Gaming Steve

November 03, 2005

World of Warcraft China Examined

World of Warcraft ChinaConsidering all the recent talk on how World of Warcraft actually functions in China I thought it would be interesting to take a much closer look at this little understood topic.

First and foremost it's important to understand that Blizzard doesn't actually run World of Warcraft in China. They have licensed WOW China to the company The9 which is one of the leading online game operators in China. In addition to running WOW, The9 also run several other MMORPGs including "MU", "Mystina Online", "Granado Espada", and "Joyful Journey West". I'm sure that most of you probably haven't even heard of some of these games but they are extremely popular I assure you.

Just to give you an idea of how popular MMORPGs are in Asia and China the game "MU" first launched in February 2003 and very shortly reached a player base of over 15 million registered users. MMORPGs are a huge business overseas and completely dwarf the American and European MMORPG market. Even your "average" MMORPGs in Asia have over a million registered users (meanwhile Everquest is proud of having nearly 500,000 users at their peak).

The9 and Blizzard launched WOW in China on June 7, 2005 and in less than one month the game exceeded 1.5 million paying players and continues to grow at an breakneck rate. Financial analysts expect WOW China to easily reach over 10 million registered users if not more.

Perhaps the most interesting thing about The9 is that it's a public company and traded on the NASDAQ market exchange. What that means is that The9 has to publicly disclose their business operations to anyone who might be interested in investing in the company. They do this by publishing quarterly reports every three months as well as an extremely comprehensive annual report at the end of each year. If you have never read an annual report because it sounds boring you might be surprised what you can find in there, including some very interesting information on how an online gaming company is run in China.

All of the following information can be found in The9 2004 Annual Report which may give you a better understanding of how WOW functions in China. All items in quotes are directly from the report and I have provided the page number within the report for easier reference. This is just a small overview of some of the more interesting and relevant items. Make sure to read the entire report to get a true understanding of just how unique the Chinese MMORPG market is compared to the States (details follow the jump).

Concerning the WOW license agreement with Vivendi Universal Games (VUG)and Blizzard (Page 11)
“We are obligated to pay royalties equal to 22% of the face value of WoW prepaid cards and online points sold by us by making recoupable advances against royalty payments in an aggregate amount of approximately US$51.3 million over a four−year period commencing from the commercial launch. We paid VUG an initial non−refundable license fee of US$3.0 million in 2004 and the first year minimum royalty guarantee of US$13.0 million in 2005. We are also obligated to commit no less than approximately US$13.0 million in the marketing and promotion of WoW in China during the term of the license agreement. To meet this obligation and to promote WoW in China, we have agreed to conduct a joint marketing campaign with Coca−cola (China) Beverages Limited, or Coca−Cola China, to promote WoW in China.”

Concerning online game operators in China (Pages 13-14)
“There are over 100 online game operators in China. We expect more companies to enter the online game industry in China and a wider range of online games to be introduced to the China market, given the relatively low entry barriers to the online game industry. Our competitors vary in size and include large companies such as Shanda Interactive Entertainment Limited, Netease.com, Inc. and Sina Corporation, many of which have significantly greater financial, marketing and game development resources and name recognition than we have.”

Concerning SARS and MMORPG gaming (Pages 20-21)
“In early 2003, several economies in Asia, including China, were affected by the outbreak of SARS. During the height of the SARS epidemic in the second quarter of 2003, we experienced a decline in the number of concurrent users of MU in China, which we believe resulted largely from the Chinese government’s decision to close Internet cafés in Beijing and elsewhere to prevent the spread of SARS. Most of our online game players can only access MU at Internet cafés. A renewed outbreak of SARS or another widespread public health problem in China could have a negative effect on our operations. Our operations may be impacted by a number of health−related factors, including, among other things, quarantines or closures of our offices which could severely disrupt our operations, the sickness or death of our key officers and employees, closure of Internet cafés and other public areas where people access the Internet, and a general slowdown in the Chinese economy. Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our business and results of operations. We have not adopted any preventive measures or contingency plans to ensure the safety of employees and minimize disruptions or other adverse effects on our operations that may occur due to a recurrence of SARS, or similar adverse public health developments in China.”

