As we all know, since October 2023, ByteDance's two major heavy game businesses, Chaoxi Lightyear and Mutong Technology, have been in a state of negotiation. In the current market environment, finding a buyer for such a huge business is no easy task. It's no exaggeration to say that the entire gaming industry in China and half the world is caught up in the mix, and rumors pop up every day (especially the famously imaginative A** scene), but these rumors are not officially recognized.
In the past week, I have communicated with many friends in the game industry and related intermediary fields, and I have a general understanding of some of the progress of ByteDance's game business**. The situation I understand is roughly as follows:
There are many potential buyers, but not many actually enter the negotiation process;Among them, there is not a single A-share company.
Mutong Technology is obviously more sought-after than Chaoxi Lightyear, and can survive as a complete establishment.
The whole process will greatly strengthen the relationship between Tencent and ByteDance, which is not necessarily good for other Internet companies.
Let's start with the first one. Nearly all of the big gaming companies have expressed interest in all or part of ByteDance's gaming business, but not many have qualified to sit at the table. First of all, the price is very expensive, and ByteDance's price tag for Chaoxi Lightyear and Mutong Technology is in the order of billions of dollars, even if the price is greatly cut, most companies will not be able to eat it. Secondly, ByteDance is not short of money, and will consider more strategic significance (such as whether it can get the other party's favor) when it comes to **. Thirdly, the current market environment severely restricts the willingness of most potential buyers, and only the buyers with the most resources dare to make a move at this point in time.
Therefore, in the past three months, only a very small number of "giant" companies have really entered the substantive contact process - including Tencent and NetEase, which have been guessed, as well as several overseas technology companies. Note that while there are twenty or thirty A-share listed companies in the market that claim (or are claimed by sell-side analysts) to be about to "take over the legacy of ByteDance's gaming business", my research shows that these claims are unfounded. To date, no A-share company has ever formally approached ByteDance for its gaming business.
Of course, it is still possible for A-share game companies to "indirectly benefit": ByteDance will no longer make games (to be precise, it will not do heavy games, hyper-casual games are still doing), and may release some traffic resources and talent resources, so that the entire industry will become less volatile, and so on. However, these "benefits" are very macroscopic, and the impact on each game company is negligible, and the impact on actual business and performance is better than nothing.
Having said that, there shouldn't be any investor who really understands games and expects an A-share listed company to "eat the legacy of ByteDance's gaming business" — which is as ridiculous as thinking that a small Central Asian country can eat the legacy of Alexander the Great. The hype surrounding the "ByteDance Game Legacy" is just the result of the extreme lack of hype materials in the A-share game industry (and even the entire media industry) recently, and has no actual discussion value.
Let's talk about the second one. As an independently operated entity (reporting directly to ByteDance's management), Mutong Technology is clearly more sought-after than Chaoxi Lightyear for three reasons: First, Mobile Legends is a high-DAU esports game with a long life cycle and a solid fan base, which is obviously more valuable than those MMO games of Chaoxi Lightyear. Secondly, Mutong's user base is almost all overseas (especially in Southeast Asia), which is in line with the general trend of domestic game companies going overseas and is also attractive to overseas technology giants. Thirdly, Mu Tong's management is quite professional and focused on company management, with a clear plan for the future, which is in stark contrast to the morning and evening light years.
Therefore, Mutong Technology can almost certainly be preserved as a complete structure. As long as ByteDance is willing to discount valuations, at least two buyers (one domestic and one foreign) are willing to make an immediate move. Even if the two sides can't get along, ByteDance can completely let Mutong Technology raise funds and even go public, which is always promising, as long as there are no major accidents in Mobile Legends products during this period.
