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Chen Tianqiao, ranked as China's third-richest man, plans to respond to falling online gaming sales by making Shanda Interactive Entertainment Ltd a broader media company modeled on Walt Disney Co.

 

"Diversifying earnings will make us more stable," the 32-year-old said. "Disney has real estate, we have virtual land."

 

Shanda, China's biggest online games operator, plans to derive 50 percent of earnings from music and movie businesses within five years, from less than 20 percent now, Chen said. Shanda in December introduced a home-entertainment system that lets users watch movies on personal computers or play games and shop online on televisions.

 

NASDAQ-listed Shanda's shares have fallen 69 percent from their peak as customers moved to rival game providers such as The9 Ltd. The challenge for Chen, who founded Shanda six years ago, is to persuade the nation's 111 million Internet users, the world's second-biggest market, to buy films and music online and to convert a wider TV audience to interactive entertainment.

 

"They had to diversify their business because it has become much more difficult to make money from online gaming," said Duncan Clark, managing director of BDA China Ltd, a Beijing-based technology consultancy. "Disney will be China's Disney. Shanda is basically a family business. They do not have a mature management system in place."

 

Shanda's American depositary shares fell 19 percent to US$13.72 in extended trading on Monday after the company posted a net loss of US$66.8 million compared with net income of US$28 million a year earlier. Shanda took a US$64.6 million writedown on its stake in South Korea's Actoz Soft Co. Sales fell 16 percent to US$44.7 million as the company started offering two of its eight role-playing games for free to win users.

 

Sales and marketing expenses almost tripled to 92 million yuan on promotions for the home entertainment platform. Shanda sold 83,700 remote controls that allow users to operate a computer like a TV in the fourth quarter, generating US$2.8 million. The company and partner Intel Corp, the world's biggest chipmaker, have said they expect to sell 500,000 of the devices in a year.

 

"We are undergoing a key transition," Chen said on Monday on a conference call with analysts and investors. Shanda's vision is to be "China's leading interactive media entertainment company."

 

Chen, an economics graduate from Shanghai's Fudan University, set up Shanda with friends as an online animation business in December 1999. After piracy undermined earnings, he gambled the company's last US$300,000 buying distribution rights to the South Korean role-playing fantasy game "The Legend of Mir II."

 

Shanda turned profitable in two months as online game-playing in Internet cafes became a craze among China's teenagers. The company raised US$152 million in a NASDAQ initial public offering in May 2004 and its stock jumped fourfold to become the market's best performer that year. Today, Shanda employs 2,500 people.

 

China had 26.3 million online game players last year, who pay an average 30 yuan (US$3.73) to 50 yuan a month, according to a report last month by the State Press and Publication Administration, Copyright Society of China and International Data Corp. JPMorgan Chase & Co forecasts the market will be worth US$1.4 billion in 2009.

 

(China Daily March 1, 2006)