Marbridge Daily

<- February 27, 2012 ->

Cloudary Amends IPO Filing to Include 2011 Data

SEC, 2/24/12

Chinese online media provider and game operator Shanda Interactive's wholly owned online literature subsidiary, Cloudary Corporation, has filed a seventh amendment to its IPO prospectus with the US Securities and Exchange Commission (SEC). The seventh amendment has added the 2011 financial results ended December 31, 2011.

Cloudary currently offers free as well as paid premium content. Cloudary generates revenues primarily by charging users for viewing paid content on its websites and for using its community tools and through revenue-sharing arrangements with other distribution channel providers, including e-readers and mobile operators. Cloudary licenses certain content rights to online game companies and television and film studios and also sells advertisements on its websites. Cloudary generates revenues from its offline publishing business by selling books through chain and online bookstores and wholesalers.

Total revenues for the fiscal year ended December 31, 2011, were RMB 701.1 mln (USD 111.4). Online and offline revenues were RMB 438.4 mln (USD 69.7) and RMB 262.7 mln (USD 41.7 mln) respectively.

Net loss attributable to Cloudary Corporation's ordinary shareholder in 2011 was RMB 61.0 mln (USD 9.7). Net loss attributable to Cloudary Corporation's ordinary shareholder in 2010, 2009 and 2008 was RMB 45.4 mln, RMB 73.4 mln, and RMB 22.1 mln, respectively.

Shanda's online Chinese literature community is the leading destination for online literature in China. According to a recent report from market research firm iResearch, five of Shanda's six original literature websites are among the top ten most visited Chinese literature websites, based on the amount of user time spent in 2011. In 2011, Shanda had over 72.1% of China's online literature market in terms of revenues and 57.7% of the market in terms of user time spent, according to the iResearch report.

By centralizing content sourced from Shanda's online literature community and other sources, Shanda can distribute and monetize content through multiple channels. Its content distribution channels and monetization methods include:

Online Paid Users: Under this model, Shanda charges users for viewing premium content on its websites. Shanda also offers paid community tools that enable users to provide encouragement and support to their favorite authors or to enhance their community experience. In addition, Shanda has entered into arrangements to promote and distribute its content through several third-party channels, including internet firm Qihoo 360's (NYSE: QIHU) 360 Desktop software suite.

Wireless Service: Shanda has entered into content distribution arrangements with all three wireless carriers in China. It was the largest content provider for the reading stations for each of China Mobile, China Telecom and China Unicom in 2011, and its content contributed more revenue to China Mobile's central reading station than any other content provider in 2011, according to the iResearch report. Through China Mobile, Shanda's content attracted 68 mln unique mobile visitors, including 21 mln who purchased premium content, and 1.6 bln average monthly mobile page views in 2011. A total of 115 mln unique mobile visitors viewed Shanda's content through the central reading station of China Mobile from March 2010 to December 2011. Shanda also entered into revenue-sharing arrangements with WAP operators, including Tencent's (0700.HK)

Net revenues from online paid users increased 76.4% to RMB 182.8 mln (USD 29.0 mln) in 2011 from RMB 103.6 mln in 2010, primarily due to the growth of Cloudary's active paying users and the increase in the average net revenue per active paying user, both of which were primarily attributable to Cloudary offering more paid content that appeals to readers. Cloudary's active paying users grew 30.8% to approximately 1,243,000 active paying users in the fourth quarter of 2011 from approximately 950,000 active paying users in the fourth quarter of 2010. The average net revenue per active paying user was RMB 41.6 in the fourth quarter of 2011 compared to RMB 34.7 in the fourth quarter of 2010.

Net revenues from wireless service increased to RMB 174.1 mln (USD 27.7 mln) in 2011 from RMB 60.4 mln in 2010 primarily as a result of the rapid growth of total fees paid by mobile users to access Cloudary's literary content through China Mobile's wireless network, due in part to the increase in the number of titles made available to China Mobile. The number of titles made available to China Mobile's users increased to 33,811 titles in 2011 from 23,100 titles in 2010. The average net revenue per title increased to RMB 3,762 in 2011 from RMB 1,989 in 2010 primarily because Cloudary's titles attracted more paying readers on an average basis.

In 2009, 2010 and 2011, the aggregate amount of copyright licensing fees Cloudary received from these affiliated entities amounted to RMB 3.2 mln, RMB 143,508 and RMB 1.4 mln (USD 0.2 mln), respectively. Cloudary derives revenues from licensing content for use in a variety of media formats. It acquires or license from the authors all or part of the copyrights of popular literary works. It licenses such copyrights, either at fixed prices or through revenue-sharing arrangements, to content users who develop interactive games, television series or movies based on the storylines of such works or publish offline books. Under the relevant licensing agreements, Cloudary typically grant content users an exclusive right to utilize content for a specific purpose over a multiple-year period.

Revenue from Cloudary's offline business rose 41.6% YoY to RMB 262.7 mln. Cloudary sold and collected payment for 3.5 mln, 18.3 mln and 24.2 mln books in 2009, 2010 and 2011, respectively.

In April 2009, Cloudary Corporation (formerly known as Shanda Literature Corporation) was incorporated in the Cayman Islands as a direct wholly owned subsidiary of Shanda Interactive. In August 2010, Shanda Interactive transferred all of its equity interest in Cloudary Corporation to Shanda Investment. As a result, Cloudary Corporation became a direct wholly owned subsidiary of Shanda Investment.

To view Cloudary's full IPO prospectus, please click here.

Editor's note: For more information on this topic, please see "Cloudary Amends IPO Filing for National Security Rules," MD 9/27/11 and "Shanda's Cloudary Refiles NYSE IPO," MD 8/24/11 issues.

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