Why Wasn't NetEase Good Enough for Activision?

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Chinese gamers will soon have a new shooting game to fire up.

Activision Blizzard (NAS: ATVI) -- the world's largest third-party video game publisher -- is rolling out a modified version of Call of Duty Online in China.

This isn't the same video game that has served the gaming giant well stateside with its November installments in recent years. This is an online version of the game, similar to the company's iconic World of Warcraft and Starcraft franchises.


Players don't have to shell out $60 to buy the game the way that stateside gamers do with the console-based titles. It's a free-to-play model, which means that Activision Blizzard will be making money through the virtual items that players can purchase throughout the game to enhance the experience.

The strategy isn't a surprise. It's what China's online gaming giants have relied on over the years to deliver heady growth and meaty margins. The real surprise here is that the multi-year agreement for exclusive licensing rights to run the game in the world's most populous nation is Tencent.

Tencent isn't a bad choice. It's an online gaming behemoth that's probably best known for its popular QQ messaging platform in China. However, this has to leave NetEase (NAS: NTES) scratching its head. It is NetEase, after all, that has seemingly served Activision Blizzard well with the exclusive license for World of Warcraft and Starcraft in China.

Should NetEase be worried that Activision Blizzard went with another gaming titan?

Not necessarily. In a Forbes interview discussing the move, Activision Blizzard CEO Bobby Kotick points out that Tencent was a logical partner because it already has a very successful military combat game that is somewhat similar to the Chinese version of Call of Duty Online.

It's also simply a matter of smart business. Activision Blizzard doesn't want to put all of its eggs in one basket, and divvying up its business in China will make it more competitive when time for these individual agreements come up for renewal.

Activision Blizzard knows how to play this game.

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At the time this article was published Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool owns shares of and has written calls on Activision Blizzard.Motley Fool newsletter serviceshave recommended buying shares of NetEase and Activision Blizzard.Motley Fool newsletter serviceshave recommended creating a synthetic long position in Activision Blizzard. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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