The9 WoWs Wall Street With New Deal

By newsdoug on December 2, 2011

The9 hits paydirt with new licensing deal What a difference a deal makes. That seems to be the lesson for faded online game developer and operator The9 (Nasdaq: NCTY), whose shares have soared on a new licensing deal some 2 years after it disappeared from investors’ radar screens after losing the rights to its hit game World of Warcraft, or WoW to gaming enthusiasts. The latest development underscores just how dependent companies like The9 and rivals like Shanda (Nasdaq: SNDA) and NetEase (Nasdaq: NTES) are on individual hit titles, which can sometimes account for half or more of a company’s top and bottom lines. Interestingly, this latest development has seen The9 turn away from licensing other people’s games toward the developing its own titles, whose costs are much higher but also offers much bigger potential rewards from outside licensing fees for popular titles. In this case, a Singaporean company called Garena Online is paying a nifty $23 million for licensing rights for 6 years to The9’s self-developed game, “Firefall”, in Southeast Asia and Taiwan. (English article) Investors were clearly excited about the deal, bidding up The9 shares by 36 percent since the day before it was announced, presumably as rumors started to circulate in the market. “Firefall” was actually developed by an American company called Red 5, which The9 purchased last year. Red 5’s founder headed the team that developed The9’s former blockbuster World of Warcraft series, which The9 was licensing from Activision Blizzard (Nasdaq: ATVI) before losing those rights to NetEase a couple of years ago. So clearly the market is excited not only about the potential for more “Firefall” licensing deals, but also for the game’s potential in China, one of the world’s biggest online game markets, and perhaps for Red 5’s broader potential to develop more hit titles. It’s a bit ironic that The9 is having to turn to a US game developer to boost its fortunes when it should be able to develop its own titles for much cheaper in China. But when you’re looking for success, you’ll take it anywhere you can get it.

Bottom line: A licensing deal for a new game developed by The9 could signal a change of fortune for the company, but it will have to follow quickly with more such deals to prove the turnaround is real.

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