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Shanda Interactive Entertainment (SNDA) |
| Revision as of 15:45, May 22, 2008 (edit) Ajhsieh - Sr. Director (Talk | contribs) (→Competition) ← Previous diff |
Current revision (15:39, June 22, 2010) (edit) (undo) ANielsen - Sr. Director (Talk | contribs) |
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| - | [[image: SNDA.gif |left]] '''Shanda Interactive''' is a diversified online [[Video Game Industry|video-gaming]] operation catering to Mainland [[China]] . It operates both popular and sophisticated MMORPGs (massive multiplayer online role play games) such as the titles ''Archlord'', ''Woool'' and ''Mir 2''<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Risk Factors" pg. 4]</ref>, as well as casual games such as ''Maple Story'' and online chess that require less user-time to play and are typically less sophisticated<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Operating Results" pg. 45]</ref>. These games typically appeal to different markets and the diversification allows for maximum revenue generation. Shanda is also involved in associated business, licensing software to manage internet cafes in China, as well as promoting its new “EZ” platform, a home-entertainment set-top box that delivers entertainment content to to end users without a required subscription.<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Risk Factors" pg. 6-7]</ref> | + | {{hide_logo|path=[[image: SNDA.gif |left]]}}'''Shanda Interactive''' is an online [[Video Game Industry|video-gaming]] company catering to Mainland [[China]] . It sells MMORPGs ('''M'''assive '''M'''ultiplayer '''O'''nline '''R'''ole '''P'''laying '''G'''ames) such as the titles ''Archlord'', ''Woool'' and ''Mir 2''<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Risk Factors" pg. 4]</ref> which tend to sell to hardcore gamers, as well as casual games such as ''Maple Story'' and online chess that appeal to a much broader audience.<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Operating Results" pg. 45]</ref>. Shanda also licenses management software to internet cafes in China and is promoting its new “EZ” platform, a home-entertainment set-top box that delivers games and movies without a required subscription.<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Risk Factors" pg. 6-7]</ref> |
| - | MMORPGs make up Shanda’s largest reporting segment, with 82% of revenues in FY 2007.<ref>[http://sec.gov/Archives/edgar/data/1278308/000130901408000087/exhibit1.htm Shanda Interactive FY 2007 Results Press Release, February 25, 2008]</ref> However, these sales are largely earned from two MMORPG titles, ''Mir 2'' and ''Woool'', which were released in 2001 and 2003, respectively.<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Information on the Company" pg. 25]</ref> These two titles are nearing their end-of-life and as such the company has begun licensing new games from foreign companies in efforts to find a new blockbuster hit, in addition to its other operations (casual gaming, associated gaming sales, as well as the EZ initiative). | + | ==Business Overview== |
| - | In 2007, Shanda was the #1 market player in the Chinese Online-gaming market by revenues<ref>[http://seekingalpha.com/article/71533-china-s-online-games-market-grab-a-joystick-and-enjoy-the-ride SeekingAlpha "It's a Perfect World for Chinese Gaming Developers" October 3, 2007]</ref> , despite its transition to a new business model, competing against [[The9 (NCTY)]], [[Netease.com (NTES)]], and other gaming operators that monopolize the time and money of many Chinese youths. The company chose to move from a pay-to-play model based on play time, to a new free-to-play model where revenue is earned from micro-transactions made in the game for premium content.<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Business Overview" pg. 26]</ref> This move was largely made due to the end-of-life of their main titles. This move initially dented revenue and margins in 2006, lowering from ¥1,896.6MM (FY2005) to ¥1,654.5 (FY 2006), and operating margin from 33% to 23%.<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm#109 Shanda Interactive "Consolidated Statements of Operations and Comprehensive Income" pg. F-3]</ref> However the margin structure has improved in 2007, with revenues growing 50% and margins expanding to 41%.<ref>[http://sec.gov/Archives/edgar/data/1278308/000130901408000087/exhibit1.htm Shanda Interactive FY 2007 Results Press Release, February 25, 2008]</ref> as the new-business structure matured and gamers be came comfortable with the new transaction model. It remains to be seen how the title end-of-life and the development of new businesses will play out in Shanda’s future, but the markets' expectations for China’s #1 online-gaming player are very high | + | ===Business & Financial Metrics<ref name=10K-F3>{{cite 10k|ticker=SNDA|form=20-F|year=2009|link=http://www.wikinvest.com/stock/Shanda_Interactive_Entertainment_(SNDA)/Filing/20-F/2010/F62488821|pg=F-3}}</ref>=== |
| + | |||
| + | In 2009, Shanda generated a net income of $233.3 million on revenues of $767.8 million. This represents the first year the company reported its earnings in US dollars. | ||
