Cloud Imperium Games Filed A 10:1 Share Split In October

In about 4-5 weeks Cloud Imperium Games is expected to publish financial information covering 2021 on its website. As part of my preparation to write about the article, I searched on the UK's Companies House for filing information on Cloud Imperium UK LTD. While the company has not yet filed its accounts for 2021, I did see a notice of sub-division of shares filed on 10 October 2022.

Posted on Companies House 20 Oct 2022

For an explanation for what a sub-division is in the U.K., I went to CompanyWizard, a company that specializes incorporating new companies in the U.K. A subdivision, or share split, is:

Share splitting is an option open to companies whereby each share will be subdivided into two or more new shares. This means that the individual will hold more shares but each share will have a lower nominal value.

A straightforward split will not change the shareholders’ rights, this means that the voting control and rights to dividends will be unchanged after the split. All that has changed is the number of shares and the nominal value of each share.

Before writing this post, I asked around on why CIG might have conducted a share split. A passage from the CompanyWizard website summarized the answers I received.

The main reason for doing a share split is to improve the liquidity of the company’s shares.

For example, if a company owner has just 1 ordinary share with a nominal value of £1 they cannot sell half a share, but if there were 100 ordinary shares with a nominal value of 1p, the owner could choose to sell 50 shares. In the same way, a new investor might no be comfortable investing £1000 and only receiving one share, however, they may be more comfortable receiving 1000 shares worth £1 each.

Share splits are frequently done by publicly quoted companies because it can reduce the share price in line with the split, but it does not reduce the market value of the company.

"Improving the liquidity of the company's shares" sounds like CIG possibly is seeking additional outside investment into the company. Considering CIG is experiencing the highest revenue in its history in 2022, with sales to exceed well past $100 million, the news might come as a surprise.

The last time CIG conducted a share split was in December 2017, when the stock split from 100 to 1 million shares. The announcement of the Calders' investment in CIG was not made until December 2018. I should note that the appointments of Ezer Klein and Daniel Offner to the CIG board of directors on 23 May 2018 were likely connected to the $46 million investment the Calders made in 2018.

Another possibility is much more benign. With the current inflationary economy in the United Kingdom, which rose at a rate of 11.1% from October 2021 to October 2022, the leadership might have decided to pass out shares instead of big pay raises as compensation. By conducting a 10:1 share split to create over 11 million shares, employees might feel more appreciated at receiving 10 or 20 shares instead of 1 or 2.

Either way, the public is unlikely to find out the truth for a few months, if not for a year or two. For now, we just have a tantalizing filing announcing a 10:1 share split occurred in October.

Blizzard Entertainment And NetEase Parting Ways ... Almost

On Wednesday evening Blizzard Entertainment announced the suspension of services for most of its catalog of games in the People's Republic of China.

IRVINE, Calif.--(BUSINESS WIRE)--Blizzard Entertainment, Inc. announced today that it will be suspending most Blizzard game services in mainland China due to the expiration of the current licensing agreements with NetEase, Inc. on January 23, 2023. This includes World of Warcraft®, Hearthstone®, Warcraft® III: Reforged, Overwatch®, the StarCraft® series, Diablo III®, and Heroes of the Storm®. Diablo Immortal® co-development and publishing is covered under a separate agreement between the two companies.

Blizzard Entertainment has had licensing agreements with NetEase since 2008, covering the publication of these Blizzard titles in China. The two parties have not reached a deal to renew the agreements that is consistent with Blizzard’s operating principles and commitments to players and employees, and the agreements are set to expire in January 2023.

We will suspend new sales in the coming days and Chinese players will be receiving details of how this will work soon. Upcoming releases for World of Warcraft: Dragonflight, Hearthstone: March of the Lich King, and season 2 of Overwatch 2 will proceed later this year.

“We’re immensely grateful for the passion our Chinese community has shown throughout the nearly 20 years we’ve been bringing our games to China through NetEase and other partners,” said Mike Ybarra, president, Blizzard Entertainment. “Their enthusiasm and creativity inspire us, and we are looking for alternatives to bring our games back to players in the future.”

Notably, the latest collaboration between Blizzard and NetEase, Diablo Immortal, falls under a separate agreement and service will continue uninterrupted.

Blizzard has faced switching publishers in China at the end of a contract before. In 2009, Blizzard switched from The9, the original publisher in the PRC, to NetEase following The9's failure to receive approval from the General Administration of Press and Publications (GAPP) for the Wrath of the Lich King expansion.

SHANGHAI, Apr 16, 2009 (BUSINESS WIRE) -- Blizzard Entertainment, Inc. and NetEase.com, Inc. (NASDAQ: NTES) today announced that Blizzard Entertainment(R)'s World of Warcraft(R) will be licensed to an affiliated company of NetEase.com, Inc. in mainland China for a term of 3 years following the expiration of the current license agreement.

