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Blue Whale News, August 21 (Reporter Zhang Yandi, Shao Yuting) At 10 am on August 20, the first domestic 3A game "Black Myth: Wukong" was officially launched. Within an hour of the game's release, the number of online users quickly exceeded one million, which can be called the "Spring Festival Gala" of the gaming industry. As of 20:00, according to the statistics of the domestic game best-selling list, "Black Myth: Wukong" has sold more than 4.5 million copies across all platforms, with total sales exceeding 1.5 billion yuan. The data is still growing.

This is a feast of games and a feast of capital. Feng Ji, the Libra man who questioned the gaming industry 17 years ago, "Who murdered our games?", has undoubtedly achieved unprecedented success. "He has embarked on a journey to seek Buddhist scriptures and arrived at Lingshan Mountain." In the past ten years of entrepreneurship, Feng Ji and the game science he runs have been accompanying the ups and downs of the gaming industry and moving forward all the way. Star shareholder Hero Entertainment and former owner Tencent have successively entered the game. The relationship between Huayi Brothers, whose stock price soared 70% in 5 trading days due to "Black Myth: Wukong", is closely woven. In this feast of capital, Hero Entertainment, which is in the process of equity transfer, is a little tired.

Arriving at Lingshan: Game Science Creates a Dark Myth

The unprecedented popularity of "Black Myth: Wukong" has led to the emergence of its developer "Game Science" (its affiliated company Shenzhen Youke Interactive Technology Co., Ltd., hereinafter referred to as "Game Science"). This company was established in June 2014, and all its founding team members are from Tencent.

Feng Ji, chairman and general manager of Game Science, is a post-80s generation who was once keen on playing "World of Warcraft". In 2008, Feng Ji joined Tencent Games and served as the chief planner of Tencent's PC online game "Douluo Dalu" project. "Douluo Dalu" is also an online game based on the Journey to the West theme, but it started off well and ended in a dismal way.

Game Science was founded in June 2014, when the gaming industry was booming. PC games were rising rapidly, hot money was pouring into the gaming industry, and the "film-game linkage" was stimulating the capital market.

This year, Zhongji Holdings announced that it would acquire the casual social game manufacturer Diandian Interactive for more than 6 billion yuan. At that time, the market value of Zhongji Holdings was only 4.2 billion yuan. This was also the largest merger and acquisition case in the game industry that year. Although it did not go through, it showed the madness of capital. In the same year, Century Huatong announced that it would spend 1.8 billion yuan to acquire all the equity of Tianyou Software and Qiku Network. Xin Guodu launched an 840 million yuan acquisition plan, and the target of the acquisition was the game company Shenzhen Fantasy... Buyers flocked to the gaming circle that year.

Game Science is in a good situation, which undoubtedly gives Game Science some confidence. On the official website of Game Science, the origin of the name is explained, "Before we founded Game Science, we felt that the game industry in China was far from being a science (similar to the communications industry or the computer industry), but was full of various success theories inferred from current successful products. ... So, why is it called Game Science? Because games, like other industries, are a rigorous discipline of 99% diligence + 1% inspiration, not a gambler's business of following the trend."

Only one year after its establishment, Game Science launched the oriental fantasy action card game "Hundred Generals", which was distributed by NetEase Games. Feng Ji later reflected that this was a reskin game, and he strengthened his belief in creating original works.

In 2017, Red Tide was launched and distributed by Hero Entertainment. It was also the first domestic game that Apple CEO Tim Cook publicly experienced during his visit to China. It was also the release of Red Tide that brought game science to the stage of capital and embarked on another journey of learning.

Embarking on the journey to learn from the scriptures: Tencent’s gains and Hero Entertainment’s embarrassment

After releasing two products, Feng Ji wanted to make a stand-alone game in February 2018. The code name of this project was "B1", which is the abbreviation of "Black Myth One", which is now "Black Myth: Wukong". At that time, the team had only 7 people. Game Science regards the establishment of an original game IP as the ultimate mission of the company's existence, and to achieve this mission, money is needed.

In 2017, Hero Entertainment, which made a net profit of 915 million yuan through game development and distribution business, is undoubtedly a wealthy sponsor. Its head Ying Shuling is ambitious to enter the capital market with Hero Entertainment. Combining Tianyancha's financing information with Hero Entertainment's 2017 financial report, in May 2017, Hero Entertainment acquired 20% of Game Science's equity at a cost of 60 million yuan through its wholly-owned subsidiary Tianjin Hero Financial Holdings Technology Co., Ltd., with a corresponding valuation of 300 million yuan. The investment profit and loss recognized under the equity method that year was 1.05 million yuan, which means that Game Science was profitable in the year when Hero Entertainment invested.

It was not until August 2020 that Game Science released the first 13-minute trailer of "Black Myth: Wukong", which exploded the gaming circle. At this time, the gaming circle was no longer as prosperous as before. Game licenses were tightened and supervision was strengthened, and it had entered a seller's market.

Game Science has not been profitable for four consecutive years since 2018 when it announced the development of stand-alone games. However, it still takes three or four years of research and development time from the release of the trailer to the official launch of the game. At this time, Game Science urgently needs capital injection. After the release of the trailer, Game Science waited for Tencent to invest. Tianyancha shows that in March 2021, Tencent acquired a 5% stake in Game Science through its Guangxi Tencent Venture Capital Co., Ltd. The investment amount was not disclosed, and Hero Entertainment's shareholding ratio was diluted to 18.999992%. At the same time, Tencent made a "three no" commitment: it promised not to interfere with business decisions, not to seize the leading role of the project, and not to seek distribution and operation, and to hand over the initiative to Game Science.

