Nov 15 2006
In order to reach the world’s biggest online gaming market, Chinese players Shanda Interactive Entertainment (NASDAQ : SNDA) and Netease (NASDAQ : NTES) are battling it out over fee-based and free systems.
Tiangiao Chen, chairman of Shanda and William Ding, CEO of Netease.com are both self-made Chinese billionaires and run Nasdaq-listed companies in the world’s fastest-growing Internet market. Both are also locked in a real-world Mortal Kombat for supremacy of China’s rapidly expanding online gaming space.
At Internet cafés in Shanghai and Beijing it’s not uncommon to find Chinese twentysomethings spending hours on online fantasy and combat games such as The Legend of Mir II or World of Warcraft.
The online, interactive game craze in China continues to astound analysts. The market for fantasy and adventure “massively multiplayer online role-playing games” (MMORPGs) shot up 54% to $460 million in 2005, and research firm IDC predicts China will overtake South Korea as the biggest Asian market for this type of Net entertainment by next year.
This could be a $2.1 billion market in China by the end of the decade if current growth rates hold up. In recent years, imported games from Japan and South Korea, home to big game-designer communities, tended to be most popular in China. But that is starting to change. Online companies such as Shanda Interactive Entertainment and NetEase.com have developed popular and competitive games of their own.
This could be a $2.1 billion market in China by the end of the decade if current growth rates hold up. In recent years, imported games from Japan and South Korea, home to big game-designer communities, tended to be most popular in China. But that is starting to change. Online companies such as Shanda Interactive Entertainment and NetEase.com have developed popular and competitive games of their own. There is a huge debate among companies in this arena about whether to stick to a subscription fee model or go with a free-to-play one to build up a huge online consumer base. The lost revenues would be more than made up by sale of virtual goods (such as ammo for avatars, and so on).
Shares of both Shanda and Netease, once darlings among U.S. investors hungry for China Internet plays, have fallen on hard times. Shanda shares have slid about 26%, to $16.48, from its recent 52-week high back in November, 2005. Meanwhile, Netease shares are off nearly 40% since the end of March, to $15.25.
Shanda’s shift away from a primarily subscription fee-based model has been fitful but Chen firmly said, “We believe this new model has now justified itself as an effective way to most efficiently discover and satisfy user demands, extend the life cycle of our games, and build a sustainable community experience from our interactive entertainment offerings”.
Companies “are switching to a model with revenues generated by the sale of virtual items,” says Jun-Fwu Chin, a senior analyst and online gaming specialist with IDC Malaysia.
It’s too early to say which company has the smarter strategy in place. But count on plenty of World of Warcraft moments from the Shanda and Netease rivalry in the months ahead.
Related Resources :
China’s Online Gaming Craze
China’s Online Gaming Craze
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November 15th, 2006 by financetwitter
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