INSUBCONTINENT EXCLUSIVE:
As the consumer appetite for digital entertainment in China continues its rapid growth, two companies are combining forces to step up their
Today, China Literature — the Tencent e-publishing venture that went public with a $1 billion IPO last November — announced that it
would acquire Chinese digital production company New Classics Media for around $2.2-2.3 billion (RMB15.5 billion).
This is a consolidation
of sorts not just in digital media, but in Tencent content interests: New Classics Media had been eyeing up an IPO of its own but
insteadpicked up Tencent as an investor just in March of this year, when the Internet and messaging giant paid existing backer Chinese VC
Enlight Media $524 million for a 27.64 percent stake in the company.
That deal valued NCM at about $1.9 billion
In other words, this represents a small but clear return for Tencent, which it most notably owns messaging giant WeChat but is also an
investor in Snap, Uber and a number of other companies and is sometimes called the &Softbank of China&.
China Literature already was a
strong content partner of Tencent using its Tencent Video, WeChat and other channels to distribute China Literature content; now it will
ramp that up with more video based on China Literature material from a partner that has a string of successful blockbusters — titles
includeSome Like It Hot,Never Say Dieand Goodbye Mr
Losermdash; as well as TV and web shows such asThe First Half of My Life,White Deer Plain,The Kite,The Imperial DoctressandYu Zui.
Indeed,
the deal is bringing together one of the bigger original content developers (China Literature) with one of the bigger video content
producers (NCM) in the region
China Literature, according to its half-year results also out today, said that its monthly active users are up 11.3 percent to213.5 million,
with 7.3 million writers on its platform
The company revenues are up 18.6 percent to $345 million (RMB2.3 billion), with gross profit at a 52.4 percent margin at $180.8
million.
China Literature had already been working with third parties to produce video based on its written work, and NCM had been sourcing
original content from third parties as the basis of its video, so this will essentially cut out the middle man for both sides.
Users are
increasingly demanding high quality video entertainment content which in turn drives the demand for literary works for various content
We are the pioneer and leader in online literature market and thus in providing source material forChina&smost-watched TV series, web series
and films,& said MrWenhui Wu, co-CEO of China Literature, in a statement.
Further enhancing our content adaptation expertise is a natural
next step for China Literature to unleash the commercial potential of our content library, drive integrated development of blockbuster
titles, and enhance engagement of our writers and users.
MrHuayi Caoand the NCM team have built up an outstanding track record of
consistently producing popular, high quality TV series, web series and films,& saidXiaodong Liang, the other co-CEO of China Literature, in
his statement.
NCM represents a scarce opportunity for China Literature to extend its content capabilities downstream, enabling it to
participate further along the IP value chain and enhance the services it can bring to its writers as well as its users
We believe that this combination will create significant long term strategic value for China Literature shareholders.
You can think of this
deal similar to what Amazon, as an example, has developed in house with its own original programming: the company will sometimes look to
Amazon own in-house team and its literature catalogue when commissioning video; but it will also cut deals with outside
companies.
Similarly, China Literature notes that NCM will not be its exclusive partner
&The current management of NCM will continue to oversee the TV series, web series and film production business and will be empowered to make
original content selection choices, including those from outside of China Literature platform,& it notes.
The Company believes such
arrangement will incentivize NCM management team and facilitate future business performance, while enabling NCM to access China Literature
content library, writer platform and editorial expertise.
From the beginning, we have focused on ensuring that NCM is the benchmark for
Chinese TV series and film production in terms of quality,& saidHuayi Cao, founder of NCM, in a statement.
This process starts with the high
quality source material, and China Literature is the original content powerhouse for many of our best productions
China Literature will provide us with access to the richest literature content library inChinaand enhance our credibility as a leading
production house for TV series, web series and film
I can think ofno better home for NCM as we work in partnership towards creating better content for our audience.
China Literature said it
will payRMB5.1 billionin cash plusRMB10.4 billionin stock, &including an earn-out mechanism to align the long term performance and
incentives of NCM management team.& The deal is expected to close in the second half of 2018.
