendi.

Losing WoW would be the death of The9 as we know it now.

What will happen in my opinion?

There will be a negotiation with one strong player and a weak one. Vivendi will not make the same mistake to make their partner rich. They will ask and get what they want. Maybe 40% of cover price, maybe 60%, maybe 80%… The9 puppy will continue to eat some zebra flesh, but King Lion Vivendi will be eating first!

We, proletarian investors, know very well what it menas to eat last!

5. Warcraft Geek - April 10, 2007

The owner of The9 is my friend. He’s from Singapore and is responsible for bringing World of Warcraft To China…just about 10 yrs ago he was jus an IT manager.

Cheers Thomas Aka Warcraft Addict
Free World Of Warcraft Guide

6. uSd4eVeR - May 27, 2007

good job,
really nice post
uSd 4 EveR


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