Tag: CMGE

Betting Big on Content: CMGE Steers Through Industry Waves with Robust Lineup

The success of Black Myth: Wukong, a game steeped in the Chinese cultural aesthetics, is underscoring the vast potential for top-tier IP games from China and igniting confidence for developing high-quality products with global appeal.

At a recent interim results briefing, CMGE (0302.HK) management noted that “The success of games like Black Myth: Wukong, Wuthering Waves, and Zenless Zone Zero has reinforced our commitment to producing cross-platform blockbusters under the strategy of self-development,  proprietary IP operation, and self-publishing.”

As the Chinese game tycoon with the largest IP portfolio, CMGE is doubling down on leveraging major IPs like Legend of Sword and Fairy and One Piece. With a strong focus on technological innovation, CMGE aims to deliver high-quality, long-lifecycle games that redefine the revenue patterns and outlive industry cycle.

Traveling Light: Lean Operations Drive Steady Profits
On August 28, CMGE unveiled its financial results for the first half of 2024, reporting a total revenue of RMB 1.23 billion, including 14.3% from overseas operations, and an adjusted net loss of RMB 208 million.

The first half of 2024 saw severe challenges and volatility across the game industry. In response, CMGE adopted a more prudent financial approach by accounting for impairments on certain investments, write-downs on prepayments for unlaunched games, and adjustments to non-operating financial assets.

Through this adjustment, CMGE expects to “travel light and pave the way for future profitability. It also shows CMGE’s ongoing commitment to developing premium games anchored by strong IPs.

Despite industry turbulence, CMGE’s core operations have remained profitable throughout the first half of 2024, thanks to its sharp focus on an IP-driven strategy that continuously strengthens  player viscosity. Impressive key operational metrics include 14.392 million MAUs, 47.297 million new registrations, and 1.027 million monthly paying users contributing an ARPPU of 200.2 yuan.

By business segment, publishing was a big revenue driver, generating 1 billion yuan in the first half of 2024. Soul Land: Shrek Academy topped the Apple Store’s free games chart within a month of its debut in January, pulling in a monthly revenue of over 100 million yuan. Fights Break Firmament: Peak Confrontation secured the second spot on the chart within a month of its debut in June, setting the stage for further growth in the second half of the year.

CMGE has made remarkable strides in global expansion, raking in 176 million yuan from overseas publishing, a year-on-year increase of 41.5%. A major contributor to this growth was the release of Legend of Sword and Fairy: Wen Qing an RPG card game based on the popular Legend of Sword and Fairy IP. Launched in December 2023 across Hong Kong, Macau, and Taiwan, the game soared to the top of the Apple App Store’s free charts in all three regions, showcasing the lasting popularity of the Legend of Sword and Fairy series among Chinese-speaking players.

On the R&D front, CMGE reported an R&D revenue of 126 million yuan and an R&D investment of 110 million yuan in the first half of the year. Notably, R&D expenses dropped by 58.71% compared to the same period last year, thanks to the integration of AIGC into game development, which raised efficiency and reduced costs. Meanwhile, CMGE’s highly anticipated Sword and Fairy World is already under final test. Reductions in design and development costs inspire a more optimistic outlook on future profitability.

CMGE is intensifying its focus on the Legend of Sword and Fairy IP, strategically extending its influence into film, animation, and merchandise. This multi-faceted approach has consistently unlocked new revenue streams, enhancing the brand’s value and market presence. In the first half of this year, CMGE’s IP licensing revenue surged to 107 million yuan, marking a substantial 79% year-over-year growth. This impressive performance stems from a series of high-profile adaptations of the Legend of Sword and Fairy series, including Sword and Fairy 4, a TV series produced in collaboration with iQiyi; Sword and Fairy, a TV drama based on Sword and Fairy 6 and developed alongside Shandong Film and TV; and The Return of Xiaoyao, a reinterpretation of Legend of Sword and Fairy coproduced with Tencent Video. These adaptations have not only captivated audiences but also garnered critical acclaim, further solidifying the franchise’s stronghold in the market.

Leveraging its premier IP assets, CMGE has maintained steady growth while strategically streamlining its balance sheet through accounting impairments. This positions the company for renewed momentum in the competitive game industry.

All About the Game: Chinese-Inspired Sword and Fairy World Gears Up for Launch
For CMGE, thriving in shifting market cycles isn’t about short-term wins but about building long-term capabilities. The company’s “product-first” philosophy centers on delivering high-quality games based on top-tier IPs, helping it stand out in a crowded market and avoid the pitfalls of low-quality saturation. As CMGE Chairman Xiao Jian recently stated, “IP is more than just a cultural symbol—it’s a value system and almost a belief. In fact, it has become the cornerstone for creating competitive barriers in the game industry.”

