A few years ago, Zhu Jun, owner of the football team Shanghai Shenhua, said he planned to list his club on the stockmarket. It was a bold statement, as none of the country’s football teams were profitable.
The listing never happened – just as well for shareholders as the team is now involved in ongoing disputes with dozens of its players over salaries and bonus payments.
But Zhu is far better known as the boss of The9, one of the country’s top online games operators. Much like his football team, The9 is also in a financial mess.
The Nasdaq-listed company is bleeding cash. In the first half of this year, its operating revenues and losses respectively reached Rmb47.5 million and Rmb141.6 million. Its stock is trading at $5, way off its peak of $50.
Until recently, The9 was a cash cow. But that changed when the company lost the local distribution rights for Blizzard Entertainment’s World of Warcraft franchise (WoW) to rival NetEase. Losing the deal was devastating because WoW contributed over 90% of The9’s revenue.
Having relied on WoW sales for years, The9 had also lagged behind in research and development. While competitors have flooded the market with self-developed games, The9 has failed to come up with many online games of its own, and the Beijing News reported that its market share has dropped from 11.5% to 0.3%.
As Zhu has admitted, the company had made the mistake of “putting all its eggs in one basket”.
To resurrect his fortunes, Zhu has been frantically looking for new games that might match WoW’s popularity. He recently told 21CN Business Herald that he thinks he has finally found one. Firefall, which is a team-based shoot-em up, is scheduled for a beta test at the beginning of next year.
Zhu has a lot riding on Firefall. The game is the first to be developed by Red 5, a Los Angeles-based online software firm Zhu spent $20 million to acquire in March. Zhu is banking on Red 5’s team of programmers, many of whom were previously involved in developing World of Warcraft. “I guarantee this game will bring a big shock,” says Zhu. “It will be a starting point for The9 to become a global company.”
Zhu evidently hopes that Firefall will help the company expand abroad. China’s online gaming market, after years of double-digit growth, seems to have slowed abruptly. According to Analysys International, industry revenue fell 0.5% quarter-on-quarter to Rmb7.78 billion ($1.16 billion) during the second quarter.
Competition, meanwhile, continues to intensify. Today, there are more than half a dozen publicly-listed Chinese gaming companies, and over 100 more with viable products, says BDA, a consultancy based in Beijing. That makes overseas markets look a lot more enticing than ever before. But exporting games abroad is not so straightforward. That’s because many of the most popular games in China are culturally-tailored in style and content, and not always export-friendly.
Many feature China-themed elves and dwarves, for instance, or are packed with martial arts storylines. Take online gaming giant NetEase’s popular offering, Fantasy Westward Journey. The game, which took over six years to develop, is based on the classic Chinese novel Journey to the West. It tells the tale of a monk and his three companions – not exactly the type of story that is likely to be a surefire hit outside of China, where many gamers seem more focused on storylines based on stealing cars or shooting terrorists.
Can Red 5’s developers also bridge the cultural divide, in delivering Firefall to the Chinese audience? Initial response to the game seems to have been lukewarm. After Firefall was showcased at a road show, 21CN Business Herald says most investors concluded that the game is a big gamble. Not all were convinced that the company had a new winner on its hands.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.