Shanda Interactive Posts Q4 Loss, Lowered Yearly Profit

Shanda Interactive, a major Chinese game publisher and developer focusing on MMORPGs, announced its fourth-quarter and full-year financial results for the fiscal year ending December 31, 2005. For the fourth quarter, the company posted net revenue of 360.5 million RMB ($44.8 million USD), a 16.3% decrease over the Q4 2004 revenue, and a loss of 538.9 million RMB ($67 million USD) compared to the Q4 2004 profit of 231.4 million RMB ($28.7 million USD). For the full year, net revenue was 1.89 billion RMB ($235.8 million USD), a 46% increase over 2004's 1.29 billion RMB ($161.5 million USD). The company posted a profit of 165.3 million RMB ($20.5 million USD), a 72.9% drop-off from 2004's profit. Sales were driven by the company's MMOs as well as the introduction of the EZ Pod, a PC set-top box. Q4 2005 was the period during which Shanda announced a change in its business model for MMORPGs, making the highly popular Legend of Mir II, as well as Magical Land and The World of Legend, free to play with no subscription fee required. Instead, the company charges players for premium features and in-game items, calculating that the greater pool of players will result in healthy profits from its virtual item business. However, the losses for the quarter are not a result of the new business model, but rather a hefty impairment charge of 521.5 million RMB ($64.6 million USD) over the company's 38% share in Korean online game company Actos. Without the charge, according to the statement, profit for the full year of 2005 would have been 686.8 million RMB ($85.1 million USD), 12.7 increase over 2004. "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," said Shanda CEO Tianqiao Chen. "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 like the EZ Pod. Early responses to the EZ Pod by PC manufacturers and our regional distributors have been encouraging, with strong pre-orders from a number of leading PC manufacturers."