Blizzard of Change in China

It's not personal, The9 (NASDAQ:NCTY). It's just war.

NetEase.com (NASDAQ:NTES) is reportedly replacing The9 as the operator of Activision Blizzard's (NASDAQ:ATVI) popular World of Warcraft in mainland China, when the current contract expires in a couple of months.

None of the three companies has made it official, although a flurry of Chinese media reports are taking a toll on The9. The stock shed more than 20% of its value this morning, and it could get uglier. The company's exclusive World of Warcraft license in China accounts for the lion's share of its revenue.

According to one report, NetEase is already adding new servers to accommodate the millions of players in China of Activision Blizzard's global sensation.

If it's true, the move makes sense. Stateside companies have partnered with successful online gaming companies to make sure their games reach audiences in the world's most populous nation. Disney (NYSE:DIS) went with Shanda Interactive (NASDAQ:SNDA). Electronic Arts (NASDAQ:ERTS) has a deal in place with The9.

In a move to diversify last summer, Activision Blizzard handed over a few of its non-World of Warcraft titles for NetEase to distribute in China. Maybe it was just kicking the NetEase tires, in anticipation of its contract with The9 coming up for renewal.

Whether this story holds up or not, it should be a lesson to investors. Be wary when a company's bread-and-butter business is a licensed property. Online gaming companies like Shanda, NetEase, and Perfect World (NASDAQ:PWRD) rely mostly on proprietary titles. While The9 has carved out a living from third-party franchises like World of Warcraft and EA's FIFA soccer series.

China's gaming stocks are cheap, trading between 8 and 16 times this year's projected earnings. Obviously, The9's bottom line will be affected if it loses World of Warcraft, but the rest of the players have strong, growing properties.

It's a game worth playing, though this morning's news is a reminder that it is a risky game.