The only attractive asset under its umbrella is Crystal Nucleus - although subject to the chaotic management system and internal accounting mechanism, the ROI of Crystal Nucleus is far less high than that advocated by some games, but as a game product, it can generate stable cash flow and some profits. The question is, how high should buyers give Crystal Nucleus a valuation multiple?As we all know, the life cycle of MMO games with high ARPPU is very unstable, not to mention that "Crystal Nucleus" lacks both IP strength and obvious traces of following the trend DNF. No one can judge how much turnover it will have by the end of 2024.
As for Lightyear's other products, including Planet: Reboot and those that haven't been released yet, the acquisition value is even smaller. Some people will say: "The self-research team of Chaoxi Lightyear is still valuable, even if it is a giant like Tencent and NetEase, it needs to supplement self-research talents." That's a good idea, but Tencent, NetEase (and any other game company) could just wait for Lightyear to shut down their own studios and bring those employees back — and they'd be even more appreciative.
When the dust settles, we should see that Mutong Technology still exists as an independent entity (we just don't know who its parent company will be), and some of the businesses of Chaoxi Lightyear have been **, some have been closed or internally digested. The vast majority of the game development talent that Sunrise has recruited in the past five years will return to Tencent, NetEase and other first-tier manufacturers, but the latter two should not need to spend money to acquire.
Let's talk about the third one. In the ** process of Mutong Technology and Chaoxi Lightyear, Tencent is one of the most important potential buyers. Since June 2021, the relationship between Tencent and ByteDance has been repaired, and business cooperation has been launched at multiple levels. In December 2023, "Yuan Dream Star" was overwhelmingly launched on Douyin, and it had some effects (although the sustainability remains to be seen). Now that ByteDance has given up on challenging Tencent in the heavy-duty gaming space, it should only be a matter of time before the two companies continue to deepen their cooperation.
Whether from the perspective of financial resources or strategic layout, Tencent is the most qualified to take over Mutong, and the two did carry out in-depth negotiations at the beginning of 2021 - but at that time, ByteDance disrupted the situation with a very high **. Tencent may not have much interest in "Crystal Nucleus", but as long as the ** is low enough, anything is possible. The products being developed by Chaoxi Lightyear are not necessarily without what Tencent Games wants. While it's too early to tell, I wouldn't be surprised if Tencent ends up being the biggest receiver of ByteDance's gaming legacy.
Some people will be concerned about the antitrust factor in the M&A process. This factor is important, but it is not insurmountable. As can be seen from the enterprise registration documents, Tencent has resumed its investment in domestic game companies in the first half of 2023. Over the past two years, Tencent's investment in gaming has slowed dramatically, not so much because of the impact of antitrust, but because the strategic marginal effect of investment has been much less than before. After all, games are not a platform business, and there is no precedent for investment and M&A in the game industry to be stopped by anti-monopoly, so I don't think this is a big problem. ByteDance must have considered the above issues before launching the ** game business.
If Tencent does take over ByteDance's game business and is willing to give a certain degree of preferential treatment in terms of valuation, then the relationship between the two sides will be even closer - Tencent Games needs Douyin's traffic resources, and Douyin needs Tencent Games' advertising budget, and the two sides hit it off. In addition, Tencent** and Tencent** also urgently need the platform Douyin to publicize their original works. Although the entry of WeChat ** account into e-commerce will pose some strategic threats to Douyin e-commerce, this threat is still relatively far away. At least in 2024, Tencent and ByteDance will enter a "honeymoon period", and communication and cooperation from the top to the grassroots will become closer.
And that's certainly not a good thing for other Internet companies. Take the game industry as an example, NetEase's "Egg Boy Party" was able to become popular, largely thanks to the proper use of the Douyin channel. In addition, in the context of the rapprochement between Tencent and ByteDance, Kuaishou and Bilibili, as strategic investment objects, have a big question mark over how much strategic value they have for Tencent. The ** of Chaoxi Lightyear and Mutong Technology is a small problem in itself, and the domino effect caused by it is a big problem.
As for when this series of dominoes will fall, and how the pattern of the entire Internet industry will change after the fall, let's wait and see (it should be a matter of the next few months).