Unpaid Minimum Guarantee vs. Delayed Development Dispute
Controversy Over Additional Investment Condition: "Low-Valuation Subsidiary Integration"
Game developer Hound13 has announced the termination of its publishing contract with Webzen just one month after the launch of its new title "Dragon Sword." The company cited Webzen's failure to pay 60% of the promised minimum guarantee (MG, minimum guaranteed royalty) and a demand that Hound13 be incorporated as a subsidiary at a low valuation as a condition for additional investment.
According to the game industry on February 20, Hound13 stated the previous day through its official YouTube channel that it was terminating the publishing contract because Webzen had not paid the remaining balance of the contract deposit. Webzen is said to have been notified via an official contract-termination letter sent by email.
"Dragon Sword," released on January 21, is an open-world action role-playing game (RPG). Webzen obtained the publishing rights by investing 30 billion won in Hound13 in January 2024. Webzen is the second-largest shareholder, holding about 25% of Hound13’s shares. However, "Dragon Sword" failed to perform as expected, as it fell out of the top sales rankings on major app markets.
Hound13 said, "We received 20% of the minimum guarantee one month before launch and another 20% on the launch day, but the remaining 60% was ultimately never paid," adding, "Webzen anticipated that Hound13’s financial situation would deteriorate and claimed it could not pay the balance because it believed we would not be able to continue development." It went on to stress, "If we received the minimum guarantee, we would be able to continue development until the global launch, and we were expecting to achieve good results overseas."
That evening, Webzen issued an explanatory statement and countered, saying, "We proposed additional investment to cover at least one year of the developer’s operating funds going forward and continued discussions, but the developer notified and announced the termination of the publishing contract without prior agreement." It further explained, "We initially agreed on March 2025 as the target date for development completion, but this was delayed," and, "We paid part of the MG, which had been scheduled for payment after the start of official service, in advance."
Webzen also stated that it had suspended payment functions from the time after Hound13’s notice and decided to refund in full all amounts generated from launch to the present. The game service will remain in its current state until further notice.
Hound13 claimed that Webzen first instructed it to come up with a plan to secure additional funds and then demanded that the company be turned into a subsidiary as a condition for new investment. Webzen is understood to have proposed additional investment, including a paid-in capital increase.
Hound13 explained, "Our CEO was willing to accept this in order to save the company and the game, even if it meant giving up all of his own shares," but added, "However, Webzen’s position was that 'the new investment must be made at par value, which is hundreds of times lower than the price of the previous investment, and Hound13 must persuade other shareholders to accept the dilution of their stakes,' so there was no way for us to accept this unilaterally."
It also stated, "It was difficult to expect Webzen, as publisher, to make efforts for the game’s success or to carry out additional promotion and marketing for global service," and appealed, "We ask for help in jointly seeking ways for Hound13 and 'Dragon Sword' to survive."
As for whether it is considering legal action, Hound13 conveyed, "Since Webzen is the second-largest shareholder of Hound13, we believe that pursuing litigation would be a last resort, and it is something we do not want to choose unless absolutely necessary," adding, "We hope the matter will be resolved through discussion and negotiation."
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