Net profit at Shanda Interactive Entertainment dropped 58.3 percent year on year in the fourth quarter due to a lack of blockbuster game titles and slower industry growth, the company said Wednesday.

In the fourth quarter, Shanda's net profit was 176 million yuan (US$26.7 million), compared with 422 million yuan a year ago.

Revenue increased 2 percent in the three-month period year on year to 1.54 billion yuan.

Shanda has started to diversify its business and has increased investment in mobile games based on Google's Android system, according to both Nasdaq-listed firms.

In the Chinese game market, Shanda lacks blockbuster titles such as NetEase's World of WarCraft.

Shanda is ranked No. 3 in the domestic market behind Tencent and NetEase, according to iResearch Inc, a Shanghai-based Internet consulting firm.

The game industry grew about 30 percent in 2010, compared with more than 50 percent annually in past years, industry insiders said.

E-commerce replaced online games as the most popular sector for investment in the Chinese Internet market last year as the business to consumer sector boomed, according to Zero2IPO, a Beijing-based research firm.

In 2010, B2C investment increased US$714 million, compared to US$137 million for online games, according to Zero2IPO.

Shanda is in the midst of transforming its business model as a sole game operator to an online entertainment services provider, Chen Tianqiao, Shanda's founder and chairman, said in a statement yesterday.

Shanda has established a special fund for game development for mobile devices using Google's Android system, the company said.