| + | |||
| + | ===Business Segments<ref name=10K-69>{{cite 10k|ticker=SNDA|form=20-F|year=2009|link=http://www.wikinvest.com/stock/Shanda_Interactive_Entertainment_(SNDA)/Filing/20-F/2010/F62488821|pg=69}}</ref>=== | ||
| - | ==Business Description== | ||
| The company generates revenue in three primary reporting segments. | The company generates revenue in three primary reporting segments. | ||
| - | *'''MMORPG''' – The MMO RPG segment caters to “hardcore” Chinese gaming youth, with an immersive game experience that typically requires and commands a significant amount of time from Chinese youths. Due to the new free-to-play model, revenues are earned from paying subscribers who buy premium content. The Average Revenue per paying subscriber in 2006 and 2007 was ____ and ___ for ___ and ___ games, respectively. The company can earn more revenues by compelling customers to spend more time in the game, thus motivating them to consider making purchases and improving their characters in game. This improves the performance of both metrics at the same time. This business is exposed to the age of the primary two titles, and is seeking a new replacement blockbuster title. | + | *'''MMORPG (86.8% of total revenue:)''' The MMORPG segment caters to “hardcore” Chinese gaming youth, with an immersive game experience that typically requires and commands a significant amount of time from Chinese youths. "Younger" games typically have lower revenue per subscriber since users have not been in the game world that long and don't have as much reason to spend money. The company can earn more revenues by compelling customers to spend more time in the game, thus motivating them to consider making purchases and improving their characters in game. This improves the performance of both metrics at the same time. This business is exposed to the age of the primary two titles, and is seeking a new replacement blockbuster title. |
| - | *'''Casual Gaming''' – Casual games require less user-game time and typically can be played to conclusion within a shorter period of time in one session. These simpler games appeal to a larger demographic than the MMORPGs and thus diversify the company’s earnings. These games also use the free-to-play model, as well as earnings earned from internet-revenues. | + | *'''Casual Gaming (12.1% of total revenue):''' Casual games require less user-game time and typically can be played to conclusion within a shorter period of time in one session. These simpler games appeal to a larger demographic than the MMORPGs and thus diversify the company’s earnings. These games also use the free-to-play model, as well as earnings earned from internet-revenues. |
| - | *'''Other '''– the company sells software associated with running internet cafes, and also is attempting to launch its “EZ” series of home-entertainment devices. However, revenues any one of these minors business are not significant, with advertising and the internet café software each earnings about ¥80MM in 2006, and EZ earnings ¥20MM in revenues. EZ’s sales come from bundling with computer manufacturers , and sis thus dependent on Shanda’s agreement with computer manufac(CITE and CHECK NUMBERS)turers. While it has a number on board, Shanda does not have support from China’s #1 computer manufacturer, Lenovo. Such an agreement would likely dramatically imrove sales figures for this new business. | + | *'''Other (1.1% of total revenue):''' The company sells software associated with running internet cafes, and also is attempting to launch its “EZ” series of home-entertainment devices. However, revenues any one of these minors business are not significant. EZ’s sales come from bundling with computer manufacturers, and is thus dependent on Shanda’s agreements with computer manufacturers. While it has a number on board<ref>[http://sec.gov/Archives/edgar/data/1278308/000114554907001122/h01302e20vf.htm Shanda Interactive FY 2007 20-F "Our EZ Initiative" pg. 33]</ref>, Shanda does not have support from China’s #1 computer manufacturer, Lenovo. Such a type of agreement would likely dramatically improve sales figures for this new business. |
| + | [[IMAGE:SNDA-Segments2009.jpg]] | ||
| - | Fore more information about the split between licensed/unlicensed, see the 20-F | ||
| - | |||
| - | ==Financial Analysis== | ||
| - | Margin structure changes due to business model | ||
| ==Trends/Forces== | ==Trends/Forces== | ||
| - | ====Primary two MMORPGs are games nearing end of life (2001 and 2003), and new businesses largely licensed from foreigners and unproven==== | + | ====Primary two MMORPGs are games nearing end of life, and new businesses are largely licensed from foreigners and unproven==== |
| - | ====Business model transition to free-to-play appears to be generating more revenues, but further exposes company to individual games' popularities==== | + | |
| - | ====Government intervention on online-gaming and [[China's Internet Growth|internet]] a risk to revenue growth ==== | + | |
| - | ====EZ-Play new business big potential for revenue growth==== | + | |
