Posted by: Megan Ko on 2009.06.11 15:41 in Megan ko

Some China-eat-China deals leave a lot to be desired when it comes to details on synergies and stratagems, and Shanda's (Nasdaq:SNDA) recent agreement to buy 51% stake in Hurray (Nasdaq:HRAY) is no exception. The entertainment duo may still be hiding under the sheets, but here are a few ideas on what the pair might produce.

3G: Qidian and Mobile Games
Hurray's wireless value-added service (WVAS) experience combined with Shanda Literature's Qidian.com could be a bibliophile's dream. If subway commutes are any indication, there is a decent market for mobile reading materials, and Shanda seems to have noticed. In a March interview conducted by Sohu, Shanda Literature, a Shanda business unit, CEO Hou Xiaoqiang said his company is very optimistic about 3G, and is in talks with China Mobile's (NYSE:CHL, 941.HK) Zhejiang subsidiary regarding a strategic partnership.

When rumors of the Hurray/Shanda deal came out in May, Chinese media reported that Shanda might conduct a backdoor listing of online literature assets including Qidian.com.

WVAS made up 67% of Hurray's revenues in Q1, down from more than 80% in Q1 08, and Hurray CEO Songzuo Xiang said that 2G WVAS revenue "decreased a lot" q-o-q as the company began to shrink low-margin business. Though Hurray doesn't break down its WVAS revenues, they seem to be dominated by ringtones, with a tiny portion coming from mobile games. Given that mobile games occupy the first two "business highlights" in the company's Q1 earnings report, it's unlikely these services will be kicked to the curb along with 2G.

Though 3G networks are still unstable and the mobile game market hasn't been nearly as hot as the online game market in China, it's a possible growth sector as 3G matures in China. Techfaith (Nasdaq:CNTF) announced a $20-million investment for its wholly owned online and mobile game subsidiary One Net Entertainment Limited from IDGVC Partners and Hong Kong's Infiniti Capital Limited in May.

Online Games: Super Star
Shanda started open beta testing of an in-house developed online music/karaoke game called Super Star in April. The game is partnered with TV stations that run American Idol-esque reality shows and includes a relatively advanced singer evaluation system. Super Star has been hindered by a meager playlist, but Hurray seems well-positioned to bolster music content and licenses, 33% of Hurray's Q1 revenue came from recorded music. The entertainment co. could also help Shanda gain leverage with (more) TV stations through its music industry contacts or even offer free ringtones and other cross-promotions to gamers.

Social Networking
Both Qidian, the most lucrative part of Shanda Literature, and Super Star have SNS functions and celebrity appearances may be a way to expand their popularity. Hurray has its own agency services and controls four music companies including Seed Music, which it acquired in January. Last year, Giant Interactive- (NYSE:GA) invested social networking service 51.com partnered with 11 record companies to launch a celebrity platform.