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EA Acquires Stake In Chinese Online Publisher The9
by David Jenkins
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May 21, 2007
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Officials from leading Chinese online publisher The9 Limited have revealed that the company has received an equity investment by Electronic Arts. The two companies have also announced a licensing agreement that will see The9 become the exclusive publisher for soccer title FIFA Online in mainland China.
The equity investment will amount to the equivalent of $167 million, and will see Electronic Arts acquire around 15 percent of the common shares of The9. The deal, including The9’s involvement with FIFA Online, was first rumored last month, although at that time the stake was expected to be higher - at around 19 percent.
Electronic Arts has shown considerable interest in building its presence in China of late, with the The9 deal apparently driven as much by existing difficulties in publishing FIFA Online there as a wish to be involved in the existing Chinese online market. Although only released in South Korea, the game already has 4.4 million registered subscribers and is one of the country’s most consistently popular titles.
It is still unclear what effect Electronic Arts’ equity investment will have on The9’s relationship with Vivendi, whose World of WarCraft currently represents the vast majority of the company’s business. As well as its own proprietary massively multiplayer online games, The9 also owns exclusive licenses to external titles such as Guild Wars, Hellgate: London, Ragnarok Online 2, and Huxley.
"EA will be a strong partner for us in the rapidly expanding online game market in China," said Jun Zhu, chairman and CEO of The9. "We are seeing strong interest in online sports games in China with the upcoming 2008 Beijing Olympics and the FIFA World Cup in 2010, and FIFA Online is set to be a top favorite in the Chinese market."
Hubert Larenaudie, president of EA Asia Online, said, "This is another significant step in EA's strategy to build an online presence in Asia. The9's proven expertise will be a tremendous advantage in bringing FIFA Online to a growing market and we look forward to partnering with them to bring the best online football gaming experience to millions of Chinese gamers and football fans."
[UPDATE: In his latest notes to investors on the new EA deal, Lazard's Colin Sebastian calls The9 "in our view, one of the leading pure-play Chinese online game companies with a proven track record of importing games into China (e.g., Vivendi’s World of Warcraft)."
"While not a big surprise," says Sebastian, "we believe the partnership with the The9 is a positive development, a means for EA to accelerate expansion into China, which is one area of incremental investment for the company, as well as a key part of the company's strategic growth plan."
"Moreover, we continue to believe that alliances with established local players are the most efficient means for EA to expand into fast-growing online game markets in China and other locations," he notes, adding, "we anticipate that this segment will become increasingly important as a driver of online and international revenue growth, including the ongoing rollout of Pogo, FIFA Online, mobile, and other localized content."]
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