| - | ====Shanda exposed to currency fluctuations as it has overvalued operations earned in RMB for a USD denominated shares==== | + | |
| + | ''Woool'' and ''Mir 2'' are both very old titles, running on older graphics and slowly losing parts of their user base. Gamers are turning to other alternatives, such as ''World of Warcraft'', operated in [[China]] by [[The9 (NCTY)]], that use more sophisticated 3-D graphics running on newer computers in Chinese internet cafes. It is necessary, but difficult, for the company to find a new "hit" title, and this will be dependent on a number of soft factors that accumulate into end-user appeal. | ||
| + | |||
| + | ====Business model transition to free-to-play appears to be generating more revenues, but further exposes company to individual games' popularity==== | ||
| + | The free-to-play model works in the case of ''Woool'' and ''Mir 2'' because they were old games with large user bases. Since gamers had already spent a large amount of time in the game, they were "invested" in their characters and thus more willing to pay for premium content. The free-to-play model requires these "hard-core" users in order to pay for the operation of servers and to subsidize for the users who are not willing to put additional money into their characters. Acquiring these paying subscribers is dependent on each individual game's popularity, as gamers are less likely to invest in an online-gaming character without other people to socialize with and compete against online. Therefore an unpopular game will not ever recoup its initial capital outlays in the free-to-play model. | ||
| ==Competition== | ==Competition== | ||
| - | Primary competitors are Chinese operators of online-games. Although there is some competition from Foreigners, they are limited by Chinese law from achieving market penetration, since any Mainland Chinese venture has to be more than 50% Chinese owned/operated. Therefore, Shanda’s primary competitors are: | + | Primary competitors are Chinese operators of online-games. Although there is some competition from foreign companies, they are limited by Chinese law from achieving market penetration, since any Mainland Chinese venture has to be more than 50% Chinese owned/operated. Therefore, Shanda’s primary competitors are: |
| - | + | ||
| - | *'''[[Perfect World (PWRD)]] | + | |
| - | *'''[[Netease.com (NTES)]] | + | |
| - | *'''[[The9 (NCTY)]] | + | |
| - | + | ||
| - | ===Market Share=== | + | |
| - | In 2007, the Chinese MMO market size was estimated at $1.66 BN.<ref>[http://seekingalpha.com/article/71533-china-s-online-games-market-grab-a-joystick-and-enjoy-the-ride SeekingAlpha "It's a Perfect World for Chinese Gaming Developers" October 3, 2007]</ref> The major players in this market were Shanda, Netease, Giant Interact, The9, and Perfect World. Shanda's Market share was approximately '''20%''' by revenue generation. | + | |
| - | + | ||
| - | {| {{table}} | + | |
| - | | align="center" style="background:#f0f0f0;"|'''China MMO Revenue Share ($MM)''' | + | |
| - | | align="center" style="background:#f0f0f0;"|'''2007''' | + | |
| - | |- | + | |
| - | | '''Shanda''' ||338 | + | |
| - | |- | + | |
| - | | Perfect World||94.5 | + | |
| - | |- | + | |
| - | | Netease||265 | + | |
| - | |- | + | |
| - | | Giant Interactive||209 | + | |
| - | |- | + | |
| - | | The 9||175 | + | |
| - | |- | + | |
| - | | Other||578.5 | + | |
| - | |- | + | |
| - | | Total||1660 | + | |
| - | |- | + | |
| - | | | + | |
| - | |} | + | |
| - | + | ||
| - | [[image:ChinaMMOmshare.png|center]] | + | *'''[[Perfect World (PWRD)]]''' - Another developer and operator of online games in Mainland China, using its own technologies. Its main product is self-titled Perfect World. |
| + | *'''[[Netease.com (NTES)]]''' - the second largest company. However, concerns in 2008 surrounding the company indicate that its development pipeline is weak. | ||
| + | *'''[[The9 (NCTY)]]''' - The9 operates ''World of Warcraft'' in China on behalf of [[Vivendi (EPA: VIV)|Vivendi Games]]. ''World of Warcraft'' is the world's most single popular MMORPG title.<ref>[http://gigaom.com/2007/06/10/is-wow-the-most-popular-mmo/ GigaOm "Is WoW the Most Popular MMO" June 10, 2007]</ref> | ||
| ==References== | ==References== | ||
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| [[category:China]] | [[category:China]] | ||
| [[category:Video Games]] | [[category:Video Games]] | ||
| + | [[Category:Mature]] | ||
Current revision
Shanda Interactive is an online video-gaming company catering to Mainland China . It sells MMORPGs (Massive Multiplayer Online Role Playing Games) such as the titles Archlord, Woool and Mir 2[1] which tend to sell to hardcore gamers, as well as casual games such as Maple Story and online chess that appeal to a much broader audience.[2]. Shanda also licenses management software to internet cafes in China and is promoting its new “EZ” platform, a home-entertainment set-top box that delivers games and movies without a required subscription.[3]
Business Overview
Business & Financial Metrics[4]
In 2009, Shanda generated a net income of $233.3 million on revenues of $767.8 million. This represents the first year the company reported its earnings in US dollars.
