Numbers Game: China’s The9 Invests in Red 5 Studios

Chinese game developer and operator The9 Limited has entered into an agreement with U.S. online game developer Red 5 Studios that will see the former acquire a “majority interest” in the latter for approximately $20.0 million.

The9 previously operated World of Warcraft in China, before losing the WOW license to its Chinese rival NetEase. The9 still operates games such as FIFA Online 2 for Electronic Arts, in addition to its own games, such as World of Fighter and Atlantica. In its most recently reported quarter, The9 reported a 94.0 percent decrease in revenues to approximately $3.7 million U.S., versus the same period from a year earlier. It cited the loss of its WOW license, which expired on June 7, 2009, as the main reason for the drop.

Given that Red 5 is made up of former executives and game developers from WOW-creator Blizzard Entertainment, the deal seems to make a lot of sense, at least on paper. Red5, however, says that it “can’t tell you" what it's working on.

Zub Zhu, The9’s Chairman and CEO, said about the deal, “With the acquisition, The9’s global strategy is beginning to take shape. It will further enhance our game development capability and diversify our game portfolio and pipeline.”

Zhu will also take over as President when current President’s Xiaowei Chen term expires on May 16 of this year. Chen’s contract was not renewed.

The9’s market cap of approximately 176.0 million pales in comparison to its rivals like NetEase (5.18 billion), Shanda Interactive (2.78 billion) and Sohu.com (2.07 billion).