MMORPGs make up Shanda’s largest reporting segment, with 82% of revenues in FY 2007. However, these sales are largely earned from two MMORPG titles, Mir 2 and Woool, which were released in 2001 and 2003, respectively. 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 for premium content. 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%. However the margin structure has improved in 2007, with revenues growing 50% and margins expanding to 41%. 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
The company generates revenue in three primary reporting segments.
|Revenue Share||FY 2005||FY 2006||FY 2007|
|Casual Gaming Contribution||21%||18%||13%|
Fore more information about the companies gaming titles, see the 20-F
For the overall business, the effects of the business model change can clearly be seen below.
|¥MM||FY 2005||FY 2006||FY 2007|
Revenue's decreased due to the new business mode change to free-to-play, and margin's decrease partially because gamers weren't prepared to pay for new content in the new game worlds. However, in FY2007 both revenue and margins increase dramatically, as gamers responded favorably to the new 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:
In 2007, the Chinese MMO market size was estimated at $1.66 BN. The major players in this market were Shanda, Netease, Giant Interact, The9, and Perfect World. Shanda's Market share was approximately 20% by revenue generation.
|China MMO Revenue Share ($MM)||2007|