On Shanda's New Revenue Model (SNDA)

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Includes: NCTY, NTES, SNDA

Yesterday Shanda Interactive (ticker: SNDA) announced plans to adopt a free-to-play and pay-for in-game value-added services revenue model for two of its MMORPGs The Legend of Mir II and Magical Land. Under the new model gamers will play for free but also have the option to purchase certain in-game items and premium features. CEO Tianqiao Chen was quoted as saying ''after several years of operating our casual games under the similar revenue model and after extensive research into the Chinese online games market, we believe that adopting the Avatar-based revenue model for more games will benefit the company in the long run, however, it might have a negative impact on the short-term revenues of our MMORPGs.'' Investors showed their disappointment. Along with Shanda, other Chinese online game operators NetEase (ticker: NTES) and The9 (ticker: NCTY) fell during yesterday's trading on the assumption that this move will force other companies to adopt a similar model. What are the implications of Shanda's adopting this new revenue model? Goldman Sachs commented on this very issue in a recent report to clients (see here). China blogger Bill Bishop had this to say.

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