Mobile Contract Changes Spur Internet Change
Changes in mobile contracts with Internet companies have
spurred change in the leading Internet companies in China.
The new revenue generating opportunities in China have
been led by online gaming, putting pressure on companies
which had relied on SMS revenue.
China's three leading portals, Sina, Sohu and Netease,
benefited from revenue sharing contracts with the carriers
led by China Mobile. In some instances, the revenue share
was as high as 85% for the Internet portals. In late 2002
and 2003, these revenues drove up the share prices of
the three companies, which are all listed on Nasdaq from
lows of less than US$1 to highs of more than US$60. Under
the original partnership contracts, fees for SMS messaging
were collected from the subscribers in their monthly bill
by the carrier, then passed on to the portals.
Lately, these companies have come under pressure as they
have been accused of spamming messages to mobile phones.
As SMS and MMS have become much more common in China,
users have complained to the carriers about extra charges
to their monthly phone bills. As a result, all Chinese
carriers have set up phone services so that subscribers
can call in and have unsolicited messages immediately
blocked at the carrier level.
On top of this, the carriers, in an effort to improve
their top line, have re-negotiated the revenue split with
their content providers, leaving a smaller share for them.
The changes have hit the earnings of all three companies
hard, and they have all issued warnings, which has sent
their prices down.
Now, online gaming is popular because it doesn't rely
on partnership deals with the carriers; money is collected
directly from the game players on an hourly basis.
The leader in this field is Shanda Interactive Entertainment
(Nasdaq: SNDA), which went public in May. Its share price
has steadily gone up, and the company has been on an acqusition
strategy of other online gaming companies since its Nasdaq
debut.
In order to diversify earnings, the three online portals
have sought to diversify their revenues.
It's too early to speculate how successful they will
be in their efforts.
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