* China regulator says game's new version lacks approval
* Orders NetEase to stop collecting fees, new accounts
* NetEase shares lose 2.4 pct, Activision sheds 4.3 pct
(Recasts first paragraph to add Activision, context; adds
analyst comments, closing stock prices)
By Alexei Oreskovic
SAN FRANCISCO, Nov 2 A Chinese regulator has
suspended approval for NetEase.com Inc (NTES.O) to operate
Activision Blizzard's (ATVI.O) World of Warcraft online game,
putting the future of the recently-launched and high-profile
title in question in China.
Citing "gross violations" of regulations, the General
Administration of Press and Publication said it had halted and
returned NetEase's application to operate "Burning Crusades" --
the latest version of the game licensed from Activision.
The regulatory body posted a statement on its Web site that
demanded the NetEase affiliate company that operates World of
Warcraft to suspend charging users to play the game, and
disallow new account registrations.
Shares of NetEase, the No. 2 online game company in China,
closed down 2.4 percent at $37.69 on Nasdaq. Stock in
Activision Blizzard ended down 4.3 percent at $10.37, while
rival Shanda Interactive SNDA.O finished up 3.5 percent. Sohu
(SOHU.O), a major game portal, lost 2.8 percent.
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, also viewed as a regulatory
body for the industry.
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.
Krejcik said the situation reflected a regulatory turf
battle in China between the GAPP and the ministry, which had
approved the content of the game prior to its launch.
"These guys are essentially stuck in the middle of this
power struggle," Krejcik said of NetEase.
But he expected the impact on other firms in the Chinese
online gaming market would be limited.
NetEase and affiliate Shanghai EaseNet, which operates the
World of Warcraft game in China, said they believed they were
in full compliance with applicable laws and that they were
seeking clarification regarding the statement by the General
Administration of Press and Publication.
NetEase said that it has not yet been officially notified
of GAPP's determination.
Kristen McNally, a NetEase spokeswoman, said she could not
say if NetEase has complied with GAPP's requirements of
suspending new account registrations.
GAPP also said in its statement it was evaluating whether
to impose penalties on 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 current 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.
Janco Partners analyst Mike Hickey estimates the Chinese
market for World of Warcraft accounts for 5 to 6 cents a year
of Activision's earnings, which analysts expect to be 65 cents,
excluding items, in 2009, according to Thomson Reuters
While it was difficult to predict the actions of the
government, if World of Warcraft goes offline it could hurt
Activision's earnings by a penny or two in the current quarter,
(Reporting by Alexei Oreskovic; Editing by Edwin Chan and Tim