A key example of this strategy is Sword and Fairy World, an open-world RPG rooted in the iconic Legend of Sword and Fairy IP. After more than three years of dedicated endeavor, the game has successfully secured licenses for both PC and mobile platforms, showcasing CMGE’s commitment to excellence.

Sword and Fairy World, a game derived from one of China’s most cherished IPs, features a vast and immersive open-world experience. Spanning 384 square kilometers, the game is rich in traditional Chinese cultural elements, allowing players to explore breathtaking landscapes—from the picturesque scenery of Jiangnan to the majestic peaks of Mount Shu and the mysterious miao regions. As Chinese cultural themes gain traction in gaming, insiders suggest that Sword and Fairy World has a chance of becoming a major hit, potentially rivaling titles like Black Myth: Wukong.

CMGE also employs immense efforts in elevating gameplay, doing all out to create a top-tier open-world RPG. On the one hand, it gives the best play to the cultural connotation of its IPs and keeps adding contents. On the other hand, it also invents new ways of gameplay, having introduced a unique pet collection system inspired by Chinese mythology and fantasy to innovate core gameplay. CMGE continues to upgrade visual fidelity and environmental realism to deliver a more immersive interaction and create a comprehensive, next-level player experience that resonates with both domestic and global audiences.

CMGE is setting a new standard for player immersion by integrating AI-driven NPCs into its upcoming games. These NPCs will react to the environment and engage in conversations that mirror real-world interactions, creating a vibrant, lifelike social ecosystem within the game. Players will also have access to advanced AI-powered customization tools, including facial recognition and voice modulation, allowing for more personalized expressions and interactions and sparking players’ creativity in the virtual world.

Building on the success of the renowned Legend of Sword and Fairy IP, Sword and Fairy World has repeatedly ranked among the “Most Anticipated Games” of 2024. Having successfully passed the first three tests, the game is nearing its final test before a full release later this year. The number of pre-registrations is already approaching 5 million and could surpass 10 million by the time of debut.

CMGE’s focus on IP-driven, premium games is paying off handsomely. By capitalizing on the popular Legend of Sword and Fairy IP and potential video and animated adaptations, CMGE is successfully broadening its audience base, enhancing user viscosity and lowering customer acquisition costs. This strategy positions the company for sustained profitability. A cornerstone of CMGE’s approach is its emphasis on open-world games, a growing industry trend that greatly increases user capacity and game lifecycle. Openness and creativity are set to drive higher player engagement and LTV. The eagerly awaited Sword and Fairy World, CMGE’s upcoming open-world title, will be available across multiple platforms, with the PC version projected to achieve a gross margin near 70%.

Industry analysts forecast that the launch of Sword and Fairy World will notably increase the share of long-cycle products in CMGE’s lineup. This not only highlights the lasting value of the Legend of Sword and Fairy IP， but also redefines the traditional profitability trajectory for games, paving the way for sustained, high-revenue growth. With this forward-thinking strategy, CMGE is primed for enhanced profitability and long-term financial success.

Growth on the Horizon: CMGE’s Strong Pipeline Set to Fuel Expansion
CMGE is ramping up its global expansion and refining its product lineup to bolster the stability and predictability of its long-term growth. With an impressive slate of titles set for the second half of 2024, CMGE is gearing up to enhance its performance reliability.

In the second half of 2024, CMGE’s publishing division will make a significant impact with a series of high-profile IP-based game launches. Key upcoming titles include Soul Land: Space and Time Reversal , Daily Life of Chat Group, Naruto: Konoha Masters, New Romance of the Three Kingdoms: The Legend of Cao Cao, Country Love: Business Life , Chunqiu Mystery, and the casual mini-game Sanqian Huanshi. The recent launch of Soul Land: Shrek Academy in Hong Kong, Macau, and Taiwan on August 22, 2024, soared to the top of the Apple App Store’s free charts in all three regions during its debut week. Looking ahead, CMGE is planning to release Smash and Code: FA in Hong Kong, Macau, and Taiwan and bring Dynasty Warriors: Hegemony to the Japanese market in the second half of the year. With these strategic moves, CMGE aims to solidify its position and drive continued growth across key global regions.

CMGE is betting big on its internal development to fuel growth in the second half of the year. Leading the charge are key titles including Sword and Fairy World and World of Castellan , which will benefit from expanded promotional efforts, alongside a new installment in the iconic franchise, Code: Dark Night Legend. These self-developed games are expected to make a substantial impact on the company’s overall performance.

