Least likely headline you’ll see this year: Ebook company buys film studio for $2.5 bn

Being the former ebook subsidiary of Tencent has its benefits. Buying your own film studio, for example.

But actually China Literature, the former ebook arm of Tencent, didn’t need parental help to secure the deal. After a $1 billion IPO in November 2017 –

Tencent’s China Literature IPO the biggest in a decade

China Literature has been doing rather well, and nine months later has a market capitalization of $7.5 billion.

This week it bought its own film studio, for $2.5 billion, to develop its 10 million strong array of digital content into blockbuster films.

New Classics Media, the film studio behind Chinese theater blockbusters Never Say Die (grossing $334 million), Hello Mr Billionaire ($344 million and counting), and Goodbye Mr Loser ($226 million),

will become a fully owned subsidiary of China Literature, but the studio’s current senior management team will remain in place and continue to oversee creative decisions.

In a statement China Literature and New Classics Media said,

This transaction combines China Literature’s unparalleled content library and New Classic Media’s industry-leading expertise in script development and production, and will help unlock the full potential value of China Literature’s high-quality original literary content offerings.

Wenhui Wu, co-chief executive officer of China Literature, explained,

We are the pioneer and leader in online literature market and thus in providing source material for China’s most-watched TV series, web series and films. Further enhancing our content adaptation expertise is a natural next step for China Literature to unleash the commercial potential of our content library, drive the integrated development of blockbuster titles and enhance engagement of our writers and users.

The announcements coincides with the half-year results for China Literature, reported earlier this week.

  • Total revenues increased 18.6% year-over-year (“YoY”) to RMB2.3 billion (USD345.0 million1) in the first half of 2018.
  • Gross profit increased 24.4% YoY to RMB1.2 billion (USD180.8 million). Gross margin increased from 50.0% to 52.4% accordingly.
  • Operating profit increased 142.2% YoY to RMB567.4 million (USD85.7 million). Operating margin increased from 12.2% to 24.9% accordingly.

Wu Wenhui’s commentary on the half-year results offers some insights into where China Literature is heading, and how its strategy differs from its biggest western rival, Amazon:

During the first half of 2018, we sustained and elevated our mission of creating value for writers and bringing literature to people. Our ecosystem continued to expand, as reflected by the growth in the number of our writers, literary works, and readers. Our intellectual property (‘IP’) operations business grew rapidly with revenues doubled year-over-year. We accelerated our investment in content adaptation, expanding the range of channels through which we can bring our content to users, and thus generate revenue for our content creators as well as our platform. Looking ahead, we will continue to strive to provide the best online reading experience to our users and to build a complete product life cycle from online reading to content adaptation to fully unlock the value of our IPs.

Below you’ll find some more numbers, detailing the breakdown of digital content revenue streams.

Total revenues increased 18.6% YoY to RMB2,282.9 million (USD345.0 million) in the first half of 2018.

Revenues from online reading increased 13.3% YoY to RMB1,850.9 million (USD279.7 million) in the first half of 2018. Revenues from online reading on our products and self-operated channels increased 10.6% YoY to RMB1,567.9 million(USD237.0 million), primarily driven by continuous increase of core paying users’ engagement and their growing willingness to pay for premium online literature content. Revenues from online reading on third-party platforms increased 30.8% YoY to RMB283.0 million (USD42.8 million), primarily driven by our enhanced cooperation with existing third-party distribution channels.

Revenues from IP operations increased 103.6% YoY to RMB317.0 million (USD47.9 million) in the first half of 2018. The increase was primarily attributable to the increase in revenues from licensing copyrights for the adaptation of TV and web series, animations, games, films as well as comics, the growth and strengthening of our content, its growing commercial value, as well as the rising demand from our content adaptation partners for our high-quality literary titles.

Revenues from sale of physical books and others decreased to RMB115.0 million (USD17.4 million) in the first half of 2018, compared with RMB134.8 million in the same period last year. The decrease was mainly due to a decline of revenues from physical books as we continued to adjust our offline physical book business line and distribution channels in tandem with the Company’s approach regarding this line of business. Our revenues from others are mainly derived from online games and online advertising services.

China Literature’s monthly average users (MAUs) increased 11.3% to 213.5 million.

As of June 30 China Literature had 7.3 million writers on board contributing to the 10.7 million literary works in the catalogue.

Full press release on the China Literature’s half-year results here.

For an overview of the wider Chinese book market, check out this week’s post from Publishing Perspectives.

 

 

 

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