Business Segments[5]
The company generates revenue in three primary reporting segments.
- MMORPG (86.8% of total revenue:) The MMORPG segment caters to “hardcore” Chinese gaming youth, with an immersive game experience that typically requires and commands a significant amount of time from Chinese youths. "Younger" games typically have lower revenue per subscriber since users have not been in the game world that long and don't have as much reason to spend money. The company can earn more revenues by compelling customers to spend more time in the game, thus motivating them to consider making purchases and improving their characters in game. This improves the performance of both metrics at the same time. This business is exposed to the age of the primary two titles, and is seeking a new replacement blockbuster title.
- Casual Gaming (12.1% of total revenue): Casual games require less user-game time and typically can be played to conclusion within a shorter period of time in one session. These simpler games appeal to a larger demographic than the MMORPGs and thus diversify the company’s earnings. These games also use the free-to-play model, as well as earnings earned from internet-revenues.
- Other (1.1% of total revenue): The company sells software associated with running internet cafes, and also is attempting to launch its “EZ” series of home-entertainment devices. However, revenues any one of these minors business are not significant. EZ’s sales come from bundling with computer manufacturers, and is thus dependent on Shanda’s agreements with computer manufacturers. While it has a number on board[6], Shanda does not have support from China’s #1 computer manufacturer, Lenovo. Such a type of agreement would likely dramatically improve sales figures for this new business.
Trends/Forces
Primary two MMORPGs are games nearing end of life, and new businesses are largely licensed from foreigners and unproven
Woool and Mir 2 are both very old titles, running on older graphics and slowly losing parts of their user base. Gamers are turning to other alternatives, such as World of Warcraft, operated in China by The9 (NCTY), that use more sophisticated 3-D graphics running on newer computers in Chinese internet cafes. It is necessary, but difficult, for the company to find a new "hit" title, and this will be dependent on a number of soft factors that accumulate into end-user appeal.
Business model transition to free-to-play appears to be generating more revenues, but further exposes company to individual games' popularity
The free-to-play model works in the case of Woool and Mir 2 because they were old games with large user bases. Since gamers had already spent a large amount of time in the game, they were "invested" in their characters and thus more willing to pay for premium content. The free-to-play model requires these "hard-core" users in order to pay for the operation of servers and to subsidize for the users who are not willing to put additional money into their characters. Acquiring these paying subscribers is dependent on each individual game's popularity, as gamers are less likely to invest in an online-gaming character without other people to socialize with and compete against online. Therefore an unpopular game will not ever recoup its initial capital outlays in the free-to-play model.
Competition
Primary competitors are Chinese operators of online-games. Although there is some competition from foreign companies, they are limited by Chinese law from achieving market penetration, since any Mainland Chinese venture has to be more than 50% Chinese owned/operated. Therefore, Shanda’s primary competitors are:
- Perfect World (PWRD) - Another developer and operator of online games in Mainland China, using its own technologies. Its main product is self-titled Perfect World.
- Netease.com (NTES) - the second largest company. However, concerns in 2008 surrounding the company indicate that its development pipeline is weak.
- The9 (NCTY) - The9 operates World of Warcraft in China on behalf of Vivendi Games. World of Warcraft is the world's most single popular MMORPG title.[7]
References
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