“Strategy is not predicting the future. Instead, it’s about making decisions today to be ready for an uncertain tomorrow,” analysts emphasize, channeling Peter F. Drucker’s wisdom. CMGE exemplifies this with a robust IP-driven, product-first strategy. By honing in on high-quality game development, the company is building a unique competitive moat to secure long-term stability and eventually outlive industry cycle.

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Understanding CMGE’s (0302.HK) Path to Stable Growth from its Mid-term Report

On August 28, CMGE (HKG: 0302) held its mid-term performance conference for 2023. Xiao Jian, the Executive Director, Chairman and CEO of CMGE, announcing H1 2023 results, said CMGE’s revenue reached RMB 1.535 billion, with a year-on-year growth of 24.6%; the profit attributable to the owner of the parent company during the period was RMB 56.824 million, and the net profit after adjustment was RMB 76.168 million, achieving a year-on-year turnaround.

In terms of the KPI, the monthly average active users of CMGE in the first half of 2023 increased to 15.627 million, with a year-on-year growth of 22.3%; the number of new registered users reached 48.683 million, with a year-on-year growth of 26.9%. The monthly average number of paid users and the monthly average revenue per paid user (ARPPU) also realized a year-on-year growth of more than 20%.

It is worth noting that the cost reduction and efficiency enhancement measures of CMGE have achieved new results continuously. Thanks to the application of AIGC technology, outsourcing costs in the independent R&D and distribution work of CMGE have been reduced by more than 30%, driving a decrease in the proportion of administrative expenses, while keeping the sales expense rate within 10%, further verifying the quality of growth.

In fact, in terms of a long term, CMGE has always been maintaining a stable rhythm, and its uniqueness lies in the stability. In several cycles, CMGE still maintains a consistent strategy and values: uphold the values of “integrity and trustworthiness, transparency and openness, deep thinking, and long-term strategy”, and adhere to the mission of “casting high-quality products with love”, becoming a company that is always full of love and creativity!

The stable operation of CMGE has become an example of long-term strategy: as a Chinese gaming company, CMGE deeply understands the needs of players, adheres to the unique advantages for a long time, insists on doing difficult and correct things, and relies on endogenous motivation to achieve long-term and stable commercial growth.

Long-term strategic layout: building long-term competitive barriers with IP as the core
The strategy of CMGE is to focus on IP and provide high-quality IP games for global players through independent and joint R&D, creating a highly competitive IP game ecosystem. It is understood that as the No. one player in the domestic IP game field, CMGE has outstanding advantages in accumulating copyright in IP game, including its own IPs represented by Legend of Sword and Fairy and Richman, as well as authorized IPs such as Rakshasa Street, One Piece, Dragon Ball Z, Hokage Ninjia, Hitman Reborn, and Soul Land.

“We believe that IP will definitely become an important resource and barrier to competition in the gaming industry,” Xiao Jian stated at the conference.

In the second half of 2023, in the game market, it has become a consensus that the content will be refined and the cost for traffic and customer acquisition will continue to rise. Under the long-term trend of this industry, the value of CMGE’ long-term layout around well-known IPs is accelerating to emerge.

According to the analysis of Anxin Securities, it is believed that IP games have relative advantages over non-IP games in terms of user acquisition, version approval, and profit potential. High IP awareness, wide fan base, and high “absorption” ability can effectively reduce the cost for game customer acquisition. IP has a clear worldview and mainstream values, and the version number has a higher “approval rate”. IP based medium to heavy games have a longer lifecycle and greater payment depth. In summary, IP games have a higher success rate than regular games.

The financial report shows that in the first half of the year, CMGE achieved the intellectual property authorization revenue of approximately RMB 59.81 million, with a year-on-year growth of 94.4%. Among them, in the development of the IP for Sword and Fairy, CMGE comprehensively covers games, film and TV, anime, content literature, music, derivatives, and live entertainment and other fields, and collaborates with top partners in related fields to create an IP universe for Sword and Fairy.

Long-term independent R&D: reserve AIGC technology and adhere to independent R&D of products
The gaming industry is shifting from a traffic-based one to a content-based one. With the deepening trend of high-quality products in the gaming industry, excellent products have become the focus of competition.

Independent R&D is necessary for creating high-quality products. In addition to consolidating the IP core advantages, CMGE is also continuously enhancing its independent R&D capabilities, increasing R&D investment, exploring core independent technologies, building its own R&D team, and forming major R&D teams such as Starry Sky, Wenmai Interactive, SoftStar Technology, and Zhoujing Network. Data shows that in the first half of 2023, the investment in the R&D of CMGE was RMB 266.9 million, with a year-on-year growth of 30.6%.

