Blizzard didn’t specifically say this morning why it’s dropped The9 in favour of NetEase to run its Chinese WoW operation, but Wedbush Morgan analyst Michael Pachter’s claimed the answer’s simple: it’s going to make a mother-trucking boatload more money from the new deal.
“The company had previously contracted with The9, but the current arrangement will expire in June 2009,” said Pachter in a note this afternoon.
“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.”
$90 million is probably a good reason to kick a partner into touch. But don’t shit the bed just yet, share-buyers: Pachter said he believed the upside – approximately $0.04 per share – has already been factored into forecasts.