APRIL 17, 2009 • The9 was unable to renew its agreement with Activision Blizzard to operate World of Warcraft in China. The contract went to competitor NetEase. The title generated 93.8% of The9’s revenue. During the fourth quarter, World of Warcraft revenue was CNY 380 million ($55.6 million). Activision Blizzard was said to be demanding new terms that included receiving a higher percentage of revenues, plus active participation in Chinese operations. The new agreement will run for three years with a company affiliated with NetEase, which already has a joint venture relationship with Activision Blizzard to operate Starcraft II and Warcraft III in China.

Impact: Even a company as large as Activision Blizzard does not want to go it alone in China and needs to license its product to a Chinese operator.  The main things a company looks for in a Chinese operator are government relations, localization resources, distribution reach and customer support.  Of course, once a product becomes as successful as World of Warcraft, Activision Blizzard has much stronger leverage for negotiating.  One issue may have been the fact that competitor Electronic Arts had acquired a minority stake in The9 back in 2007.  This may be an indication that Chinese operators need to be careful about trying to work both sides of the fence.