Photo source: Visual China

Blue Whale financial reporter Wang Xiaonan

After joining Wanda Films, China's Ruyi (00136.HK) once again took over from ByteDance, a subsidiary that had contracted the game business, Love Entertainment. In 2023, China's Ruyi's revenue from the game business skyrocketed sevenfold. In addition to operating and launching various games internally, it was also inseparable from the support of Tencent, the second shareholder. Even Youai Mutual Entertainment, which acquired this time, has strong ties with Tencent. While expanding the game business, China's Confucian intention is to explore film and game linkages, and plans to cooperate the game business with the company's film and television business.

Blue Whale Finance interviewed Tencent when Tencent did not respond to the proposed acquisition of Youai Entertainment by a company owned by China's Ruyi Entertainment this time, and whether Tencent is matchmaking in it, and what kind of support it will give in the future as a shareholder and partner in the game business.

259 million won the byte “abandonment”

On the evening of May 7, China Ruyi announced that its company, Beijing Ruyi, plans to acquire 100% of the shares in Beijing Youai Mutual Entertainment Technology Co., Ltd. (hereinafter referred to as “Asahi Lightyear”) and Beijing Youyi Technology Co., Ltd. (hereinafter referred to as “Youyi Technology”), at a cost of 259 million yuan. The transaction price can be adjusted, but the final price must not exceed 350 million yuan.

Established in September 2012, Youai Mutual Entertainment is a comprehensive mobile game company integrating R&D, operation, and distribution business. It mainly focuses on two-dimensional RPGs and strategy categories, and has launched the famous game “Place the Girl” in the Japanese market. Currently, the core assets of Youai Mutual Entertainment are the R&D assets for the “Red Alert OL” game. The IP for the project originates from the well-known stand-alone game IP Red Alert (Red Alert) of Electronic Arts in the US, which has a deep market base and a broad player base.

According to data disclosed by a third party agency data.ai, Youai Mutual Entertainment ranked 29th in the 2023 overseas revenue rankings of Chinese game manufacturers. Meanwhile, in this transaction, China's Ruyi also stated that the “Red Alert OL” project will still have considerable benefits in the future, and that its R&D assets will maintain high commercial value and meet the company's acquisition standards.

However, in the announcement disclosed by Confucius in China, Youai Mutual Entertainment's financial performance was not very impressive. In 2021 and 2022, Youai Mutual Entertainment's profit after tax was 4,428,800 yuan and 2.8913 million yuan, respectively. As of the end of 2023, Youai Mutual Entertainment's net assets were approximately RMB 344 million.

There is Ai Mutual Entertainment, a company that seems “plain and unremarkable,” but it has “changed hands” twice in three years.

According to the Tianyancha App, in April 2012, Youai Mutual Entertainment received millions of angel round financing from Huasoft Capital, Bridge Capital, and Dexun Investment; in 2015, it also received tens of millions of Series A financing from Xiaomi Group. Until September 2020 and April 2021, ByteDance acquired YouAi Entertainment in two installments, and its shareholders changed to Asahi Guangnian and Youyi Technology. The latter two were ByteDance's subsidiary companies, holding 94.1% and 5.9% of Youyi Entertainment's shares, respectively.

2020 is an important period for ByteDance to expand its game business. In addition to setting up a number of large studios internally, it is also seeking external developers that can be acquired. This includes YouLove Entertainment. It's just three years later, that is, in 2023, ByteDance began to shrink its game business. On November 27 of the same year, ByteDance stated that its game business would soon be shrinking on a large scale, and that it would seek divestment of games that are already online and performing well while guaranteeing operation; for projects that have not yet been launched, all but a few innovative projects and related technology projects will be shut down.

At the same time that ByteDance is shrinking its game business, there is also news in the market that Tencent has taken over part of the Asahi Lightyear team. Speaking of which, the target company of Confucius in China this time has a love for interactive entertainment, and its relationship with Tencent is not short.

In 2018, the mobile game “Red Alert OL” developed by Youai Mutual Entertainment was also published by Tencent. However, in 2020, there was a rift between the two sides due to the fact that “Red Alert OL” could not be updated with new content. Although the situation was resolved in 2021, it is easy to see that the relationship between the two sides is no longer what it used to be.

