The recent announcement that Blizzard will be partnering with NetEase and not renewing their contract with The9 is financially motivated muses the analyst.
With The9, Blizz received "royalty of 22%" giving them around $50 to $55m a year from Chinese subscriptions. The NetEase deal should close "to at least 55%", meaning $140m annually.
"The company had previously contracted with The9, but the current arrangement will expire in June 2009," said Wedbush Morgan's senior analyst Michael Pachter.
"Under the terms of its contract with The9, Activision Blizzard received a royalty of 22% on revenues generated in China. We estimate that the current arrangement generated revenues of around $50 – 55 million annually (using most recent subscriber figures), at close to 100% margin."
"Although the terms of the new arrangement were not disclosed, we estimate that the royalty rate will increase to at least 55%, and that the new arrangement will generate revenues of over $140 million annually," he said.
An extra $90m or so in the bank each year is certainly a figure one can't ignore, but there may have been other reasons behind the change in provider. For one China enforces rather strict censorship laws and there has been a problem with Wrath of the Lich King's content and the authorities.
Blizzard seem to have confidence that NetEase can succeed where The9 hasn't.
Blizzard signed with NetEase for bundles more cash says Pachter
17 April 2009 | By Simon Priest