The9 Reports $20.5M Net Revenue From Virtual Goods Titles In 2008

By Alicia Ashby On February 24, 2009 · Leave a Comment

Today President Xiaowei Chen and Chief Financial Officer George Lai of Chinese games publisher The9 revealed several key details of the company's Q4 and annual 2008 financial performance. The information was disclosed in an earnings call whose transcript is currently available on Seeking Alpha. The key stat for The9's revenue from virtual goods is $20.5 million in annual 2008 net revenue generated by The9's two major microtransaction-oriented titles Soul of the Ultimate Nation (SUN) and Granado Espada (GE).

While this represents a 62% increase from annual net revenue generated by the games in 2007, neither title operated for the entirety of 2007. SUN operated only seven months during that year, while GE operated for only two months. Net revenue from SUN and GE for Q4 2008 was $3.4 million, which represented a 29% decrease quarter-over-quarter, and a 40% decrease year-over-year. The decrease was attributed to a decline in number of paying customers in SUN, a situation that Chen attributed to a lack of in-game items that players wished to buy.

"For SUN, we hope that the new version that we're going to launch in Q2 will give SUN a significant lift," said Chen. "It is true that SUN’s performance in Q4 was the dissatisfactory to us and to our players and largely due to I think actually a consumption – a decrease in consumption of items, we hope that in the new version that we are going to launch in Q2, there will be a lot more saleable items and items that payers are interested."

The9 is also launching a new incentive program called the VIP Club that that tracks customers who spend over a particular amount on in-game items. Once players are in the SUN VIP Club, they receive extra attention from The9's customer service agents and may receive quicker fulfillment on support requests. There also may be a line of in-game items that can only be obtained by VIP Club members, which Chen stated would not be microtransaction items but instead items that indicated VIP status. The hope is that the VIP Club will increase SUN's stickiness and help hold the attention of paying players better, and similar VIP Clubs may appear in the future in other The9 titles.

New free-to-play titles The9 intends to launch in 2009 include FIFA Online 2 (co-developed by Electronic Arts), Atlantica (licensed from Korean developer NDOORS), and Audition 2 (co-developed by T3). FIFA Online 2 has successfully completed its closed beta phase and Chen reported strong positive feedback from testers. Chen described the game as offering a wider selection of items for purchase than the current FIFA Online, with most items offering immediate in-game performance benefits. Audition 2 will enter closed beta in 2009, and Atlantica's status was not disclosed.

The9 is also working on in-house development of the MMORPG Warriors of Fate Online and five other games whose titles were not disclosed. Chen stated a goal of The9's in the near future would be to launch two to three games proprietary games each year in order to strengthen the company's portfolio. Chen also stated that every title The9 intends to launch in 2009 will monetize through sales of virtual goods to players.

Chen stated that The9 has not thus far been negatively affected by the global economic downturn, and that the economy should not be blamed for SUN's underperformance in 2008. Chen characterizes the SUN slide as a "one off" incident and notes GE's performance actually went up in Q4 2008 as compared to the previous quarter.

"In the larger scale, people often ask about the impact of the economy on games. So far we have not observed any significant negative impact on games by the economic downturn," said Chen. "And however I think that in the entire global downturn, we all need to watch out for various factors that could sooner or later hit every industry, and for a gaming industry, what we are actively doing is to freshly upgrade our content as well as going out very aggressively to recruit new players as well as new talent. I think this is a good opportunity for a lot of us in the gaming industry as more new talent, both either graduates from school or coming from other industry, I think this is a very good opportunity for us to absorb new blood."

The9's total net revenues for 2008 were $250.4 million, up 33% from 2007's net revenue of $187.6 million. Lai primarily attributes this to The9's 2008 launch of Blizzard's World of Warcraft in China but notes that revenue from the free-to-play titles is also a factor. Total revenue for Q4 2009 was $59.4 million, down 1% from the previous quarter and 4% from Q4 2007 figures. Lai describes the slight decrease as the result of SUN's underperformance. The9's gross profit margin for 2008 was 46%, up 1% from 2007.

[via Seeking Alpha]