December 08, 2010

CCTV Exposes Shanda's Porn Novel Business

Translation: 盛大文学靠黄色小说牟利 遭央视曝光 from QQ.com

Yesterday, CCTV's consumer news show Consumer Advocate gave full coverage on Shanda Literature's (盛大文学) porn novel business, pointing to several literature websites under the Shanda brand as sources of internet porn. It revealed the deeply negative influence Shanda Literature has on morality and online culture. It further called upon Chinese internet regulatory departments to exert more control over internet publishing and to purify the online environment. Shanda began as a highly lucrative game operator for the Korean MMORPG game The Legend of Mir 2 and occupied news headlines when its CEO Chen Tianqiao (陈天桥) became the richest man in China mainland. CCTV's accusations, which were broadcast amidst the government's nation-wide special mission to halt dissemination of pornography via web and mobile channels, placed Shanda once again in the spotlight.



According to CCTV, the reporter found extensive pornographic, vulgar contents in novels published by Shanda Literature. Murder Under the Incest (Qidian.com), Top Laughing, Bottom Screaming1, Let's Roll, Wifey (jjwxc.net), Vixen Lover of a Fickle CEO (hongxiu.com), Professional Escort, She Comes from the Brothel (rongshuxia.com), Having a Baby with His Homosexual Royal Highness (readnovel.com), and She Beds Three or Four Men (Rongshuxia.com)...many book titles in these Shanda websites are unsightly, and the writings are filled with more explicit sexual descriptions. To attract viewers, authors create sensational chapter titles such as "Caution: Concentrated Sexual Content," "Purely Flesh," "Two Men Giving Birth," "Conditioning," "Time Travel," "Girl Becomes Boy," "Multiple Party Relationships," "Sadism Masochism," and "Milk Production."

Shanda Literature mostly showcases paid-to-read content. Take Qidian as an example. Since the customers read 5 billion characters per day, and the website charges 2 cents RMB for every 1000 characters in these "VIP" novels, Qidian can make more than 10,000 yuan daily. Shanda has other plans to generate revenue, including translating MMORPG games into novels and vice versa, i. e. producing novel-related games, published materials, or videos. Shanda Literature has become the source for pornographic, violent, and vulgar internet novels, creating a giant money-making chain.

Shanda reaps huge profits by packaging porn books and selling them as "internet literature." Shanda has captured 90% of the online publishing business through various buyouts.in the past few years. According to Shanda's financial statements, 3Q revenue from its online game segment declined by about 14%, while its publishing business grew 136% with revenue reaching 300 million yuan. Literature is becoming the new support for Shanda's continued growth.



Why is a prestigious company like Shanda willing to sell porn novels and damage its reputation in the process of doing so?

Analyst Yang Qun who monitors the internet industry explained: "This is closely tied to the performance decline of Shanda's core gaming segment." Based on Shanda's November 30 earnings release for its third quarter, net profit from both Shanda Interactive and Shanda Games decreased. Operating profit dropped to 155 million yuan, and net profit was 99.3 million yuan. Compare to the previous month, net profit declined 41%. Year-on-year decline was 77%. Shanda Games reported a total revenue of 10.96 billion yuan, which signified a 14% year-over-year decline. It drew in 289 million yuan in net profit, representing a drop of 21% compared to the same time last year or a drop of 3.8% compared to the previous month.


Currently, Shanda's internet business can be divided into 3 segments: Shanda Games, Shanda Online, and others. The weakening of the gaming segment, which comprises Shanda's traditional core business, is directly reflected in Shanda's performance. Moreover, Shanda Online also experienced a 10% year-over-year slide in revenue, and its current assets fell 48.98%. Nevertheless, Shanda still have about 5.368 billion yuan in cash and cash equivalents.

This year, Netease surpassed Shanda to become the number two largest online game operator. In contrast, Shanda has not released any new products for some time. This void, combined with a overall gaming industry downturn, has caused Shanda to fall farther behind Netease.


In one of its latest investment reports, Goldman Sachs gave Shanda Games a "Neutral" rating and lowered stock target price 10.5% to only 6 USD. Morgan Stanley advised caution in buying the stock, as Shanda's new businesses have not fully developed. RBS outright downgraded Shanda Interactive from "Hold" to "Sell" and lowered the price target from 39 to 34 USD. Even Auriga USA, who had always been bullish on Shanda, lowered the target price by 10 USD, citing the "surprising" drop in profits as reason.



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While Shanda undeniably publishes dubious contents, I think CCTV aired its criticisms more because internet publishing in China is barely regulated (relatively speaking). Unlike traditional publishing, where a manuscript must go through numerous checkpoints before it is printed and sold to customers, anybody with a computer and internet connection can publish on-line. Such "books" are only reviewed by unprofessional editors after the fact, if they are reviewed at all. Also, I believe these marginalized stories are implicitly encouraged because they attract readership.

To comprehend the effect of the title of this news article, imagine an hypothetical headline: "Google/Yahoo/Blizzard Dives into Porn-Making as Its Core Businesses Decline"

1 comment:

  1. But as you point out, the revenue from porn is less than 1% of Shanda's total. And either porn is illegal or it is not, but "morality" is really up to the consumer, no? China has a huge prostitution industry compared to any other country, it's strange they are comparatively so uptight about internet porn which is rife all around the world.

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