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China Video Game Market Poses Risks: Activision CEO

Activision Blizzard's CEO, who is partnering with Chinese Internet Service Provider, Tencent Holdings, to bring its popular Call of Duty titles to Chinese users, says the move is a big risk because of China's free-to-play gaming market.

"It's a really big risk, and there's a lot of uncertainty when you go into new markets and try new business models," Bobby Kotick, CEO of Activision Blizzard told CNBC Asia's " Squawk Box ".

"[But] I think in this case, Tencent has a lot of insights into these types of games, and the game's been in development for 2 years and they've been very, very generous with providing that insight, and hopefully it will materialize into something that's a great experience for players," he added.

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Activision and Tencent have agreed to develop the Chinese version of the wildly popular first-person shooting game in a Shanghai based studio. According to the agreement, Tencent has exclusive rights to operate Call of Duty Online, the working title for mainland China.

The latest release in the Call of Duty series, Call of Duty:Modern Warfare 3 grossed $775 million within five days of its worldwide release in November 2011 – a new record.

Activision Blizzard is also responsible for other online game titles such as World of Warcraft, and the more recent Diablo 3. However, this is the company's first foray into a completely free-to-play business model.

"One of the things that we've learned in taking our intellectual properties to different markets is that you have to be compatible and consistent with the way that people play in the market that we operate in," said Kotick. "And in China, that is largely free-to-play with virtualized sales, sometimes paying for time, but it's a different business model and we're racing for China."

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Tencent is the company behind China's most-used instant messaging service, QQ, with 752 million active users recorded at the end of the first quarter this year. The company posted annual revenue of $4.5 billion in 2011, a 45 percent increase over the previous year.

The Chinese online gaming sector has been growing approximately 33 percent year-on-year to $1.78 billion in the first quarter of 2012, according to Zacks Investment Research in a report in July.

As for worries about intellectual property infringements, Kotick is confident that it wouldn't be an issue to contend with. "These [online] games don't really lend themselves well to piracy; there are individual experiences that are specific to user IDs, and it's not the same as selling physical goods."