Freeloader to close down site as ad revenues tumble, the free computer games site funded entirely by advertising, has pulled the plug just as a new report claims its business model will be the next big thing.

In a sudden announcement last week, Freeloader said it would be closing its website because of insufficient ad revenue. It claimed that its UK site continued to grow in popularity but the US, French and German versions had failed to attract premium rates.

Harry Holmwood, chairman of Freeloader’s parent company, Pure Entertainment, says the venture had always planned on generating considerable non-UK ad revenue and that the UK version alone was insufficient to sustain the business model.

Holmwood says the decision was taken so as to achieve an “orderly winding down” of the company. The directors, who decided there was no point trying to raise further funding in the current economic climate, are considering turning Freeloader into a shell company or returning remaining cash to shareholders.

Holmwood says he was in talks with a potential buyer just days before the announcement was made. “Once these talks fell apart we were obliged to make some kind of statement to the market.”

The site is expected to remain live for the next couple of months, so it can meet contractual obligations to existing advertisers.

Freeloader had allegedly attracted over 700,000 registered users; its house broker, Seymour Pierce, recently described the company’s shares as a “strong buy”. In December, chief executive Bob Dewar described as “one dot-com company that will be here for many years to come”.

The website has only just been given a makeover, apparently prompted by the rapidly increasing number of users; and in February, former marketing director Julian Perry said cash-burn was not an issue as in-game advertising was beginning to take off.

A report this week by new media agency KPE says advertisers will be increasingly drawn to it.

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