Audition game over shortly for Nineyou

PUBLISHED : Tuesday, 17 July, 2007, 12:00am
UPDATED : Tuesday, 17 July, 2007, 12:00am

Mainland firm served notice by licensor

Yedang, the South Korean company licensing the Audition online game to Shanghai-based Nineyou, will terminate the licensing contract in three months after nearly two years, Yedang marketing director Jay Park said in an interview with the South China Morning Post.

'We sent a written notice to Nineyou last week, stating that it has to stop running Audition within three months of receiving the notice,' said Mr Park.

The game accounted for 60 per cent of Nineyou's revenue last year, said an analyst who did not want to be named. A Nineyou spokesperson declined to comment.

The original term of the contract was due to run until next July. However, Yedang 'definitely' could terminate the contract earlier because Nineyou had breached the contract by paying less than the agreed amount of royalty fees and by developing Super Dancer Online, a game similar to Audition, Mr Park said.

T3 Entertainment, which developed Audition, earlier had made a similar claim that Nineyou was not paying enough royalty fees.

The dispute caused Nineyou last week to delay indefinitely its planned initial public offering in Japan. If not for the row, Nineyou would have raised US$158 million and started trading on July 12.

Shares of Shanghai-listed China-Kinwa High Technology, which would have owned 15.27 per cent of Nineyou after the IPO, dropped to yesterday's close of 18.54 yuan from a high of 27.58 yuan on June 15.

Korea-listed Yedang, which operates Audition in its home country, holds the distribution rights for the game and licenses it to operators in 10 other countries in various languages, including the mainland.

The royalty fee in question is calculated as 25 per cent of total revenue less the channel fee, or distribution cost, said Kim Yoora, T3's marketing director.

Nineyou's distribution cost was at about 30 per cent of total revenue, when the industry norm was about 15 to 17 per cent, Ms Kim said.

'We are paying more channel fee than we should,' said Mr Park.

'We only come to know about that recently. Otherwise, we would have made the decision [to terminate the licensing contract] earlier.'

Yedang was also concerned over Nineyou having launched a game similar to Audition.

'We have complained to Nineyou about Super Dance Online many times but they ignored us. That game is competing with Audition in the overseas markets,' he said.

Yedang is in search for a new licensee in the mainland. 'We want a more faithful partner,' Mr Park said. Nineyou first felt a threat to its income in May when T3 decided to license the sequel, Audition 2, to The9, another game company in the mainland and a Nineyou competitor.

'The9 was the highest bidder' for the licensing contract, Ms Kim said, without disclosing financial terms.

This had led to a clash over the use of the Audition trademark in the mainland. Nineyou claimed it owned the right to the name in that market and that any sequel cannot use a related title. T3 argued otherwise.

The dispute highlights risks facing game operators when they rely on outsourcing to develop products.

'Their relations with their game developers can affect seriously their business,' said an analyst who did not want to be named.

Nasdaq-listed Shanda Entertainment and The9 make most of their revenue from licensed games, while NetEase and Kingsoft, which developed most of the games they offer users, license others from third parties.

Shanda was in dispute with its game developers, Actoz and Wemade, from 2003 to 2005 before buying a major stake in Actoz to silence its partners.