A typical example is Sword and Fairy World. In order to create the first open world metaverse game with the theme of Chinese Paladin world, CMGE took 3 years for independent R&D and have invested RMB 300 million totally. At the same time, CMGE actively explored the AIGC technology empowerment, became one of the first-batch ecological partners of Baidu’s “ERNIE Bot” in March, and reached cooperation with Microsoft in cloud computing, big data, Azure OpenAI and other fields in May to develop applications such as intelligent NPC and UGC+AIGC, so as to provide an immersive experience of “everything can interact” for players of Sword and Fairy World.

After years of persistent R&D and investment, CMGE is entering a harvest period of independently developed games.
In the second half of the year, the highly anticipated Sword and Fairy World has obtained a dual-end edition No. and is expected to be launched within 2023. At the same time, the integrated SLG game City Lord’s World developed by Wenmai Interactive has entered the final testing stage. It successfully obtained a version No. in February 2023, and is planned to be exclusively released by Sanqi Mutual Entertainment in Q4 2023; the high-quality competitive sports game All-people Free Style independently developed by Zhoujing Network also obtained a version No. in May 2023, and is expected to be launched within 2023.

Epilogue
Looking ahead to the second half of the year, CMGE still shows a trend of high certainty and steady growth.

In terms of distribution business, the first large-scale multiplayer role-playing mobile game Soul Land: Shrek Academy, which is developed based on the IP of Soul Land, will be launched by CMGE in Chinese Mainland in the second half of the year; Besides, a simulated mobile game adapted based on the IP of Rural Love, named Rural Love Story, will also be launched.

In terms of R&D business, multiple independently developed games of CMGE have obtained version No. and entered the final testing stage before being launched online, including City Lord’s World, All-people Free Style, and Sword and Fairy World.

In terms of IP operation, CMGE continues to explore the IP value of Sword and Fairy in film and TV, animation, and novels, and has reached a long-term strategic cooperation with Tencent Video to jointly create the race track of Chinese Paladin world and IP of Sword and Fairy; Collaborates with iQiyi on the film and TV drama Sword and Fairy IV; Collaborates with CITIC Publishing House to release a series of works on historical versions of Sword and Fairy as physical books. As the ecological value of IP universe of Sword and Fairy continues to expand, the growth space for IP licensing revenue is further opened up.

In 2022, due to the impact of the epidemic and version No., the China’s gaming market experienced a double decline in revenue and users for the first time in the past decade. However, according to the 2023 China’s Game Industry Report for the Period from January to June, the actual sales revenue of the China’s game market in the first half of 2023 was RMB 144.263 billion, with a growth of 22.16% month on month. Obviously, there are signs of a rebound in the gaming market.

The gaming market is still a large market with hundreds of billions of dollars annually. The emergence of new technologies such as AIGC has also brought new impetus to the industry. However, no matter how the gaming market changes, CMGE insists on putting players at the center and IP at the core, working steadily, releasing and producing every high-quality product to bring players the ultimate gaming experience. The time will eventually witness the victory of our long-term strategy.

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CMGE Shares Jump Following 2022 Results Announcement; R&D investment increased 69.5%

2022 was a challenging year for the game industry. Due to the pandemic and gaming regulations, the gaming industry experienced a reduction in both revenue and user scale. In the context of pervasive uncertainties and low expectations, the market has focused on gaming company plans and financial reports.

According to the latest financial report published by CMGE Technology Group Ltd (0302.HK), operating revenue in 2022 was RMB 2,714 million, a year-on-year decrease of 31.4%, with a net loss of RMB 217 million. However, on the day after the financial report was released, CMGE’s share price jumped and closed with a one-day increase of 8.78%.

The financial report from CMGE shows that the industry continues to be affected by external factors from previous years, according to analysts. But CMGE’s share price bucked that trend, which demonstrates new confidence stemming from the financial report and anticipated business performance.

  • Strong operating revenue, with an increase of 69.5% in R&D investment

CMGE earned RMB 2,114 million from its game publishing business, RMB 453 million from its game development, and RMB 147 million from its IP licensing business. In addition, CMGE achieved a gross profit rate of 41.0%, a year-on-year increase of 3.8%, demonstrating the high profitability of its core businesses.

Mr. SIN Hendrick, Executive Director and Vice Chairman of CMGE, explained at the performance meeting that the loss of profits resulted from CMGE’s provision of investment impairment and other non-operating expenses of RMB193 million from companies in which CMGE invests. In addition, CMGE’s provision of non-operating financial and contractual asset impairments of RMB 137 million was also a factor. If non-operating impairment and other non-operating expenses were not included in financial accounting, CMGE would have achieved profits from its operations in 2022. According to analysts the provision of impairment is based on the prudence principle of accounting and impacts financial results on a one-time basis.

