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Challenged about his online gaming company’s plunging share price, Chen Tianqiao, founder of Shanda, lashes out at ignorant Wall Street “experts” he feels have failed to understand his business.

“How could we possibly play our cards according to the thinking of people who fundamentally do not understand the Chinese market?” Mr Chen, who is also chief executive of the Nasdaq-listed Chinese online games company, asks rhetorically.

“When we did Shanda’s roadshow two years ago, they didn’t even know what Chinese online games were,” he says.

Mr Chen’s prickliness is understandable: Shanda’s shares have fallen nearly 60 per cent in the last four months as analysts and investors lose faith in a venture that was previously a Nasdaq darling.

Shares in Shanda are now cheaper than those of Chinese internet portal Sina, in which it holds a 20 per cent stake and which was previously seen as a possible takeover target for the games company.

But investors’ concerns are understandable too, amid signs of weakness in Shanda’s core portfolio of “massively multiplayer online role-playing games”, or MMORPGs, and doubts about its strategy to expand into other forms of media such as internet TV.

Shanda’s revenues actually declined in the third quarter of this year compared with the previous three months, as players deserted its rapidly-ageing former hit, Legend of Mir II.

Mir II’s decline prompted Shanda to announce that it would make the game “free-to-play” as part of a wider move away from the subscription model that made it China’s biggest games operator. Mr Chen argues that in-creasing competition makes the old model obsolete – but that Shanda can still make money by charging for premium services within free games and by selling virtual items to players.

Shanda already offers relatively simple “casual” online games without charge and counterparts in MMORPG powerhouse South Korea have made the model work for role-playing games too.

But Mr Chen’s embrace of “free-to-play” has focused attention on Shanda’s lack of compelling new games just as it must fend off competition from a host of new entrants and from fellow Nasdaq-listed rivals Netease and The9.

Indeed, The9’s recent success in selling both installation disks and subscriptions for licensed smash-hit World of Warcraft suggests Chinese players remain willing to pay up front for quality games.

“The question is being asked: is Shanda a one-trick wonder?” says Duncan Clark of consultancy BDA China. “Shanda is looking a little shaky at this point.” Mr Clark also harbours doubts about Mr Chen’s bold effort to break into mass entertainment with a Shanda-branded TV set-top box.

The box, dubbed the EZ Station, will offer games, video content and other services through TVs connected to the internet as part of Mr Chen’s vision of turning Shanda into “China’s Disney”.

But Shanda has yet to win a licence to offer internet TV and the EZ Station will face potent competition from similar products developed by China’s telecoms operators and the powerful Shanghai Media Group.

With the EZ Station’s formal launch delayed, Shanda this month released instead the smaller EZ Pod, which makes it possible to access games, video and other services through an ordinary PC using a TV-style remote control.

Shanda says more than 150,000 EZ Pods have been pre-ordered at a suggested price of Rmb458 ($56.70), making the product a new source of revenue.

However, the EZ Pod may struggle to retain subscribers since it charges for a far narrower range of content than is freely available on the web and is vulnerable to slow broadband connections that render its video broadcasts unwatchable.

Shanda hopes to prevail by forging alliances with partners such as Intel, the US chipmaker, and by making its products easy and reliable.

Asked why users would pay extra to use services through the EZ Pod, Mr Chen reaches for a domestic metaphor. “If you can wash your clothes by hand, why would you want a washing machine?” he says. “Everybody hopes for a unified gateway through which to enjoy the delights of the internet society.”

Even Mr Chen admits that gambits such as free gaming carry some risks, but he makes clear there is no chance he will bow to Wall Street wisdom.

“If everybody agreed with what we were doing and did the same things as us, where in the world could we make any money?” he says. “You have to be ready to go out and take risks if you want to win profits.”

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