Licensing accord to further drive games provider's growth Mainland internet games provider NetEase.com has secured a deal with Blizzard Entertainment of the United States to distribute some of its major titles in the domestic market, following its failure to develop a hit video game since 2004. NetEase last week forged a three-year licencing agreement with Blizzard on the US game developer's latest title StarCraft II, older hits Warcraft III: Reign of Chaos and Warcraft III: The Frozen Throne, and the Battle.net platform used to provide online multiplayer services for these games. Blizzard, which created World of Warcraft, the best-selling game for Windows-based personal computers in 2005 and 2006 and the world's No1 massive multiplayer online role-playing game (MMORPG) with 10 million users as of January this year, also formed a joint venture with NetEase called Shanghai EaseNet Network Technology to support its operations on the mainland. 'We hope to combine Blizzard's expertise in developing world-class games with NetEase's strength in online games operation in China to bring the best gaming experience to our players,' said William Ding Lei, chief executive of NetEase. The financial terms and domestic launch dates of the Blizzard-owned video games were not disclosed. Analysts said this new initiative could help NetEase further grow its online games business. 'NetEase has been waiting for and working to secure a mega-hit [games] licence,' said Citigroup analyst Alicia Yap, who expects NetEase's market position to improve dramatically. Ms Yap said NetEase was likely to continue seeking other hit games to distribute. The Nasdaq-listed firm has about US$722 million in cash as of June this year, which would come in handy to license other blockbuster games. 'We believe the NetEase-Blizzard joint venture is the first such [venture] that the US firm has formed globally,' said Dick Wei, JP Morgan's China internet analyst. 'This suggests a higher likelihood of further product licences and renewals.' NetEase, the mainland's second-largest online games company, started developing games in 2001. It produced two mega-hits, Westward Journey Online II in 2002 and Fantasy Westward Journey in 2004. Mr Wei said about 90 per cent of NetEase's revenue came from those two online games. To date, Fantasy Westward Journey is still the mainland's most popular online game with more than 2.1 million users playing simultaneously at peak hours. But NetEase has failed to replicate those early successes with its recent releases. Datang, launched in 2006, and last year's Tian Xia II were flops. Analysts said the long-term business plan for NetEase's alliance with Blizzard was yet to be fully explained by either partner. 'We believe [the licensing deal's announcement] fell short of market expectations. There is still no joint development effort between the two companies; their arrangement is a plain vanilla game-licensing deal,' said Mr Wei. Also, the three games licensed by NetEase from Blizzard are real-time strategy games (RTS), which are not the most popular genre played in the domestic market for MMORPG. Most RTS titles involve a few gamers who play from 30 minutes to an hour per session over the local area networks in mainland internet cafes. By comparison, the mainland's more popular MMORPG titles involve hundreds or sometimes even thousands of users. 'It is not certain how well the market is going to receive these new titles,' said Mr Wei. He expected no significant revenue contribution to NetEase from the Blizzard deal until next year. Still, the consensus by analysts is that the co-operation between NetEase and its new US partner will be strong. 'We believe this joint venture is just the beginning of a very long-term relationship with Blizzard Entertainment and Activision,' said Ms Yap. Blizzard is a sister company of US video game developer Activision. Both companies are owned by Activision Blizzard, a French-American video game publisher that was established last month as part of the US$18.8 billion merger between Activision and conglomerate Vivendi announced on December 2 last year. 'We are confident that NetEase will continue to work closely with Blizzard and potentially bring some of Activition's console-based games, such as Kung Fu Panda and Guitar Hero, to China,' said Ms Yap. 'We also believe that NetEase is likely to bid for Blizzard's Diablo III in the future.' This is a threat to another mainland online game company, The9, which had previously been Blizzard Entertainment's closest ally on the mainland. The9 has licensed the US firm's World of Warcraft for the domestic market since 2005 and derives the majority of its revenue from the game. Mr Wei said: 'Blizzard now has more options [for licensing partners].'