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May 24, 2006 12:40 pm

Disney to tap China’s online game market

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Walt Disney is to launch a casual online game in China through a tie-up with Nasdaq-listed local internet company Shanda Interactive Entertainment.

Shanda, which has long flaunted its own ambitions to become "China's Disney", will develop and distribute the planned game, which is to be launched in early 2007, the companies said.

The game will be based on Disney's characters and will help the US company to raise its online profile in what is fast-growing but tightly regulated media market.

It will also assist Shanda's efforts to diversify away from its fading core business of operating "massively multi-player online role-playing games", or MMORPGs.

Online "casual games" are relatively simple and much cheaper to develop than MMORPGs, but demand for them is growing fast and successful titles can enjoy even fatter margins.

Shanda, which has lost its lead in the China MMORPG market because of a failure to develop or licence popular new titles, sees casual games as key to its hopes for establishing itself as a more general internet entertainment provider.

"We believe the addition of Disney's wholesome content will further broaden our user demographic, thus making a significant contribution to the implementation of our home strategy,” Chen Tianqiao, Shanda chairman and chief executive, said in a statement on Wednesday.

However, the tie-up with Disney also highlights Shanda's lack of own core content, and the difficulties it faces in turning itself to a Chinese equivalent of the US "Magic Kingdom".

Shanda's profits and revenues slumped in the first quarter following its decision to offer access to some of its aging MMORPG titles for free. Net profit was just Rmb12m ($1.5m) in the first three months, down from Rmb220m in January-March 2005, while sales fell to Rmb341m from Rmb497m.

Many analysts have expressed doubts about Shanda's plans to offer internet entertainment through a television "set-top-box", and the company's shares have been trading at less than a third of their 2004 peak of $45.

Foreign companies are effectively barred from directly operating online games in China, but by working with Shanda, Disney will be able to establish a presence in the market for the first time.

Disney said it was "actively" looking to bring more of its content to the Chinese internet.

“China is a priority for the entire company, and this announcement is part of our strategy to expand our presence here," Stanley Cheung, Disney's China managing director, said in a statement.

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