Q4 profits down for Shanda Entertainment

MMORPG publisher confident in revised business model

Chinese publisher and developer Shanda Entertainment has announced the financial results for its fourth quarter and full fiscal year 2005, revealing higher revenues but a significant loss in profits compared to the previous year.

Fourth quarter net revenue was posted at RMB 360.5 million (EURO 37.5 million), a decrease of 16.3 per cent on the same quarter in 2004. The company reports a loss of RMB 538.9 million (EURO 56 million) compared to a profit of RMB 231.4 million (EURO 24 million) a year prior.

Shanda changed its business model during the quarter, creating a free-to-play service for the popular MMO titles Legend of Mir II, Magic Land and The World of Legend and opting for a revenue stream generated by the sale of in-game items and premium features for the games.

The model has since been adopted by a number of MMO publishers, including Sony Online Entertainment, the idea being that a free-to-play system will encourage more gamers to join the games, the increased pool of online players generating profit for the publishers through the purchase of premium items and in-game features.

Full year net revenue for Shanda was posted at RMB 1.89 billion (EURO 196.6 million), which is an increase of 46 per cent on last year's figures. Profit was down 72.9 per cent on the previous year however, posted at RMB 165.3 million (EURO 17.2 million).

According to the company’s financial statement, profit for the year would have been RMB 686.8 million (EURO 71.4 million) but for an impairment charge of RMB 521.5 million (EURO 54.2 million) over the company's 38 per cent share in Korean online game company Actos.

Tianqiao Chen, Shanda's CEO, commented: "We have taken a number of key steps in our strategy to both build our content portfolio and extend our presence into the emerging digital home in China. Our recent results reflect elements of this transition, particularly the migration of our major MMORPG titles to a free-to-play model, the expansion of our slate of casual games, and investments in sales and marketing and product development related to both content and new products."