Shanda Games, a publicly-traded subsidiary of Chinese gaming giant Shanda Interactive Entertainment Limited, just made some big new moves into casual and online gaming outside of its home country. It bought San Francisco-based casual game advertising and analytics service Mochi Media for $80 million, after it locally made a few smaller purchases and licensing deals to add more titles to its catalog.
None of these moves are specifically into social gaming, as defined by games that are built around social features on Facebook and other global social networks. The Mochi purchase is the most relevant, though. The company provides a set of services for third-party Flash game developers — online casual game developers — as well as social networks like Hi5. It offers in-game advertising, analytics, a fairly new virtual currency system and most recently Facebook Connect integration so you can play your Facebook friends and share high scores back to the site from within Mochi games. The 15,000 games it publishes are on 40,000 web sites and reach a total of 140 million monthly unique users, only 29 million of whom are in China.
While Shanda is traded on NASDAQ, having spun out from the company last year, it has until now mostly focused on the China market. The purchase is its latest move to expand, although the company also plans to introduce Mochi’s monetization features in China to help it make more money. Mochi, notably, says it just became profitable last quarter.
Shanda Games chief executive Diana Li told the Wall Street Journal that the company has been “preparing for the U.S. market for two years,” having previously pushed games to parts of Asia and Europe. It has 10 titles that it plans to make available through Mochi. “We’ve had our eyes on the international market,” Li says, “access to Mochi’s platform will speed up and scale up our distribution of [content] world-wide.”
Casual gaming has become a more mature part of the gaming industry, and nowadays we see a big new focus on social gaming — to the degree that traditional casual gaming companies like Popcap have been focusing on building for Facebook lately. Shanda’s big Chinese gaming rival, Tencent, has been doing the same, testing out games like Treasure Hunter on Facebook.
So, while the Mochi purchase will certainly give Shanda Games a new avenue to expand beyond China, we assume that the company has other plans for expanding into social games (a Reuters article hints that more purchases are in the works). Otherwise, Shanda is still going to miss where a large part of the growth is happening in gaming these days.
On Mochi’s end, this is a solid exit, especially considering previous reports that some of its investors wanted exits for far less, earlier on. It had raised $14 million to date, in two rounds, from Accel Partners and Shasta Ventures. Also, mark this as another gaming exit for Accel, which also invested in Playfish, and made money when the social gaming company sold to Electronic Arts for up to $400 million last fall.
There’s a final interesting angle to all of this as well, as highlighted by China-based angel investor Bill Bishop in his recently-reconstituted blog. Foreign investment into China-based gaming companies is currently not allowed, yet big Chinese game developers are free to expand in the US.
In October 2009 Chinese government officials explicitly stated that in addition to the existing restrictions on foreign games operating in China, “foreign investment into its lucrative online games industry” is banned. So from a US policy perspective, assuming the US game industry lobby cares about this issue, it seems like an easy argument to make to USTR and the Congress that while China is blocking American firms from a $4B+ market (and growing 30%+/year), the Chinese are piling unrestricted into the wide open US market and have a very good chance of gaining real share.
As Shanda, Tencent and other China-based gaming leaders expand abroad — and as the market opportunities continue to expand — expect this issue to get a lot bigger.