Concerning online games and regulation by the Chinese government (Pages 23-24)
“The online game industry in China is highly regulated by the Chinese government. Various regulatory authorities of the Chinese central government, such as the State Council, the State Press and Publication Administration, the Ministry of Culture and the Ministry of Public Security, are empowered to issue and implement regulations governing various aspects of the online games industry.

We are required to obtain applicable permits or approvals from different regulatory authorities in order to provide online games. For example, an Internet content provider, or ICP, must obtain an ICP license in order to engage in any commercial ICP operations within China. In addition, an online games operator must also obtain a license from the Ministry of Culture and a license from the State Press and Publication Administration in order to distribute games through the Internet. If we fail to maintain any of these required permits or approvals, we may be subject to various penalties, including fines and the discontinuation or restriction of our operations. Any such disruption in our business operations would materially and adversely affect our financial condition and results of operations.”

Concerning the regulation of Internet cafes in China (Page 24)
“Internet cafés, which are currently the most important outlets for online games, have been criticized by the general public in China for having exerted a negative influence on young people. Due primarily to such adverse public reaction, some local governments in China have tightened their regulation of Internet café operations through, among other things, limiting the number of the new operating licenses to be issued and further reducing the hours during which the Internet cafés are permitted to open for business. Also, local and higher−level governmental authorities may from time to time decide to more strictly enforce the customers’ age limit and other requirements relating to Internet cafés as a result of the occurrence of, and the media attention on, gang fights, arsons or other incidents in or related to Internet cafés.”

Concerning the regulation and censorship of information in China (Page 25)
“The Ministry of Culture has issued a notice reiterating the government’s policies to prohibit the distribution of games with violence, terror, cruelty or other elements that may have the potential effect of instigating crimes, and to prevent the influx of harmful cultural products from overseas. The notice requires, among other things, the review and prior approval of all the new online games licensed from foreign game developers and related license agreements. We have obtained the necessary approvals from the Ministry of Culture for operating MU and WoW in China. We will submit new games licensed from foreign developers for the required review in due course. The Ministry of Culture may find the content of our new licensed games objectionable, and we may otherwise be unable to obtain the approvals for these games in a timely manner, or at all. If this happens, we will not be able to launch our new licensed games within the expected timeframe or at all, and our business and results of operations could be materially adversely affected.”

Concerning Internet service in China (Page 28)
"Although private sector Internet service providers currently exist in China, almost all access to the Internet is maintained through state−owned telecommunication operators under the administrative control and regulatory supervision of China’s Ministry of Information Industry. In addition, the national networks in China connect to the Internet through government−controlled international gateways. These government−controlled international gateways are the only channel through which a domestic Chinese user can connect to the international Internet network."

Concerning payment for online games (Page 37)
“To use our fee−based online games, a customer must register an account in our Pass9 system. Once registered, the customer may log into our network, select and activate the desired games and the game districts where the customer wishes to play, and then charge his account with a prepaid card or prepaid online points sold by Internet cafés or given by us through our promotional events that enable the customer to play for a specified period of time.

Each customer needs to maintain only one Pass9 account, which provides information regarding the customer’s available prepaid game playing time for each selected game district and payment history. A customer can purchase game playing time through any of the following methods:

Prepaid Cards. A customer can buy prepaid cards at retail outlets including convenience stores, supermarkets and bookstores all across China. Each prepaid card contains a pass code representing game playing time offered by the card based on its face value.

Prepaid Online Points. Over 120,000 Internet cafés across China have used our self−developed eSales System, which is part of our Pass9 system and enables an Internet café to buy prepaid online points from our distributors and sell such points to their customers.

Online Payment. A customer can buy game playing time online by charging payment directly to a credit or debit card. In addition, we offer free online game playing time to our new registered customers and users of our SMS service. We have also included free game cards in our marketing materials to attract new customers. Our integrated membership management and payment system also incorporates a variety of community−building features, such as chat rooms which provide registered users a platform to interact in real−time groups or one−on−one discussions, and bulletin boards which allow registered users to post notes or inquiries and respond to other users’ notes or inquires. We believe these features encourage user congregation on our site and facilitate player interaction for the games we offer.”