Both companies announced a partnership on Blizzard Entertainment's Warcraft(R) III,StarCraft(R) II, and Battle.net(R) gaming platform last summer. Today's announcement further enhances the partnership between Blizzard Entertainment and NetEase and promotes a consistent level of quality and service in mainland China for all Blizzard Entertainment games involved in the partnership.

"We appreciate the enthusiasm that Chinese gamers have shown us over the years, and we've always worked hard, in collaboration with our partners, to ensure that these players receive the same high-quality service and gameplay experiences that we deliver in other regions," said Mike Morhaime, CEO and cofounder of Blizzard Entertainment. "This new agreement with NetEase will support that goal for years to come, and we look forward to collaborating with them on a smooth transition for World of Warcraft moving forward."

"We are excited to be working with Blizzard Entertainment now on World of Warcraft in addition to Warcraft III, StarCraft II, and Battle.net," stated William Ding, CEO of NetEase. "By combining Blizzard Entertainment's expertise in developing world-class games with NetEase's strength in online-game operation in China, I am confident that we will be able to deliver the best gaming experiences in the world to our players."

Of course, the new deal also increased Blizzard Entertainment's bottom line.

According to Wedbush Morgan analyst Michael Pachter, the new contract with NetEase substantially increases Activision Blizzard's royalty rate on revenues from WoW in China. He estimates that with The9, Activision Blizzard collected a 22 percent royalty rate that translates into $50-$55 million annually based on recent subscriber figures. "Although the terms of the new arrangement were not disclosed, we estimate that the royalty rate will increase to at least 55%, and that the new arrangement will generate revenues of over $140 million annually,"

However, only allowing for two months to transfer publishing rights from The9 and NetEase was not enough to prevent a break in service. NetEase became embroiled in a bureaucratic battle between the GAPP and PRC's Ministry of Culture which prevented operation of the game. Despite acquiring the rights to publish WoW in April 2009, NetEase did not receive approval to operate The Burning Crusade, much less Wrath of the Lich King, in the PRC until February 2010. The Wrath of the Lich King finally launched in China on 31 August 2010.

The lengthy approval process for western video games to resume operation in the People's Republic after switching publishers still occurs. In July 2018, CCP Games, operator of EVE Online, switched publishers from Tiancity to NetEase, with NetEase to take over operations on 1 October 2018. But NetEase did not receive approval to operate EVE in the PRC until March 2020. The game relaunched in April 2020.

Given the previous examples of Blizzard's change of publishers for World of Warcraft in 2009 and CCP Games switch in publishers for EVE Online in 2018, we should expect some news of a new Chinese publisher for most of Blizzard's game catalog sometime in the next two weeks. But as for the ability of Chinese players to access their current accounts? Optimistically, that is months away.

Pearl Abyss Q3 2022 Earnings Call

Yesterday Pearl Abyss held an earnings call covering the third quarter of 2022. The South Korean company was able to report operating revenue of ₩97.3 billion, a 3.5% quarter-over-quarter (QoQ) increase and a year-over-year (YoY) increase compared to Q3 2021 of 0.9%. 

After the payment of employee incentives last quarter, Pearl Abyss' operating profit returned to the black, recording a YoY increase of 17.6% up to ₩12 billion. Net profit declined 33.4% from the second quarter as profits were inflated in the previous quarter due to tax refunds.

In the third quarter, gaming revenue from Pearl Abyss' main gaming IPs, Black Desert and EVE, increased 4.5%, to ₩96 billion. Black Desert revenue rose for the third quarter in a row, with quarter-over-quarter growth of 3.1% and YoY growth of 8%. EVE IP revenue grew ₩1.8 billion from Q2 to Q3 2022, from ₩17.6 to ₩19.4 billion. The 10.2% increase was even worthy of a call-out by the Pearl Abyss executives on the call. However, when an analyst asked if the increased EVE revenue was what investors should expect going forward or just a one-time event, the executives ducked the question.

The executives had a good reason to avoid answering the question. Q2 2022 was the first full quarter after the big price hike in May. Pearl Abyss Iceland (more commonly known as CCP Games) converts all revenue to US dollars and reports that number to the company headquarters in Anyang, South Korea. From there, the figure is converted from dollars to won. Using the monetary conversion rates from Xe.com on the last day of the quarter, the EVE IP made $13.6 million in the 3rd quarter, a 0.7% increase over the $13.5 million EVE Online and EVE Echoes took in from April to June 2022.

During the question and answer period, one of the analysts asked about commissions. While sales are up, the amount paid in commissions fell 22.3%, down to ₩16.6 billion. Pearl Abyss explained the decline was in large part due to the decline in mobile game sales. In the 3rd quarter, mobile revenue only made up 16% of Pearl Abyss' gaming revenue. In contrast, PC games now make up 77% of Pearl Abyss sales. Looking back to the first quarter of 2020, mobile games have made up a continuously shrinking part of the company's revenue as Black Desert Mobile continued to shrink. In Q1 2020, mobile games made up 54% (₩71.8 billion) of gaming revenue as opposed to 35% (₩46.5 billion) for PC sales. In Q3 2022, the numbers for mobile sales are 16% (₩15.4 billion) of PA's revenue vs PC sales making up 77% (₩73.9 billion).

