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February 24, 2006 8:10 pm

Netease unveils strong growth

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Netease.com, the Chinese internet games and portal company, has unveiled 7 per cent quarter-on-quarter profit growth, shrugging off a move by fellow Nasdaq-listed rival Shanda Interactive Entertainment to offer some of its older games free of charge.

The growth at Netease also came despite the soaring popularity of World of Warcraft, a multiplayer online role-playing game developed by Blizzard Entertainment of the US and operated locally by a third Nasdaq-listed Chinese games company, The9.

Michael Tong, Netease chief operating officer, said Shanda’s decision late last year to scrap charges for its game Legend of Mir II had had surprisingly little impact on use of Netease’s flagship titles Fantasy Westward Journey and Westward Journey Online II games.

“The effect has been much smaller than we had anticipated,” Mr Tong said in a telephone interview, saying it appeared players were willing to pay for relatively new games rather than switching to the now-free but ageing Shanda title.

While Shanda is moving away from subscription fees for its games in favour of seeking to generate income by selling virtual items, The9 has actually been adding to players’ upfront costs by charging for installation disks for World of Warcraft.

The move has not prevented WoW attracting 3.3m subscribers, with up to 530,000 users logging on to its game servers at a time in the fourth quarter. The9 this week reported net profits of Rmb68m for the fourth quarter, up 81 per cent from the previous three months.

However, Netease expects the expansion of WoW’s user base to have limits. “It seems to us that the competition from World of Warcraft has stabilised,” Mr Tong said.

In the fourth quarter, Netease’s Fantasy Westward Journey saw peak concurrent users rise to 1.04m, with Westward Journey Online II attracting up to 554,000 users at a time.

In the last three months of 2005, Netease saw sales climb 5.3 per cent to Rmb487m ($60.5m), with profits up 7 per cent to Rmb277m. The company said it expected first-quarter net profit to be lower than September to December last year, but only because of the need to expense share-based compensation for staff.

Netease, which unlike The9 has focused on developing its own games, now plans to launch its title Tianxia on an open test basis in the second quarter of this year.

Moving quickly toward a formal launch for Tianxia will beparticularly important ahead of the expected release in China byThe9 of the much-heralded new online role-playing game Soul of TheUltimate Nation developed by South Korea’s Webzen.

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