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Shanda Games Ltd. (GAME)

Q3 2012 Earnings Conference Call

November 26, 2012, 08:00 pm ET


Xiangdong Zhang - CEO and Chief Producer

Richard Wei - CFO

Ellen Chiu - IR


Timothy Chan - Morgan Stanley

Dick Wei - JPMorgan

Jiong Shao - Macquarie

Andy Yeung - Oppenheimer

Thomas Chong - BOCI

Alex Yao - Deutsche Bank

Jialong Shi - CLSA



Good evening everyone. On behalf of Shanda Games I would like to welcome everyone to our 2012 Third Quarter Financial Results Conference Call. With me today are Mr. Xiangdong Zhang, our CEO and Mr. Richard Wei, our CFO.

Before we begin, I would like to remind you that management comments during the call will include forward-looking statements that are based on our current expectations, and are intended to qualify for the Safe Harbor liability for such statements established in the US Private Securities Litigation Reform Act of 1995. All statements are the statements of historical fact during the conference call are forward-looking statements, which are subject to significant risks and uncertainties.

Actual results may differ materially from those contained in the forward-looking statements. So you are please recommended to read the Safe Harbor statement and Shanda Games’ third quarter 2012 earnings release. In addition, please note for discussion purposes all numbers are translated in to US numbers based on exchange rate of 6.341 RMB per US dollar.

Now I would like to turn the call over to our CEO Mr. Xiangdong Zhang.

Xiangdong Zhang

Thank you and thank you all for joining us today. Our third quarter results were broadly in line with our guidance. We continue to work hard to improve our competitive position and focus on providing the better (inaudible) experience to our players. Our effort to create a greater content is expected to generate positive result and improve our pipeline.

Our commercial launches Age of Wushu and [Woool 2] has attracted new users, monthly active users or MAUs to 6.2% quarter-over-quarter, and will serve as the base for future revenue growth. Our ability to identify compelling opportunity and a leading franchise continue to enhance our portfolio as we develop a new generation of games for a wide range of players especially in our MMO segment which has traditionally been our area of strength.

At the same time, we have streamlined our business by consolidating supported centers to enhance product support and have incentivized our games [division] to create more appealing games. I would now like to reiterate our Triple-A credit, which continues to serve as our cornerstone for our business strategy.

The Triple-A stands for three critical elements that are comprised of All-Star, All-Region and All-Platform. Let me start with All-Star. Our All-Star strategies are focused on securing high quality game titles through in-house development, investment and acquisition by licensing and partnership. This has allowed us to create a device by game portfolio to attract new players into the virtual world.

During the third quarter, we continued to strengthen our two franchises Mir II and Woool. We still run meaningful innovations and updates as expected. The upgrade of Woool that was launched last quarter Woool 2 has successfully increased these active user numbers. We believe that Woool 2 provides the user thickness that will eventually turn these active users into playing users. And we expect to see ARPU rise as well.

We are also excited about the new version of Mir II which is an on trade to be launched during the fourth quarter. So an upgraded version of Mir II will introduce a newly created cross server functions which will allow player to play against the people who are not using the same subsystem.

To maintain the existing user base, we will begin rolling out a new game version focusing on bad user experience and improve the customer service. We believe such upgrades and expenses will have extended the life cycle of our key franchise.

The launch of Age of Wushu during the third quarter has received a positive feedback from players and has been successful in terms of both user base and the revenue contribution.

Total revenue from Age of Wushu before revenue sharing between the two partners is comparable to the revenue generated by one of our top five games. The new call of recent model not only opens new ways for us to operate the MMO games, but also greatly boost our margins.

We are also working hard on our (inaudible) games to ensure our future growth of RIFT a 3D MMORPG licensed from Trion World received government of full last quarter.

The game just began its first phase launch of closed-beta testing last month and is currently ranked among one of the top 10 most anticipated games on (inaudible), where [zero] has just to finished another round of testing and the intention of users has set (inaudible) increase as we adjust the games based on users experience.

Final Fantasy XIV 2.0 just began internal testing in Japan and depending on the feedback it’s received, we expect to begin another round of testing in China zone. Look out to 2013 and beyond; we are planning to another round of testing in China zone. And we are planning to release additional games including Dungeon Striker from our (inaudible) a title we licensed from (inaudible) and [Age of Dawn] in-house develop the game.

We plan to broaden our user base for web based and micro client games by leveraging our existing game content. But these developments are still in the early stage and have yet to contribute in meaningful way. We expect that they will boost (inaudible) and portfolio over time.

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