Giant Interactive, which aims to raise up to US$800 million in an initial public offering on the New York Stock Exchange, has surpassed Shanghai-based The9 to become the third-largest online game company on the mainland.
23 October 2007
Published by South China Morning Post
Giant’s first-half revenue surged to 687 million yuan, more than eight times its 82 million yuan in sales a year earlier. Profit in the first six months jumped more than 11 times to 512 million yuan.
The company’s turnover gain took it past The9’s first-half sales of 540 million yuan. Both trail Shanda Interactive Entertainment, which had revenue of 1.1 billion yuan and NetEase.com with 1.07 billion yuan.
Giant, founded by legendary entrepreneur Shi Yuzhu, is selling 20 per cent of its equity or 57 million shares at an indicated range of US$12 to US$14. Standard Chartered Private Equity has committed to invest US$25 million in Giant at the IPO price.
Mr Shi, who graduated from Zhejiang University in 1984 with a bachelor degree in mathematics, first made his fortune producing Chinese software in the late 1980s and early ’90s. His company almost collapsed in 1997 under mounting debt when he tried to erect the mainland’s tallest building in Zhuhai.
He made a comeback three years later by selling health-booster drinks for the elderly under the Nau-bai-jin or brain platinum brand. A television advertising campaign and blanket sales force that reached every corner of the country worked wonders and soon Mr Shi was back on the country’s rich list.
He started developing online games in 2004 with former Shanda designers. Their ZT Online game, also known as Zhengtu, was commercially launched in January 2006 and by year-end it was ranked the country’s most popular, according to a report by researcher IDC. “The game is not exceptional in terms of technology - it’s a 2D game, not as fancy as the 3D World of Warcraft. However, it just grabbed people’s interest, with its game play and marketing effort,” an industry analyst said.
As he did with his health drinks, Mr Zhi organised a sales force to blanket every city in the country, reaching even fifth- and sixth-tier urban centres, the analyst said.
The game is easy to play and free, with income derived from the sale of weaponry. “If you don’t buy weapons to equip yourself, you will soon be killed by other players. So, instead of free-to-play, I would call it ‘free-to-be-prey’,” said Frank Yu, who works as a producer of casual games at Microsoft’s Beijing research and development centre.
The game also has many innovations aimed at raising income from the gamers. One of ZT Online’s new ideas is to sell insurance policies to the players, so that even if they are killed, they will not be robbed of their weapons and equipment by other players, said Mr Yu.
As a result, the supposedly free-to-play game had 1.2 million people paying an average 98 yuan a month in the second quarter. The average that Shanda took from its paying customers was 58 yuan a month in the same period. ZT Online had an average of 515,000 concurrent users and 1.07 peak concurrent users in the second quarter.
Since August, Giant has released a pay-to-play version of its game, ZT Online PTP, which is also becoming popular. “About 30 per cent of users play the new PTP version and 70 per cent the original free-to-play one,” said the industry analyst. The company’s new 2.5D game, Giant Online, is also likely to be a hit. “It ranks pretty high in our recent research,” said the analyst.
Even so, the volatile nature of game players’ tastes makes success in this industry difficult to predict. NetEase, after two blockbusters - Westward Journey 2 and Fantasy Westward Journey - has failed to come up with another hit for more than two years.
“We may not sustain our recent growth rate or profitability,” Giant said in its IPO prospectus.
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