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Chinese Game Industry Deals "Paralysed"
Posted by Maggie Greene at 7:30 AM on February 24, 2008
The Chinese game industry is hot hot hot, and money is burning a hole in the pocket of some of the big players like Shanda. Unfortunately, the hot market has led to plenty of companies overvaluing their worth, and despite capital burning a hole in the collective pocket of the big companies, they're starting to realise that snapping up small companies for massive prices isn't the giant payoff they're looking for:
"Maybe they hit the wrong button on the calculator," said a source close to Shanda regarding small and medium size gaming companies overshooting their values.Ye Youzhong, CEO of Kaixin Investments, said that online game companies had recently overvalued themselves by over tenfold, making investments in them unprofitable when considering that the current price-to-earnings ratio of listed Chinese gaming companies is around 30. He said that if bought for a price of 12-15 times their real value, it would take a full three years--including the market listing process--before the investing company saw any profit. Moreover, he added, a lot of these companies had no chance to be listed in the first place.
I'm sure everything will balance out in the long run, and I can't imagine this will have a huge impact on the speed with which the industry in general is growing. Still, it's interesting to look at the inner workings of some of these big companies and what they're worrying about.
Comments (AU Comments · US Comments)
There are currently no AU comments for this post.
Inst
Posted 8:05 PM 3/3/08
@Cell9song: Due to the massive piracy issue in China, most of the game developers make MMOs. You run the server, you charge on the server, you make money. Buying other "developers" or publishers means you get immediate access to their MMO racket; the first paycheck comes in at the start of the month.
Inst
Inst
Posted 8:05 PM 3/3/08
This is somewhat to be expected. The SSE dropped from 5500 to 4300 since the market crash in the United States.
Inst
mexxxant
Posted 8:05 PM 3/3/08
Perhaps it was inevitable that this kind of inflation of worth would happen in China as well, seeing as it is a very new and growing market... it certainly has happened in the west more than a few times.
Guess it goes to prove that hype can be a very powerful tool all around the globe.
mexxxant
Cell9song
Posted 8:05 PM 3/3/08
@Jamo:
If a company has no IP rights to any successful games they've made then they are simply a name and some people. I don't know, it just seems that you are basically gambling on the word of a few dozen people that they will remain and work on whatever it is the are instructed to do. Of course it would be in their best interest to stay but thats still no guarantee of them remaining. Rare was bought out for half a BILLION dollars. The IP rights to Banjo Kazooie/Perfect Dark doesn't begin to cover that.
Generally speaking you're right of course but with 7-8 figures being thrown about it just seems so....tenuous? *shrugs*
Cell9song
Jamo
Posted 8:05 PM 3/3/08
@Cell9song: What is any company paying for when they spend hundreds of millions to acquire another company? The prospect of the smaller company becoming successful or the creative/developmental properties being integrated to allow the larger company to make more money as a whole. Also, I'm not sure where you would get the idea that everyone would decide to leave after they just got bought out. That means the stock is going up!
Jamo
VergessenHeld
Posted 8:05 PM 3/3/08
@ShineyBlueShoes: Agreed. This is what happens when big companies jump into new industries without knowing what they're doing. EA should teach these guys a lesson or two.
VergessenHeld
Forkball
Posted 8:05 PM 3/3/08
Ah, 100 Yuan. I loved those because it took me forever to spend it even though they're like $12-$15.
Forkball
Cell9song
Posted 8:05 PM 3/3/08
Another thing I was always curious about: I see developers getting scooped up for 8 and even 9 figures. Software licenses, PC's, etc can't come to more than 1 mill so other than the warm bodies themselves, where is that value from? Whats to keep everyone who works there from getting up and walking out the following day of the sale?
Cell9song
OtakuHat
Posted 8:05 PM 3/3/08
haha hopefully it will balance out and maybe this will be another industry that China will get better at. but this snapping off sounds like monopoly..>>
OtakuHat
ShineyBlueShoes
Posted 8:05 PM 3/3/08
Just watch this will be the kind of thing that cripples the great red dragon! This has been happening here for how long in how many industries with the same result and no one's learned? I mean come on, just shoot EA and e-mail and you'll get a giant list of things not to do.
ShineyBlueShoes
Acute Gamer
Posted 8:05 PM 3/3/08
Sounds like EA.....lol (the part about snapping up all the the companies)
Acute Gamer
Krackatoa
Posted 8:05 PM 3/3/08
@Cell9song: Well, they're just saying that companies that once were sold for 3 million dollars, are now abrubtly selling themselves for 30 million.
You can't say that's a minute increase... <_<
Krackatoa
Cell9song
Posted 8:05 PM 3/3/08
1.) Game developement takes an average of 3 years anyhow. What kind of instant profits were the purchasing companies (ie; Shanda) looking for?
2.) "Online game companies overvalued themselves by over tenfold" - huh? How can a company "overvalue" itself? Do companies like Shanda just go in and take the word of accountants of the company to be bought? Whatever happened to due dilligence?
I'm obviously not reading something correctly here.
Cell9song