As you can see, WOW and all other MMORPGs in China face completely different challenges than those in the States and Europe. Which makes WOW even more interesting as with most MMORPGs the developer simply has to worry about gameplay balance, server stability, community management, billing options, 24-hour maintenance and few hundred other items. When you then factor in government regulations, language and cultural differences, and even SARS, it makes what WOW has accomplished that much more impressive.

Whether or not Blizzard can continue this delicate balancing act between countries and cultures remains to be seen, but it is extremely interesting to view the unique challenges facing Blizzard when maintaining and expanding WOW over the next couple of years.

Posted by Gaming Steve at 01:00 PM | Comments (26) | Posted to MMORPG | PC | Add this story to del.icio.us
Comments

Concerning the regulation and censorship of information in China (Page 25)
“The Ministry of Culture has issued a notice reiterating the government’s policies to prohibit the distribution of games with violence, terror, cruelty or other elements that may have the potential effect of instigating crimes, and to prevent the influx of harmful cultural products from overseas. The notice requires, among other things, the review and prior approval of all the new online games licensed from foreign game developers and related license agreements. We have obtained the necessary approvals from the Ministry of Culture for operating MU and WoW in China. We will submit new games licensed from foreign developers for the required review in due course. The Ministry of Culture may find the content of our new licensed games objectionable, and we may otherwise be unable to obtain the approvals for these games in a timely manner, or at all. If this happens, we will not be able to launch our new licensed games within the expected timeframe or at all, and our business and results of operations could be materially adversely affected.”

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So is it that they didn't want to risk not being able to have a global launch of the Burning Crusade given that the Pandaren may be turned down, that prevented them from using them?

Or did they already have to present the content, and this problem came up already, causing the withdrawal of the Pandaren?

Something like that, Steve?

Posted by Bildo at November 3, 2005 01:47 PM

GET OVER IT!!!

THERE WONT BE ANY PANDARENS!!!!

Posted by Taydus at November 3, 2005 05:48 PM

Wow, yet another great addition to the conversation Taydus... you're brilliance never ceases to amaze me.

Notice how I didn't say anything about wanting the Pandaren, or even thinking that they could still be in the game? Steve posted this ti back up his report that they won't be in the game, and I posted the above statement, to see if that might be the "legal issue" they had to pull the Pandaren for. Get a brain before acting so rude, Taydus. Helps in the long run.

Posted by Bildo at November 3, 2005 09:46 PM

Hey Bildo,

I wrote a report on the Chinese game market for DFC Intelligence, a game industry research firm, and I've looked at a lot of these annual and quarterly SEC filings both from Chinese companies and others.

That quote is actually just standard stuff in all the SEC filings by the Chinese MMOG operators. It's mostly legalese for investors--they have to declare certain risks that pertain to their business. They do not refer to specific events, but rather the general risks that their company faces. In short, it's just a disclosure.

Just search for SEC filings and then search for Shanda and you'll see another Chinese MMOG company with a very similar set of declared risks.

Also, just in general, I wanted to point out that in China there are no retail boxed sales, right? So, 15 million accounts in China is not 15 million accounts in the US. There is a much different account/actual user ratio. In the US, you pay at least $65 to get going. In China, you pay $0.05 (5 cents!), because they give the game away for free. See my post at Terranova for more information on that: http://terranova.blogs.com/terra_nova/2005/10/40_million_play.html. But suffice to say that if it cost a quarter to get started with World of Warcraft, there would probably be a few more accounts created.

Best,

ACM

Posted by ACM at November 4, 2005 04:08 AM

Yikes, apparently that is a touchy "Post" button.

Posted by ACM at November 4, 2005 04:13 AM

An interesting read, especially in light of the annoucement of the young Chinese girl's death today from playing World of Warcraft (check 1up and Joystiq). Thanks for the post.

P.S. I linked to this story on my site - please let me know if this is an issue.

M.K.
Site Admin
gamerparents.com

Posted by Kiser at November 4, 2005 10:55 AM

Way to hack the 10-K. How much time did you spend writing this?

Posted by Pekduck at November 4, 2005 03:31 PM

Dissappointed to see a WoW gold banner at the top of your web page...

