We focus on the development of browser and mobile games. During the Track Record Period and up to the Latest Practicable Date, we did not operate any of our games.
We set out below our business model during the Track Record Period:
Our Group Licensed
operators Game players
Payment of (i) license fees and/or (ii) royalties
Customer services Exclusive/ non-exclusive rights1 Payment (through payment channel designated by licensed operators) Note:
1. According to the terms of our licensing agreements, our Group grants exclusive and/or non-exclusive rights to operate, publish and distribute our self-developed browser and mobile games to licensed operators.
Our revenue model
The following table illustrates a brief layout of our revenue model:
Revenue type Computation basis
(a) License fees Pre-determined license fees in accordance with the
contractual terms agreed with our licensed
operators for granting the exclusive operating rights for specified games within an agreed period and designated territories.
(b) Royalties Pre-determined percentage sharing (ranging from
approximately 5.0% to 52.5% and 15.0% to 50.0% for browser versions and mobile versions,
respectively) of net sales of credits of our licensed operators which have been exchanged into our in- game tokens purchased through platforms
designated by our licensed operators in accordance with the terms of our licensing agreements agreed with our licensed operators.
We set out below the steps in relation to the purchase of credits, their exchange into in-game tokens and conversion into virtual items and premium features:
Purchase of credits through platforms designated by licensed operators Exchange of credits into in-game tokens instantly or at a later time Conversion of in-game tokens into virtual items
and premium features
For further details, please refer to the sub-section headed “Licensed operators – Pricing of in-game tokens” in this section.
During the Track Record Period, royalties constituted our major source of revenue. The following table sets forth our revenue derived from license fees and royalties for the browser and mobile versions of our games during the Track Record Period:
For the year ended 31 December For the seven months ended 31 July
2013 2014 2014 2015 RMB’000 % RMB’000 % RMB’000 % RMB’000 % (unaudited) Browser version 18,043 97.7 21,521 94.3 12,963 95.1 13,391 95.9 License fees 2,271 12.3 2,486 10.9 1,752 12.9 1,140 8.2 Royalties 15,772 85.4 19,035 83.4 11,211 82.2 12,251 87.7 Mobile version 416 2.3 1,292 5.7 664 4.9 570 4.1 License fees 83 0.5 555 2.5 259 1.9 363 2.6 Royalties 333 1.8 737 3.2 405 3.0 207 1.5 Total 18,459 100.0 22,813 100.0 13,627 100.0 13,961 100.0
Our browser and mobile games development
Our game development process is led by our executive Directors and senior management, executed by our project development department and supported by our project support department, both headed by our experienced senior management. Our executive Director and CEO, Mr. Huang, is responsible for formulating our corporate and business strategies and being responsible for our daily operation and management; our executive Director and chief planning officer, Mr. Wu, is responsible for formulating our corporate and business strategies, strategic planning and the development of our games; and our executive Director and chief technology officer, Mr. Rao, is responsible for formulating our corporate and business strategies in relation to the development and operation of our games as well as research and planning of new technology. Our project development department and project support department are headed by our senior management, Mr. Xu Jing and Mr. Chen Xuan, respectively.
For further details on our Director’s and our senior management’s experience in game development, please refer to their respective biographies set forth in the section headed “Directors and senior management” in this prospectus.
Our success in developing new games relies on our existing Directors and senior management and our game development process may be materially and adversely affected if we are unable to retain their services. For further details, please refer to the section headed “Risk factors – Risks relating to our industry – Our success depends on the continuous efforts of our existing executive Directors, senior management and other key technical personnel, and our business may be materially and adversely affected if we are unable to retain their services” in this prospectus.
Our Directors considers that our executive Directors, especially Mr. Wu and Mr. Rao, and Mr. Xu Jing and Mr. Chen Xuan, being our senior management, are the key personnel responsible for game development processes in the Group during the Track Record Period. In order to retain our Directors and senior management, in particular, those responsible for our game development process, we entered into services agreements with each of Mr. Huang, Mr. Wu and Mr. Rao, being our executive Directors, which may only be terminated by each of them giving not less than six months’ notice in writing to our Company and contain restrictive covenants that prohibit each of them engaging or in any way becoming interested in any business in competition with our Group for a period of one year after the cessation of service with our Group. In addition, Mr. Huang, Mr. Wu and Mr. Rao are our Substantial Shareholders after the Listing. They have entered into the Deed of Non-Competition in favour of our Company (for itself and as trustee for our subsidiaries from time to time), particulars of which are set out in the sub-section headed “Relationship with our Controlling Shareholders – Deed of Non-Competition” in this prospectus. We also entered into employment contracts with each of Mr. Xu Jing and Mr. Chen Xuan, being our senior management, which may only be terminated by each of them giving not less than 60 days’ notice in writing to our Company and contain restrictive covenants that prohibit each of them engaging or in any way becoming interested in any business in competition with our Group for a period of one year after the termination of employment with our Group. Furthermore, in order to retain our Directors and senior management, we generally offer discretionary bonuses on annual basis to executive Directors and senior management, which based on our results, individual performance and other relevant factors. For details, please refer to section headed “Directors and senior management – Emolument of Directors and management” in this prospectus.
