Sharper Image (SHRP) Shanda Interactive is a diversified online-gaming operating 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, as well as casual games such as Maple Story and online chess that require less user-time to play and are typically less sophisticated. 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.
MMORPGs make up Shanda’s largest reporting segment, with _% of revenues in FY 2007. However, these sales are largely earned from two MMORPG titles, Woool and Mir 2, which were released in 2001 and 2003, respectively(CITE). 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).
In 2007, Shanda was the #1 market player in the Chinese Online-gaming market by revenues, 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, where gamers pay for premium content. This move was largely made due to the end-of-life of their main titles. This move initially dented revenue growth and margins in 2006, (numbers) but the margin structure has improved in 2007 as the new-business structure matured and gamers ecame comfortable with it. It remains to be seen how the end-of-life and new structure, as well as the development of new businesses, will play out in Shanda’s future, but the markets expectations China’s #1 player are very high
The company generates revenue in three primary reporting segments.
Fore more information about the split between licensed/unlicensed, see the 20-F
Margin structure changes due to business model
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: