Activision’s World of Warcraft No Longer Rules in China

World of Warcraft No Longer Rules in China

By Bruce Einhorn and Ludi Wang on July 11, 2013

http://www.businessweek.com/articles/2013-07-11/world-of-warcraft-no-longer-rules-in-china

World Joyland is a Chinese theme park featuring centaurs and werewolves. It’s a weird homage to the online role-playing game World of Warcraft. Built in 2011, the park in Changzhou, several hours by high-speed train and shuttle bus from Shanghai, is filled with characters and attractions that look remarkably like those in the game developed by Activision Blizzard (ATVI)—with just enough changes that the Santa Monica (Calif.)-based software company, which hasn’t authorized the park to use them, can’t do much about it. The way things are going, World Joyland might want to look elsewhere for inspiration.Activision’s hack-and-slasher PC game is still No. 1 worldwide with 8.3 million players at the end of last quarter, according to the company. But those numbers are down from 12 million players in October 2010, and Activision said in May that it lost 1.3 million users in the first quarter of 2013, largely in Asia. A July 2 report by investment bank T.H. Capital estimated that World of Warcraft users in China may increase slightly in the second quarter but warned that user engagement, measured by hours played, is likely to keep falling. The user drop-offs “raise concerns,” Activision said in a May 8 statement. The company declined requests for further comment.

World of Warcraft benefited in China from a 2000 ban on video game consoles, which had fallen out of favor among cultural guardians in Beijing. Now, Activision is vulnerable as many Chinese gamers abandon Internet cafes for cheap smartphones and tablets. As in the U.S. and elsewhere, gamers in China once captivated by the preparation- and teamwork-intensive Warcraft games are shifting to simpler ones they can play quickly, competitively, or by themselves on the go. The main beneficiary so far is Tencent (700:HK), the company that also operates China’s most popular instant-messaging service. In addition to making its own games, Tencent has built an open platform for developers of PC and mobile games and other services. Tencent said on July 3 that it will generate 3 billion yuan ($489 million) in revenue through its platform, up 50 percent from last year. “We still find WoW to be popular,” but so-called massively multiplayer online role-playing games “are kind of losing ground,” says Lisa Cosmas Hanson, founder and managing partner of Niko Partners, a Silicon Valley company that researches China’s gaming market.

During a round of League of Legends, a game developed by Tencent subsidiary Riot Games, at the Hailian Online Internet cafe near Peking University, gamer Wang Xiao says there’s “nothing significantly new” in World of Warcraft, even with the eight-year-old game’s recent flurry of updates. Besides, the 23-year-old says, “the game requires too much time and effort.” With World of Warcraft, “you have to get online almost every night if you want to be someone big in the game,” he says, while League of Legends requires less dedication.

Activision is trying to find new ways to appeal to World of Warcraft die-hards as well as the more casual gaming audience. On July 8, Activision announced plans for a Chinese launch of Hearthstone: Heroes of Warcraft, an online card game that features characters from the role-playing franchise. The card game is “deceptively simple” and “easy to pick up and play,” says Michael Morhaime, chief executive officer of Blizzard Entertainment, the Activision arm that makes World of Warcraft.

Activision is still doing well in the U.S. and other console-friendly markets with hits such as Call of Duty. Its stock is up 40 percent this year, and CEO Robert Kotick’s compensation last year was $64.9 million. In China, though, World of Warcraft’s decline is forcing change at NetEase (NTES), Activision’s local partner, which is decommissioning some unused online game servers even as its revenue from online games ticks upward. CEO William Ding says his company plans to introduce “quite a number of new game titles” with a focus “more on the competition type of games.”

The bottom line: World of Warcraft has had a great run in China, but its popularity now appears to be on the downswing there.