"Mr. Smith, since you insist on hearing it, I'll say this upfront. I have great confidence in my company and in myself. So the valuation in my mind will be very high. What I'm about to say is my genuine belief—not a trick—so please don't be upset when you hear it."
Lin Baicheng laid the cards on the table early, just to avoid any misunderstanding or unpleasantness later.
"Please, go ahead, Mr. Lin."Phil Smith nodded, indicating he understood.
Lin raised a single finger and said seriously,"One billion U.S. dollars. That's my valuation of Xinghe Games."
"One... billion?!"
The interpreter cried out in shock. Even without translation, Phil Smith understood perfectly what Lin had just said.
"Mr. Lin, that's impossible!"
Though recalling Lin's earlier warning kept him from getting angry, Phil was still speechless."Mr. Lin, I think you may have a misunderstanding about corporate valuation. Normally, in the capital market, a private company is valued at roughly ten times its annual profit, with adjustments up or down depending on the outlook—five times, fifteen times, things like that."
"If you say one billion dollars, then Xinghe Games must be making one hundred million in annual profit. Even at a generous twenty-times P/E ratio, you'd still need five million dollars in yearly earnings."
"I agree your Hong Kong Blocks game is promising, but I don't think it could possibly bring in that kind of profit. Ten billion dollars could probably buy ten Atari companies! Don't forget, Atari is America's biggest game company."
"That's why I said my valuation is very high."
Lin smiled lightly and didn't bother explaining further. After all, he wasn't asking Phil to invest.He knew very well that as long as Xinghe Games stayed on course, its market value would easily exceed a billion dollars in a few years.
Still, if someone did offer that kind of valuation right now, Lin would have no hesitation taking the money and investing elsewhere.
"Mr. Smith, let's talk about the game's distribution instead."
"Fine. Let's discuss the distribution rights then."
Phil Smith dropped the investment idea—Lin's price was way beyond reach. Fortunately, he had already prepared for rejection. What he truly wanted was the exclusive North American distribution rights for Hong Kong Blocks.
"Mr. Lin, I'd like to acquire the exclusive distribution rights for North America. What are your terms?"
North America, of course, didn't just mean the U.S.—it included Canada as well, which was practically America's backyard. So U.S. businessmen usually considered both together.
Lin didn't answer immediately."Mr. Smith, if I may, I still don't know the scale of your company. Could you introduce it first?"
Phil replied, "I'm new to the business myself, but I've acquired an old, established distribution firm. So, rest assured, Mr. Lin, I have all the channels necessary. Otherwise, I wouldn't be here bidding for exclusivity."
"That makes sense," Lin nodded, though inwardly unconvinced.He said, "Mr. Smith, Taidō Corporation in Japan paid $2.5 million for a five-year exclusive distribution license for Hong Kong Blocks. If you want the same for North America, the exclusivity fee can't be any lower."
"$2.5 million? It seems Taidō really believes in your game."
Phil was surprised, unsure whether Lin was exaggerating the figure.
"Mr. Lin, for the same five-year exclusivity, I'm willing to offer $3 million. What do you think?"
"Too low."
Lin immediately shook his head."The U.S. economy is stronger than Japan's, and you're covering all of North America. So the fee must be higher—$5 million, or there's no point in discussing exclusivity."
"Five million?"
Phil frowned in thought, neither agreeing nor refusing. After a while, he asked,"Mr. Lin, as far as I know, your arcade machines retail for $1,500 each. If I obtain exclusive rights, what would my wholesale price per unit be?"
Lin didn't answer right away."First, let me clarify something, Mr. Smith. If you want the exclusive distribution rights, your first order must be at least 10,000 machines, and my company will not accept returns except for quality issues. Please keep that in mind."
"No problem."
Phil smiled easily.
Seeing that, Lin continued,"Then I must ask—will you be purchasing full cabinets, or just the circuit boards for local assembly?"
"Full cabinets, of course," Phil replied immediately. He was a distributor, not a manufacturer.
"Then it's $1,400 per unit," Lin said firmly."That's roughly what we charge Taidō, so no negotiations. The shipping distance to America is greater, so my side is already covering higher logistics costs."
Large orders usually came with discounts, but Lin didn't plan to go too low—he needed to stay consistent with the Japanese deal.
"What's the retail price you want set, then?" Phil asked.
"The minimum retail price is $1,500 per unit," Lin said.
Phil's eyes flickered. "So as long as I price above $1,500, I can set the market price myself?"
"In principle, yes," Lin replied."But I'd still advise against setting it too high. Even with a great game, overpriced cabinets won't sell well."
"Of course, Mr. Lin," Phil nodded. "I understand that high prices slow sales."
Then he fell silent, lost in thought.
Lin didn't press him, chatting quietly with Liu Yihui instead.
Time passed slowly.
Phil eventually asked for a calculator, some paper, and began doing math—scribbling figures, whispering to his lawyer, occasionally frowning.
Lin didn't interrupt, but he could easily guess what Phil was doing:calculating whether the exclusivity was worth it, how long it would take to recover costs, and how many units he'd need to sell to make a profit.