* China regulator says game's new version lacks approval
* Observers say move the result of apparent govt turf war
* NetEase shares lose 2.4 pct, Activision sheds 4.3 pct
* Move underscores risks to China Internet firms
(Adds comments, background)
By Alexei Oreskovic and Melanie Lee
SAN FRANCISCO/BEIJING, Nov 2 A Chinese
regulator has ordered top online game firm NetEase.com (NTES.O)
to stop operating a popular title, the result of an apparent
governmental turf war highlighting the risks the sector faces.
NetEase said the General Administration of Press and
Publication (GAPP) halted and returned its application to
operate the latest version of Activision Blizzard's (ATVI.O)
popular World of Warcraft game due to "gross violations" of
The agency posted a statement on its Web site demanding
that NetEase suspend charging users to play the game, and
disallow new account registrations, NetEase said on Monday.
The move put the recently-relaunched popular title's future
into question in China, and sent NetEase and Activision
Blizzard shares down 2.4 percent and 4.3 percent, respectively.
Observers said GAPP's move was the result of a recent turf
war between the agency and the Ministry of Culture, which also
oversees the online gaming sector.
"This is different from operating a businesses in the U.S.
or Europe," Yu Yongfu, CEO of Chinese mobile Internet firm
UCWeb told Reuters on the sidelines of one of China's top
Internet shows taking place this week in Beijing.
"For Chinese businesses expanding in China, we need to
learn how to operate suitably in the environment in order to
thrive and survive," he said.
NETEASE WOES BOOST OTHERS
While NetEase shares fell on the news, some of its major
rivals rose as investors bet they would capitalise on the
setback. Shanda Games GAME.O jumped 3.1 percent, while The9
<NCTY.O) closed up 4.3 percent.
"Millions of Warcraft players will suffer the most," said
Leon Li, vice president of Chinese mobile Internet firm
KongZhong KONG.O. "But if you take a long term view of the
industry, many of these Warcraft gamers may migrate to other
games, so for the other Chinese online game companies, it is a
The news comes as Beijing tries to tighten its control over
online gaming, worried about undesirable content. In October,
the regulator banned many forms of foreign investment into the
country's online games industry -- expected to grow 30-50
percent this year to up to $4 billion. [ID:nSHA252963]
But analysts said the impact on other Chinese online gaming
operators such as Shanda would be marginal, because most were
in compliance with regulations set by both the administration
as well as the Ministry of Culture.
NetEase launched the World of Warcraft game commercially in
China on Sept. 19. Roth Capital Partners analyst Adam Krejcik
said the move by the GAPP was not surprising, given previous
reports that the agency was displeased that the popular
multiplayer online game was launched without its approval.
"These guys are essentially stuck in the middle of this
power struggle," Krejcik said of NetEase.
GAPP also said in its statement it was evaluating whether
to impose penalties on NetEase affiliate, Shanghai EaseNet.
In a note to investors, Morgan Stanley analyst Richard Ji
said World of Warcraft had experienced strong momentum since
its launch, with nearly 1 million peak concurrent users.
Even in a worst-case scenario, in which NetEase ceases to
operate World of Warcraft, the company would still operate
several blockbuster games and its shares would still have 30
percent upside, Ji said.
(Additional reporting by Garbiel Madway in San Franciso;
Editing by Doug Young, Edwin Chan and Tim Dobbyn)