The China Angle: 'Holiday Diets'

The latest edition of Gamasutra's regular 'The China Angle' column has Pacific Epoch analyst Shang Koo looking at Chinese game company Netease easing back on its internet business, with major rival Shanda possibly to follow, as it also makes a bizarre dairy-related move. Netease Slims Down For The Holidays "China's largest online game company by market cap Netease is slimming down before the holidays. According to several local media reports, Netease is shutting down several parts of its Internet portal business and cutting down its wireless value added service department. At one time, Netease was primarily known for its Internet portal, but the US dot-com bust hit all Chinese portals hard, forcing all of them to restructure and look for revenues outside of advertising. Netease found its cash cow in online games, and now depends on the game business for more than 80 percent of its revenues. The portal business was neglected, and in the cases of its job search and English learning channels, was outsourced to partners. According to sources, Netease plans to shut down its game information, travel, health, education, and culture channels on its portal. The company also plans to lay-off nearly two thirds of the 150 employees in its wireless value added services department. Netease will continue to operate its SMS, multimedia message (MMS), color ring back tones (CRBT) and mobile music businesses for another three or four months with the remaining WVAS department employees. Netease's mobile game business will be combined into Netease's game department. The new focus in online games comes as a surprise, as Netease' COO Michael Tong recently shifted his focus from the company's online game business to corporate brand building and content building for the web sites. However, Tong may have simply found the other businesses too cumbersome to save. The advertising business has lower margins compared to online games, and the wireless business is too commoditized to operate without unique proprietary content. The downsized wireless business may be restructured to support Netease' game business. Netease will soon launch a mobile instant messaging system for its MMORPG Westward Journey II. The system allows players to message other Westward Journey II players, in-game for those logged in, and on their mobile handsets for those not playing. Netease will not charge any extra fees for this service, but GPRS data fees from the telecom operators will still apply. Shanda Following? Netease rival Shanda may follow Netease in slimming down to its core business - online game operation. According to rumors, Shanda will sell its e-sports platform China Games Alliance (CGA, www.cga.com.cn; also known as Holdfast), mobile game subsidiary Digital Red, and the 29 percent share in Korean online game developer Actoz to Sun Media Investment Holdings. Shanda spent US$91.7 million to purchase a 29 percent stake in Actoz in November 2005, mainly to gain control of its MMORPG Legend of Mir 2, which it licensed from Actoz. Got Milk? While Shanda may be focusing on its core business, Shanda president Tang Jun is expanding his career horizons. Tang Jun recently became a spokesperson for domestic dairy manufacturer Inner Mongolia Yili Industry Group Company Limited. Tang Jun will attend Yili's promotional activities, and will promote Yili's luxury milk products, which cost twice as much as normal." [Shang Koo is an editor at Shanghai-based Pacific Epoch, and oversees research and daily news content on China's new media industries, with a concentration in online games. Pacific Epoch itself provides investment and trade news and publishes a number of subscription products regarding the Chinese technology market. Readers wanting to contact him can e-mail [email protected].]