Warcraft, The Chinese Metaphor?

(For the original article, please check the China Law Blog. The link is here.)

When I served on a China panel at Berkeley last month, I met Dan Maas, who asked me for my thoughts on what had been happening to the World of Warcraft online game in China. It took me about fifteen seconds to figure out Dan knew far more about what was happening on that front than I did. I was fascinated by what he was telling me and I asked him to write a post on it. What so interested me was that what was happening to World of Warcraft was what so often happens to smaller foreign companies in China that operate in industries in which the Chinese government would prefer not to see foreign companies. It also nicely encapsulates how China’s government (or at least some of its agencies) will employ the law to provide cover/favor to foreign companies. Lastly, it illustrates something we are always saying here and that is that securing approval of one governmental entity in China to do something does not necessarily mean you are free and clear. For more on that, check out “Floating Houses, Conflicting Laws, And Really Nice Governmental Officials. China Law Practice Writ Large.”

China generally considers online gaming to constitute publishing and foreign companies are not allowed to go into China publishing solo. This means foreign companies wanting to engage in publishing in China must partner with a Chinese entity, which as the following so nicely points out, can itself create issues.

First, a bit about Dan Maas: Dan founded an Emmy Award-winning special effects company, Maas Digital, whose projects have included creating photorealistic 3D animation for the Disney IMAX documentary “Roving Mars,” and developing production technology for the upcoming 3D adventure film “Quantum Quest,” starring Samuel Jackson and William Shatner. Dan speaks and writes fluent Mandarin and spent two years consulting for an animation studio in Taipei, Taiwan. He is currently pursuing an MBA at Stanford’s Graduate School of Business and he seeks “to continue pushing the envelope of film and interactive gaming technology, particularly in Asia, after graduation”

Second, here’s Dan’s Post:

China has become a major battleground in the online gaming market. Chinese players make up over half the customer base of the world’s most successful subscription-based online game, World of Warcraft (WoW) by US developer Blizzard Entertainment, which alone pulls in over $1 billion in annual revenue. WoW faces fierce competition in China from locally-developed games such as Kingsoft’s JX Online series and other imported titles like Aion Online from Korean developer NCSoft.

China is a uniquely challenging market for foreign online game companies because government regulations require foreign games to be licensed through local Chinese operators, rather than offered directly by the developer. Friction between government regulators, overseas developers, and Chinese licensees can have a huge impact on the competitive landscape. For example, Blizzard suffered a harsh setback last year when WoW was knocked off-line for several months amidst a license dispute and unexpected regulatory shifts.

Blizzard had successfully brought WoW into the Chinese market in 2005 through a license agreement with local game developer The9. The relationship turned sour last summer when negotiations to renew the license bogged down in a dispute over division of profits. Blizzard ultimately decided to terminate The9’s license and shift WoW’s China operations to another local company, NetEase. (The9 responded acrimoniously, filing suit against Blizzard and announcing development of its own sword-and-sorcery game called “World of Fight”). WoW was knocked off-line for over three months during the transition, leaving a gigantic vacuum in the market which competitors rushed to fill. Kingsoft, Shanda, and other gaming companies stepped up promotional efforts to lure former WoW players to their own games. Blizzard previously had the upper hand in China thanks to its comparatively ample resources and high production values — but for the moment, it was knocked out of contention.

Related: WoTLK Receives China Approval, China Tightens Rule On Net Gaming, BC Comes To China