However, according to this acquisition announcement, Youai Mutual Entertainment has signed a relevant agreement with a Tencent subsidiary. The Tencent subsidiary acts as an exclusive agent in China to provide distribution, operation and promotion services for the “Red Alert OL” game. The two parties split and settle in accordance with the agreement. The agreement period is from October 17, 2021 to October 17, 2025.

Although it is still more than a year until the expiration of the above agreement, if China's Confucian succeeds in winning, the latter's relationship with Tencent seems to continue. After all, Tencent stands behind China's Confucius.

After winning Wanda Films, they continued to lay out the game field

China's Confucian predecessor was Masge Group. In 2015, Evergrande Group and Tencent Holdings bought it and changed its name to Hengteng Network, but the company's Internet community service industry progressed slowly and remained silent for many years. It wasn't until 2021 that Hengteng Network bought Ruyi Pictures and its Pumpkin Film at a cost of HK$7.2 billion that the company's development ushered in a turning point.

As Evergrande's liquidity crisis broke out, it emptied Hengteng Network shares in batches and cashed out HK$10 billion. In February 2022, “Hengteng Network” officially changed its name to “China's Confucian”, entering a new situation where Tencent escorted and Ruyi founder Ke Liming took the helm.

As of 2023, Ke Liming held 32.17% of China's Ruyi shares through Pumpkin Films Limited, making it the company's largest shareholder; Tencent held 21.97% of its shares through Water Lily Investment Limited, making it the company's second-largest shareholder. Furthermore, Tencent is also the second-largest customer of Ruyi in China. In 2023, Tencent contributed 15.36% of China's Ruyi revenue.

As a film and television company, China's Ruyi officially entered the game business in 2022, and its game business brand Jingxiu was established. In 2023, China's Ruyi's revenue from the game business was 446 million yuan, an increase of 703% over the previous year's revenue. Furthermore, in 2023, China's Ruyi formed an excellent product development and distribution team and clarified its future development direction.

Currently, in addition to operating the “Battle Deer” and “Legendary World” games launched in 2022, China's Ruyi also launched “Legend of Ragnarok: Love at First Sight” on March 26 this year. At the same time, the company has also stocked two strategic mobile games “Battlefield” and “Wilderness Country”. Both have now received versions, and are also expected to be launched within 2024. This rapid growth is also related to Tencent's support, and the two sides have signed a number of agreements on game business cooperation. China's Ruyi also distributed “World Qiyuan” developed by Tencent's Northern Lights Studio. The game is expected to be launched within this year.

China Ruyi Chairman Ke Liming also stated in the financial report that the company will continue to expand the collaborative distribution and R&D of more top IPs, and it is expected that the revenue and profit of the company's game business will continue to grow significantly in 2024.

This acquisition is another move by Coliming within a short period of time after taking control of Wanda Films.

In July 2023, China's Ruyi took over 49% of Wanda Investment's shares in consideration of 2,262 billion yuan. Subsequently, Ruyi Investment also signed an equity transfer agreement with Wang Jianlin. They plan to transfer 20%, 29.8%, and 1.2% of Wanda Investment's shares to Ruyi Investment, respectively, at a total transfer price of 2.55 billion yuan. The transfer was carried out several times. Finally, on April 15, all transactions were completed. China's Ruyi and Confucian Investments under the “Confucian System” collectively held 100% of Wanda Investment's shares, and Ke Liming officially became the actual controller of Wanda Film.

It was also after “swallowing” the Wanda film that China's Confucian intentions, along with Ke Liming behind it, sparked a buzz in the capital market. This opportunist first gradually won Wanda's investment in Wanda movies when Wang Jianlin fell into a crisis of listing failure, and then further expanded the Confucian game business in China when ByteDance was shrinking its game business. Through two acquisitions, China's Ruyi expanded its market in the film industry and gaming sector, respectively.

China's Ruyi will explore film and game linkages, and plans to cooperate the game business with the company's film and television business. Coliming said in his annual report that the company plans to launch one or more interactive narrative movie games incorporating live action movies and TV within 2024, and use AI technology to create some content, and collaboratively create games, movies, and artificial intelligence through interactive video game products.