Winners and losers in China games market

Chinese online games firm Shanda Entertainment has reported a second quarter of weak revenues and falling profits following a dramatic shift in strategy last year. 

The company is betting its future on a new content delivery platform, the EZ series, but has only managed to attract 50,000 registered customers, despite claiming pre-orders of over 800,000. 

Shanda's first-quarter net profit plummeted to $1.47m from $27.5m in the first quarter of 2005. Total net revenues slumped 31.3 per cent year on year to $42.6m, a fall of 5.3 per cent compared to the previous quarter.

Meanwhile, competitor Netease saw net profits double in the first quarter compared to the same period last year to reach $36.5m. About 80 per cent of the portal operator's revenue comes from online games. 

The divergent first-quarter results of the two gaming companies came as no surprise to analysts and stock pundits, who have become increasingly anxious about the slow progress of Shanda's ambitious hardware platform strategy despite assurances from executives.

Shanda's fortunes have long been tied to its hit multiplayer online game series, Legend of Mir.

But as the game aged and began to lose market share to newer rivals like World of Warcraft, Shanda switched from a subscription-based service to a free-to-play business model late last year.  

While this strategy has helped Shanda attract new players, observers have blamed it for the firm's plunging profits.

"Total average concurrent users for all Shanda's games in commercial service increased to 1.35 million in the first quarter of 2006 from 1.3 million in the fourth quarter of 2005," the company announced in a statement.

"Average concurrent users for Shanda's massively multiplayer online games increased to 706,000 in the first quarter of 2006 from 548,000 in the fourth quarter of 2005."