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May 24, 2007 2:11 am

Shanda’s strategy gives it back top China notch

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Shanda Interactive Entertainment has reclaimed pole position in China’s internet games market, as rival Netease.com struggles to launch a crucial new home-grown title.

Quarterly results issued this week by China’s leading online role-playing games operators have highlighted shifting corporate fortunes in a market worth an estimated Rmb2.6bn ($340m).

Shanda, which has struggled in recent years as its games aged and its expansion into home entertainment stalled, sealed its revival with net profits of Rmb449m, up 86 per cent from the previous quarter.

Record revenues from online games of Rmb505m – up 12 per cent on the previous quarter and 63 per cent year-on-year – offered a strong endorsement of founder and chairman Chen Tianqiao’s decision in late 2005 to offer free access to Shanda’s role playing games.

Instead of relying on subscriptions, Shanda relies for sales on players buying services or virtual items within its online games.

“We feel very confident that our new expansion packs for existing games and our strong game pipeline will continue to generate sustainable user and revenue growth,” Mr Chen said.

Mr Chen’s adoption of what he calls the “free-stay-play” model has been endorsed by Nasdaq-listed rival The9, which plans to use it for its newest title, a 3D fantasy “massively multiplayer online role-playing game” licensed from South Korean online games company Webzen. Netease.com, which had until last quarter claimed the title of China’s biggest online games company, has stuck with the subscription model but appears in need of a new hit.

In spite of the record 1.5m peak concurrent users achieved by its established favourite, Fantasy Westward Journey, in the first quarter, Netease’s revenues from online games were up only 6.9 per cent year-on-year and 6.7 per cent quarter-on-quarter at Rmb482m.

Concerns about Netease’s focus on developing its own games have grown after it again postponed its Tianxia 2 title to try to make it easier for beginners.

Michael Tong, chief operating officer, said that while Tianxia 2 had attracted some “hard-core fans”, Netease had been disappointed to find many test players left the game before progressing to more entertaining content. “We have not done a good job of introducing these users to the advanced levels,” he said.

The9, which operates the highly successful World of Warcraft, saw revenues rise 27 per cent year-on-year to Rmb270m in the first three months of 2007. A quarter-on-quarter fall in sales highlighted The9’s need to refresh WoW and introduce new titles but it recently won rights to operate an online version of Electronic Arts’ FIFA football game.

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