Technology

2020 is a nightmare year for Chinese game companies


The case of the 39-year-old CEO of the game company dying from being poisoned is one of many events that show the turmoil of the Chinese gaming industry.

On December 25, Wang Yue, the 37-year-old founder of the game company Kingnet, was sentenced to 5 years and 6 months in prison by a Shanghai court for manipulating stock prices. On the same day, game studio founder Yoozoo, Lin Qi, died at the age of 39 suspected of being poisoned by a colleague.

Just a week earlier, Wang Jian, Chairman of Zhejiang Jinke Culture, the company that owns the game series development team Talking Tom Cat, was investigated by the police for insider transactions that were not public.

Although not related to each other, the main characters in the three above cases are all young leaders of the 8x generation. They have a desire to compete with the big guys like Tencent or NetEase.

The CEO of a Chinese game store has a problem with him 1

Lin Qi, CEO Yoozoo passed away on December 25, suspected of being poisoned. Photo: Yoozoo.

The game industry is increasingly tightly controlled

In China, game companies used to be the “darling” of investors with the explosion of mobile games and browser games. In the mid-2010s, investors often made a profit from the game through reverse takeover – the act of acquiring a public company (which was listed on the stock exchange) of a private company.

As the gaming industry develops, China’s stock market regulator has issued a ban on acquisitions of public companies since 2016, slamming the door to rapid profitability of investors.

Game developers are also no longer interested in traditional IPOs. The newest game company to go public in China is G-bits Network Technology in 2017. September 2020, miHoYo, developer of cult game Genshin Impact, has withdrawn application for IPO after more than 3 years waiting for approval.

Some non-gaming companies also take advantage of market opportunities. Initially a peroxide-making company, Jinke Culture mobilized 1 billion USD to buy a majority stake in Outfit7 Investment – owner of the famous game series Talking Tom Cat.

Since then, the Chinese government’s control over the gaming industry has been tighter, making it difficult for companies to maintain revenue growth, ending the industry “fever”.

The CEO of a Chinese game store has a problem with him 2

Game studios in China are facing many problems in the long run. Photo: Reuters.

Young leaders are victims of the market

Liao Xuhua, an analyst with Analysys International, said that the young “tycoons” in the game industry are victims of the Chinese capital market.

According to Xuhua, these game studios are facing many long-standing problems. While some leaders focus excessively on financial transactions rather than on game development, others recklessly enter into mergers that could damage their reputation.

In addition, recent incidents at game companies also indicate weak governance capacity. Before the company’s founders were sentenced, Kingnet CFOs, Chen Yongcong and Lin Bin, former board supervisors, were arrested for “violating the rules, damaging the interests of the public. listed companies “, though both were later released.

As for Lin Qi, CEO Yoozoo is said to have been poisoned. According to Chinese media, the suspect is Xu Yao, a senior leader of Yoozoo, assigned to be in charge of the film and television departments.

In September, Yoozoo reached a deal with Netflix to adapt the sci-fi novel The Three-Body Problem into an episode. Xu Yao was selected to be in charge of project-related issues, but the work was disputed with President Lin Qi.

Shanghai police investigated the incident after the hospital informed of Lin Qi ‘s illness and suspected he was poisoned.

The CEO of a Chinese game store has a headache 3

Game developer Genshin Impact withdrew its IPO application in September 2020 after more than 3 years waiting for approval. Photo: miHoYo.

In recent years, the leaders of game companies have had a headache when the competitiveness has declined. Kingnet has seen a drop in revenue 124.2 million USD In the first half of the year, much lower than the same period in 2017 is nearly 200 million USD.

For Yoozoo, the game studio is still growing, but its gross profit margin narrowed from 70% in 2014 to 31% in 2019 amid fierce competition, according to the company’s financial statements.

Zheng Jintiao, co-founder of media outlet Gamer Boom, said that these game studios are having a hard time creating games that meet the increasing demand of gamers. “Dumping all the resources into the game isn’t as efficient as it used to be,” Jintiao said.

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