A big topic of interest was the status of Crimson Desert. Pearl Abyss in the past stated that upcoming games like DokeV will not be published until Crimson Desert launches. The game was originally planned to have a Winter 2021 release date. However, the CEO refused to commit to releasing a gameplay trailer in the remaining weeks of 2022. He did reveal the company expects to release Crimson Desert sometime in the second half of 2023 and has approximately 50% of PA's 900 developers working on the game.

A rumor brought up by an analyst has hit the DokeV sub-Reddit, so I might as well report on it. One analyst brought up the decline of 59 employees from Q2 to Q3 2022. The loss of developers fell from 977 to 907. The executives tried to explain the drop to the end of an internship program that PA had mentioned on a call earlier in the year. Looking back through the records, the current employee totals are the lowest since Q1 2021.

Another analyst stepped up and asked about a rumor that the core development team for DokeV quit. I don't know where the rumor came from, but it did garner some attention. However, Pearl Abyss is aiming for a release of the game sometime in 2024.

A third game under development, Black Clover, also received some attention. First mentioned on the Q4 2021 earnings call, Black Clover is a game designed for the Japanese market based on the Black Clover IP. Originally announced to launch in the second half of 2022, the game release is now expected sometime in the first half of 2023.

Finally, Pearl Abyss told investors that the company continues work on Web3/blockchain technology in video games. CCP is still the studio working on implementing the tech, but will do so in a new game under development. The executives on the call noted the sustained negative feedback from players led to the decision not to try to introduce things like NFTs into CCP's current games.

The Cyno Is Now Lit

I wound up on r/eve last night reading a post from Katia Sae, the CEO of Signal Cartel. As often happens in a game nearly 20 years old, a player died in real life and the leadership of a player group needed to handle the final details of a players life in a virtual world. 

In EVE Online, players remember the real world dead with a tradition known as a cyno vigil:

Funeral rites are a long-standing tradition in MMORPGs, where player avatars gather together to show respect to fallen friends and enemies alike. In EVE, the tradition often involves what is called a “cyno vigil.” Groups of players gather in a set spot in ships equipped with a cynosural beacon. The in-game purpose of these beacons is to create a signal strong enough for massive capital-class vessels to use as navigation beacons, like a lighthouse shining into a dark night, showing the way home. These beacons ignite the liquid ozone stored in a ship’s hold to create a fire in space visible from light years away, creating a candle blazing in the darkness.

Sometimes hundreds of individual players attend these funerals, each adding their own candle flame to the vigil.

Mourners also attend after equipping their ships with harmless firework launchers, creating dazzling displays of color and noise. These players prefer to express their respects and grief with celebration and extravagance. Some even go as far as to offer their own vessels as a sacrifice in memoriam, either asking their attendees to destroy their ship, or self destructing them in viking-esque rituals.

A poem also exists to commemorate the passing of a player.

Eyes forward, capsuleer, the cyno is not yet lit. 

Consider your modules, your rigs and ammo before you undock, for the cyno is not yet lit. 

Break free of the station and witness the universe before you, For the cyno is not yet lit. 

Set your ship to fly through the vastness while you wait, For the cyno is not yet lit. 

Pay attention, capsuleer, for those who have gone before you call for you to join them. The cyno is now lit.

Perhaps ironically, the first search result on YouTube for They Cyno Is Not Yet Lit points to Katia Sae's channel.

For the cyno vigil for Zinov, a player who succumbed to kidney cancer on 11 October, the Signal Cartel fleet will depart the Zoohen III - Theology Council Tribunal at 1800 EVE time on Sunday, 6 November. The fleet will make its way to the Fallen Capsuleer Memorial at Molea II, Moon 1 for the can placement ceremony. As the fleet doctrine will be Signal's signature (at least in my time in the corp) hugs fleet, attendees should bring lots of fireworks. Afterwords, the fleet will wind up at Assez X - Moon 1 to hold a cyno vigil.

Cloud Imperium Games Makes $7.8 million In October 2022

Just a quick update on the continuing saga of Star Citizen. Without the massive stream of funding the company enjoys, Cloud Imperium Games will have to shut its doors without completing either Squadron 42 or Star Citizen. Fortunately for its customers, the money train continued to roll in October 2022. 

According to the crowdfunding spreadsheet, CIG made $7.8 million in sales in October, lifting the year's total to $82.4 million. Over the past 12 months, CIG's revenue based on ship and vehicle sales was $113.2 million.

Not all is going well for the company. Alpha patch 3.18 is still delayed and possibly will not reach the Persistent Universe until early 2023. Erin Roberts, the Global Head of Production and Chris Roberts' brother, reportedly let slip at a player meet-up that Squadron 42 is 2 years away from release. But with the Intergalactic Aerospace Expo running from 18-30 November, CIG's revenue will almost assuredly reach $100 million for 2022. Not bad for a game with 2 games still in alpha after 10 years.