Posted by Reality at November 5, 2005 06:16 AM

Google ads index web-pages and serve ads based on content. It's pretty much impossible to have the words "World of Warcraft" on a webpage and not get exlusively ads for gold services and the such.

Posted by Hans at November 5, 2005 05:40 PM

What do you think about the Chinese companies that supply game currency for WOW servers in the states, such as www.wildcollections.com , www.ige.com. They say it is not illegal is that true? Do you think there is any fun in the game where wealth makes a big difference in the game? If so why don’t blizzard sell it themselves?

Posted by charlie at November 7, 2005 04:48 AM

Blizzard can't run the game in China, offered little to no oversight over the day to day operations, ect... Yet another example of the pandering the US is doing toward a country that doesn't honor trade agreements or use fair buisness practices. I sure can't go play on their servers for a fraction of the cost of the US price, but they sure can flood on to the new servers in the US, scamming and ninjaing their way to riches to sell back to the American public. Of course why would this website owner even care, this site endorses the selling of in-game gold for US currency. It's truely sad the lack of ethics in today's so-called 'free economy'.

Posted by Anthony at November 7, 2005 01:25 PM

This was posted on Rumor Control:

"Okay, I didn't read the entire list of posts here so I don't know if this information is already a given, but here goes nothing:

World of Warcraft has a large market in China, a very large market. So they want to appeal to the Chinese community as much as possible.
One thing they don't want to do is piss the Chinese government off and get their game banned.

Now we look at the very real dislike that the Chinese have the for the Japanese. Especially with the new textbook that was just okayed in Japan that China says Whitewashes war crimes perpetrated by the Japanese, and the fact that the Prime Minister of Japan continues to visit the war memorial despite China's obvious dislike of it.

With that information in mind, have a look at the Pandaren and how they resemble the Japanese. With their Katana and their Kimonos I think that the 'political' problem is that China would have a large objection to one race in a large game like WoW resembling one of their most disliked Neighbours. And when a country with such a large user base puts it's foot down about something like that, companies like Blizzard are wise to listen to the very real thunder of it.

Mind you, I could be MILES in the wrong direction, but that's a guess I'd wager."

This is a popular opinion on the official message boards as well, and I belive it may be the closest reason why the Pandaren were scrapped, aside from the server imbalance issue.

I think we just might see Draenei in the coming months announced folks.... get used to seeing ugly mugs on the alliance side. If it's not them, it's likely to still be something on par with the female Dwarf in the attractiveness category. :)

Posted by Bildo at November 8, 2005 09:02 AM

Bildo,

No offense but when playing Warcraft 3 and using the Pandaren Brewmaster Hero I always felt that the intended "vibe" for that character was definitively Chinese. I can imagine that certain screenshots may have made it difficult to distinguish what Blizzard's design ideas were for the Pandaren. At any rate this is all likely a moot point in that if China (or its governace) dislikes the Pandaren they will likely not be used as the 5th alliance race.

This is bound to be a big money question for VU and Blizz so surely they will have to satisfy their customer base in whatever way necessary.

Just out of speculation, I think VU will allow Blizzard much more leeway to release an expansion that they think is "finished" as opposed to the forced release of the not-quite-ready-for-primetime original game. Blizzard as a company will probably continue to go through insane growing pains as a company and may end up throwing in something totally bizzare (like the naga :) into the mix as the 5th alliance race before everything is said and done.

Posted by meth at November 8, 2005 11:52 AM

I sure hope not Meth. I'd be inclined to believe that the races will follow the usualy bipedal pattern for now. Meaning I bet you can rule out Naga, Nerubians, Dryads, etc at least for now.

Refer to one of my later posts on the rumor control news headline for possibilities other than the favored Draenei.

And of course, as always, there's also the chance of something completely new being added into the game... this is Blizzard we're talking about.

Posted by Bildo at November 8, 2005 12:48 PM

OMW!! :/ In South Africa (Thats were Im from WOOHO) we pay:
Conversion from Rands into Dollars:- $70 for the game; and I think roughly $12 a month; and another $125 (As our single telecoms provider is screwing us) for dsl - which we need, as we play from SA to the States, and lag is just too nasty on any other internet solution.
Thats about $207 to get going with a monthly fee of $137 for us poor, soldier, game luving enthusiasts from the end of the world.
And you wonder why Vivendi says SA is an investment wasted?
Well, if we get charged arms and legs for gaming pleasure, do you really expect us bring home the numbers needed to make South Africa viable for Blizzard?
*sob* These are the steps I take to play WOW.