In response to uncertain external factors, gaming companies have focused on cost reductions and efficiency improvements in recent years. CMGE has long been engaged in R&D and continuously increasing investment in this area, while reducing unnecessary costs and improving its gross profit. According to the financial report, CMGE invested RMB 527 million in R&D in 2022, a record year-on-year increase of 69.5%. Meanwhile, R&D personnel reached 650 employees, accounting for 55.8% of CMGE’s total staff.

Supported by continuous investment, CMGE has fully implemented its strategy for independent development of quality products, ensuring supplies of such products and laying a solid foundation for the start of its second growth curve. Furthermore, the results achieved by CMGE in game development in 2022 show the company’s strong ability to independently develop quality games.

In the first month after its launch in the domestic market, “The King of Fighters: All Stars”, a 3D mobile game independently developed and distributed by CMGE, stood at the top of the free games ranking in Chinese mainland’s Apple App Store. As of December 31, 2022, “Legend of Sword and Fairy 7”, developed and launched by CMGE in the second half of 2021, had seen total sales of more than 510,000 PC units, 210,000 cloud-based units, and 70,000 host units.

Meanwhile, subject to continuous optimization and meticulous management, “The World of Legend – Thunder Empire” and “Legend of Dragon City” and other existing games have been generating recurring income and profit for CMGE as well.

Through developing and maintaining games with strong IP components, CMGE is clearly seeking greater possibilities in global markets.

  • Three-year R&D efforts are expected to produce superior results

Xiao Jian, Executive Director, Chairman and CEO of CMGE, said at the performance meeting, “CMGE is making every effort to build the first Chinese-style metaverse-style game with open elements in China – a ‘Chinese Paladin: Sword and Fairy World’. We will launch its conceptual PV on April 20 and its real PV on April 27, and implement initial testing around late May and early June this year.”

“Sword and Fairy World” was developed for Chinese fans of the franchise by Starry Sky Studio under CMGE based on Chinese Paladin IP. By introducing the model of ‘game, entertainment, community, consumption’ the game will offer a real-virtual open world for creation and sharing by players. To create Sword and Fairy World a specialized R&D team at CMGE has spent three years and invested heavily to develop such a game independently.

Industry insiders agree that “Sword and Fairy World” is a hotly anticipated game from CMGE for players and investors alike as it boasts major features of a long-term popular gaming brand.

Firstly, developed based on CMGE’s Legend of Sword and Fairy IP, the game is naturally expected to be well received by players. According to data, that game has more than 600 million users in China and elsewhere around the world.

Secondly, it is an immersive mythology-based game developed by CMGE after three years of R&D. With eight major technological innovations such as 24-hour lighting, a dynamic weather system, real water flow effects, non-player character (NPC) AI, open world technology, simultaneous online capacity for millions of users, high-definition modeling, multi-dimensional facial graphics, as well as UGC creation tools, it opens a Chinese Paladin world, filling a key gap in this sector. As one of the first partners of ERNIE Bot, CMGE uses AIGC technology for intelligent NPC interaction, marketing, script creation and art production for game R&D, which reduces costs and improves efficiency.

Thirdly, “Sword and Fairy World” focuses on open elements while introducing the latest metaverse elements. In the game, the Chinese Paladin Metaverse provides experiences such as UGC creation, leisure, social entertainment, and virtual performances. “Chinese Paladin: The World” engages players in the construction and development of this metaverse that is independent from the real world.

2023 will mark a milestone for CMGE. With the normalized distribution of games under regulatory supervision, CMGE will release its new products to the market step by step. Since obtaining authorization from gaming authorities, several mobile games, including “Cultivation Fantasy” and “Sword and Fairy: Wen Qing” are scheduled for release in the first half of 2023. More importantly, the launch of CMGE’s self-developed game, “Sword and Fairy World” is expected to support future sustainable growth and further improve the company’s performance.

In terms of the long-term significance of “Sword and Fairy World”, CMGE wishes to implement the concept of ‘Games as Platforms’. The company also expects to achieve its strategic vision of incorporating IP-based game ecosystems with own well-known IP brand and the Chinese Paladin Metaverse platform, while building itself into an outstanding gaming company with sustainable growth and popular products.

Focusing on player-centered services and quality products, CMGE is comprehensively developing its own IP-related business and striving to create new areas of growth. As Xiao Jian said, “As long as we concentrate on product development and player services, results will surely be achieved.”

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