NetEase.com Inc, one of China's biggest online game providers,
yesterday announced it posted 15 percent growth in the fourth
quarter as profit surpassed expectations.
The company operates the popular Westward Online Journey II
game.
Beijing-based NetEase posted net profit of 320.2 million yuan
for the three months ending on December 31, compared with 314.8
million yuan in the previous quarter, and 276.7 million yuan a year
earlier, a net profit of 30 cents per American Depositary Share,
beating previous estimates of 25 cents per share made by Reuters
Estimates.
Although profit was up in the quarter, NetEase's revenue
decreased slightly compared with the previous quarter as students
took summer vacations.
Daniel Vlad, an analyst from Casual Analyst, earlier predicted
that Fantasy Westward Journey's average concurrent users (ACU) in
the fourth quarter would decrease by 8 percent to 430,000, from
468,000 in the previous quarter, while the ACU of Westward Online
Journey II fell around 2 percent.
The two games contributed 98 percent of NetEase's online gaming
revenue.
Liu Ning, an analyst from research house BDA China, said
NetEase's revenue decrease in the fourth quarter was mostly due to
the fading appeal of its two flagship games and the company's
subscription-based business model.
"Every game has its life cycle in which at the end it becomes
less appealing to users," said Liu, noting that it was long time
before NetEase made significant improvements to "Fantasy Westward
Journey" and "Westward Journey Online II" after they were launched
in 2003 and 2002 respectively.
NetEase plans to launch a new game, "Tian Xia II", on March 1
and to upgrade its "Westward Journey Online II" to "Westward
Journey Online III" in the second quarter of this year.
But Liu said if NetEase does not change its current
subscription-based business model, it may find itself in a
difficult position competing with rivals like Shanda, which offers
role-playing games for free and receives nearly half of its revenue
by selling virtual weapons and vehicles rather than charging
subscription fees.
"In 2007, people will see fierce competition in China's online
game market as leaders such as NetEase, Shanda and The9 all launch
new games, while small players like Tencent, Kingsoft and Perfect
World also plan to release their own ones," said Liu.
"Playing games for free is an industry trend," he said. "I don't
know whether NetEase will change its business model for its new
game, but I think they should take it into consideration very
seriously."
While all NetEase's games are currently subscription based, Liu
noted about 80 percent of games in the Chinese market were run
similarly to Shanda's model.
(China Daily February 28, 2007)