In 2021, Hero Entertainment suffered a huge loss of 1.5 billion yuan. It has also repeatedly failed to impact the capital market. In 2019, Hero Entertainment successively failed to reorganize and go public with Hemei Group and Dongjing Electronics. After the failure of the backdoor listing of Dongjing Electronics, Hero Entertainment sighed and said that it was a pity, but it had tried its best. Two years later, in 2021, Hero Entertainment signed a listing guidance agreement with Changjiang Securities and joined the selected layer of the New Third Board.

For Hero Entertainment, which has entered a downward channel, the still-prospering shares of Game Science have become an important bargaining chip for it to raise funds.

According to Hero Entertainment's 2022 annual report, the company transferred Game Science's equity for a consideration of 480 million yuan, and has received the first equity transfer payment of 280 million yuan and completed the transaction. The agreement stipulates that the remaining 200 million yuan of equity transfer payment will be paid at a time agreed upon in writing (but not earlier than April 1, 2025), and the recovery of the remaining equity transfer payment is subject to contingent clauses. However, because the company did not sign a written agreement on the payment time of the 200 million yuan equity transfer payment, there is great uncertainty in the recovery, and the remaining 200 million yuan of equity transfer debt and investment income were not recognized this year. In other words, the transfer agreement has not yet been finalized, so the company has not yet made any equity changes, and "Game Science" is still a subsidiary and shareholding enterprise of Hero Entertainment.

Judging from the long-term equity investment data, Hero Entertainment has cleared all of its shares in Game Science, and in the 2023 annual report, Game Science no longer appears in the long-term equity investment item, but the two companies still have related transactions.

Although the transfer payment of 200 million yuan has not yet been settled, Hero Entertainment has obtained a pledge loan of 200 million yuan by virtue of this equity relationship. The 2022 annual report shows that when Hero Entertainment provided pledge guarantee for its subsidiary to apply for comprehensive credit from China Merchants Bank, it pledged the equity of Game Science. The asset situation shows that the book value is 0, accounting for 0% of total assets. Through equity pledge, China Merchants Bank provided a loan scale of 200 million yuan, with a start date of April 28, 2022, an end date of April 24, 2025, and an interest rate of 3.6%.

Tianyancha shows that at present, the largest shareholder of Game Science is Feng Ji (holding 38.76%), and the second largest shareholder is Shenzhen Youke Interactive Enterprise Management Center (Limited Partnership). The LPs of the partnership are Zheng Runzong (89.5%) and Feng Ji (10.5%), and the GP is Feng Ji. In addition, Guangxi Tencent Venture Capital Co., Ltd., a subsidiary of Tencent, holds a 5% stake in the company, and Tianjin Hero Financial Holdings Technology Co., Ltd., a subsidiary of Hero Entertainment, holds a 19% stake in the company. Game Science's shareholders have not changed, and Hero Entertainment has not announced the recovery of the remaining 200 million yuan in equity transfer funds in its 2023 annual report.

Wang Di, chief lawyer of Beijing Zhongyou (Dongcheng District) Law Firm, analyzed to Blue Whale News that equity pledge is essentially a form of guarantee. Even if the remaining transfer amount has been repaid before the loan expires, the equity pledge is still effective. As long as the pledged equity exists, the transfer change of industrial and commercial registration cannot be made. After the loan expires, the borrower must repay the loan on time. If the loan cannot be repaid in full on time, the bank can resolve the loan problem through litigation, and then choose to repay the loan with the pledged equity through the court (court auction).

As an unlisted game company, did Game Science's equity pledge financing come too easily? China Merchants Bank has a precedent in bank credit for the integration of industry and finance. In July 2020, Huayi Brothers reached a strategic cooperation with its old friend China Merchants Bank. China Merchants Bank plans to provide Huayi Brothers with a comprehensive credit line of no more than 1.5 billion yuan for its film and television list plan, which will be used for the development and production of film and television projects. It is reported that this is the first comprehensive credit based on a film and television list in China, which has created a new model for the integration of industry and finance between Chinese film and television and commercial banks. As early as 2006, the two parties had launched an innovative cooperation on the movie "Assembly". China Merchants Bank provided the film with the first unsecured loan in the Chinese film industry as filming funds.

Huayi Brothers has a deep relationship with Hero Entertainment. In 2015, Huayi Brothers subscribed for 20.17% of Hero Entertainment's shares for 1.9 billion yuan, with a premium of 795 times. In September 2021, Huayi Brothers sold 15% of Hero Entertainment's shares at a loss for 870 million yuan. Currently, Huayi Brothers holds 5.17% of Hero Entertainment's shares.

Huayi Brothers also benefited from the success of Black Myth: Wukong. As of the close of August 20, Huayi Brothers closed at 2.94 yuan per share. In just five trading days, the share price rose by 70.93%, and the total market value rose to 8.2 billion yuan. It is worth noting that in the first quarter of this year, Tencent and its actual controller Wang Zhonglei, who had withdrawn from the top ten circulating shareholders, reappeared, and Alibaba and Wang Zhongjun increased their holdings. If the shareholder list has not changed, the paper wealth of the above shareholders is also increasing.

The research and development concept of Game Science is to impress the developers themselves. The launch of "Black Myth: Wukong" has undoubtedly impressed game players. This stand-alone game is still on the theme of Journey to the West. It is like a beautiful counterattack by Feng Ji against the decline of "God of War" for which he was the main planner. On the journey of "seeking scriptures", Game Science has taken a ride on the roller coaster of the game industry. In this dynamic film, Hero Entertainment, Tencent, and Huayi Brothers all appeared to play different roles.