Posted by FunKi-MunKi at November 9, 2005 05:52 PM

For those people angry about gold farmers, this is an article worth reading:

http://www.gameguidesonline.com/guides/articles/ggoarticleoctober05_01.asp

It puts things in perspective. Don't get mad at the gold farmers, get mad at the situation that creates the demand in the first place. And come on, tons of people must be buying the gold or the business wouldn't exist in the first place.

Posted by Tara at November 9, 2005 11:51 PM

World of Warcraft sucks!!!


GUILD WARS RULES!!!!

Posted by Guild Wars lover at November 10, 2005 11:19 AM

I have a copy of Guild Wars...I played it for a month before I got bored with it. the only redeeming value is that it's free to play...and there is a reason for that.

Posted by Iain at November 11, 2005 03:16 PM

WOW SUCKS u r payin 4 a game every month that u bought. Thats retarded.

Posted by OMGZ123 at November 21, 2005 12:24 PM

Fixz ur gramerererer...

and BTW WoW doesnt cost 15$.... so ur buying a game only every 2 1/2 months or somethign around there. Guild wars is free obviously because it sucs.... i played the Beta and saw you could even make a lvl 20 WTF is that?!?!!??!

Bildo,

that is a very interesting point you bring up about scraping the panderan, although i highly doubt that is the reason. I truely belive that the 5th race in the horde was put there for server inbalance. I looked at some recent population counts and overall in all the US servers. Alliance outnumber horde 6 to 1... i believe that count too. ive been on alot of servers and have noticed those numbers.

.... I want panda's! /cry

Posted by Spaz at November 28, 2005 01:50 PM

Horde imbalence, unless you are playinng on Laughing Skull, then it is 6-1 horde to alliance. :( for a pvp server it sucks to be alliance.

Posted by Silentk at December 12, 2005 05:19 PM

A couple of pointers from the posts above:
I don't know what they intended at blizzard when they designed the Pandaren, but 'ren' means people in Chinese, so I read it as the 'panda people'. We can't rule out that blizzard decided in house to eliminate them to avoid pissing anyone off.

Why is WoW so cheap in china? A young professional makes roughly US 120/month. Restaurant staff in a mid-sized city makes about 30. The product would simply not sell for a higher price in China. Simple economics.

The vast majority of players in the China market do not own their own computers (see the above paragraph), and play almost exclusively in net cafes. It would be pointless to sell the box in China for two reasons: no buyers and piracy. MMORPG is the perfect business model in China for that reason. There is no effective way to control the piracy of software in China, so just charge a subscription.

As for gold, its neither legal or illegal. Gold farmers have no way to register their companies because there's no standard legal category for what they do, and the authorities can't tax them properly for the same reason. While there is no specific law against the practice out here, the operations are all pretty much illegal anyway.

Posted by Xiefei at December 18, 2005 05:21 AM

Are there any world of warcraft servers in South Africa???

Posted by G4STLY at January 17, 2006 06:40 AM

This is cool, you have to try it. I guessed 74854, and this game guessed it! See it here - http://www.funbrain.com/guess/

Posted by Allison Trump at May 23, 2006 08:27 AM

One thing I like about the CMs of other countries is unlike tseric, they are not obscure and post on topics that concern the majority of people.

If our tseric CM did that instead of posting on butt kissing topics and topics that ask how much peanut butter do you like on your sandwhich, US WoW would be better off.


I also want to add this>
Because china has their wow china version, why don't we just ban IP addys on WoW servers. This would practaly destroy the gold farming. With this simple measure we could destroy gold farming.

Posted by BaneTek at June 8, 2006 10:05 PM

好长的文章, 但是我还是看完了哦. :) 的确反映了中国的游戏现状

good article, i spent long viewing it. :( it exactly explains what the situation of the online game is like in China.

Posted by cyrollin at June 9, 2006 11:11 AM