In addition, we have over 50 personnel in the project development department throughout the Track Record Period. Accordingly, our Directors reasonably believe that we have sufficient capacity to ensure the game development process will not be materially affected by any change in composition of game development team in the project development department.
Thus, based on the abovementioned measures, our Directors reasonably believe that we have sufficiently mitigated the risks of reliance on our Directors, senior management and other technical personnel in the game development process.
Our browser and mobile games development process
Our browser and mobile games development process typically involves several critical stages from game inception and evaluation, game development and programming, internal review and optimisation, external review and optimisation and commercialisation. Such game development cycle generally takes between seven to fourteen months depending on the complexity of the gameplay, game content and requirements in relation to the operating platform.
Set out below are the principal stages of our game development and commercialisation process:
Game Inception and Evaluation one to two months three to five months two to four months Game development and
programming
Internal review and
optimisation
}
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Stage Duration one to three months on-going External review andoptimisation
Commercialisation
}
Further licensing, subsequent updates and optimisation
Our project development department maintains regular contact with our licensed operators. As a result, we are able to effectively receive timely feedback and suggestions from our licensed operators on ways to enhance the in-game experience of players. The feedback and suggestions we receive typically forms the basis for our game development, upgrades and updates.
Game inception and evaluation
We typically encourage our management and employees to propose creative ideas when conceptualising new games. Our review committee shall review the preliminary proposal which sets out the gameplay theme and graphic style of the proposed new game. The review committee consists of members of our Directors and senior management, and is involved during each stage of the game development process and determines whether a proposal can proceed to the next development stage. When reviewing the gameplay theme, the review committee will analyse the prevailing market conditions and other games of a similar genres. Once a game idea has been approved by our review committee, our management will set up a team from our project development department to prepare a development plan for the new game. This will typically include development plans for the proposed story background, graphic design, audio and estimated development budget. It is also at this stage that our management will decide whether to outsource part of the graphic design and audio production of sounds effects and background music of our games, taking into consideration various factors such as our business capacity, availability of internal resources, timeframe and specific technical requirements.
At this stage, programming for the project has not yet commenced and such planning activities would be recognised as research stage in accordance with the applicable accounting standards. Related expenses incurred during this stage should be expensed to profit or loss.
Game inception and evaluation generally requires one to two months to complete.
Game development and programming
Upon approval from the review committee, our game development team will then commence the development and programming work, including developing the program source code for our games, graphic design, audio production and character setting. Depending on the development schedule, we may outsource certain works such as part of the graphic design and audio production of sound effects and background music to third parties. We typically choose from a pool of out-sourced service suppliers that we have engaged previously or which we find their quality of work to be acceptable. We believe this arrangement is the industry norm. At the conclusion of this stage, the game development team will generate the demo version of the game for further testing, internal review and optimisation.
Such activities are classified as the development stage of the project in accordance with the applicable accounting standards, and development costs directly incurred by the project in this stage, such as salaries for staff, outsourcing of graphic design and audio production of sound effects and background music of our games, would be capitalised as intangible assets.
Game production and development generally requires three to five months to complete.
Internal review and optimisation
The internal review and optimisation stage is the initial phase of software testing.
After generating the demo version, we will assign several members of our project support department to perform internal testing to ensure the basic functions, characters and scenes of the game are properly set and to conduct debugging of software.
According to the findings from the internal test play, the game development team will then optimise and adjust the game to produce an external review version. The external review version must then be approved by the review committee before the external review can commence.
External review and optimisation
At this stage, we typically have already engaged the licensed operators for the new game. Our licensed operators will be responsible for inviting external game players to play the game. This enables us to test the game under open market conditions. If we have not entered into any licensing agreements with potential operators, we may also arrange for the signing of non-binding letters of intent for licensing our games to them.
(i) Closed beta testing
Closed beta testing involves the release of a closed beta version of the game to a limited group of external game players for their feedback.
During this stage, we monitor and analyse game players’ behaviour and reactions.
(ii) Open beta testing
Open beta testing involves the release of an open beta version of the game to a larger group of external game players who play the game and give us their feedback through our licensed operators. This enables us to demonstrate the game to potential operators who may suggest additional features in the final version and to report any software bugs that may not have been discovered during earlier internal review stages.
Our licensed operators typically release open beta versions of the new game to external game players in their licensed territories for further review and feedback. We generally give preference to those operators who participated in the closed and open beta testing when selecting licensed operators to commercialise the new game.
External review and optimisation can generally be completed within one to three months.
Commercialisation
Once the open beta version of the new game has been favourably received during the review stages, our licensed operator will proceed to designate the payment channels for the game. A new game is considered to be commercially launched when credits can be exchanged for our in-game tokens.
Further licensing, subsequent updates and optimisation
Following commercialisation of our game and through our regular contact with our licensed operators, we provide technical support to our licensed operators on an as-needed basis to enhance game optimisation. This typically comes in the form of in-game maintenance, updates, upgrades as well as troubleshooting and debugging exercises.