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Bibliofiled: China’s largest online publisher enchants investors and readers alike

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WHENEVER Xu Jie goes to the cinema to watch mystery and detective films, she leaves disappointed: to help stamp out superstition, China’s censors excise ghosts and zombies from the screens. So for her fill of phantoms, she turns to the flourishing online-literature scene. There, authors are allowed to take liberties from which most of China’s state-owned publishing houses would recoil. Homophones stand in for forbidden words. Danmei, a new online class of homoerotic story, is especially popular among young women. Readers can choose from over 200 established genres such as xianxia, a fantasy world of deities and martial arts.

The corporate prince of this virtual realm is China Literature, a spin-off from Tencent, a gaming and social-media giant. The four-year-old online publisher listed on Hong Kong’s stock exchange on November 8th, raising just over $1bn. The offering was a huge success; at the end of its first day of trading, China Literature reached almost $12bn in market capitalisation, nearly 2,700 times its earnings of $4.5m in 2016 (it lost money in 2015).

Investors are spellbound chiefly by its link to Tencent, which on November 20th became Asia’s first firm to be valued at over $500bn and which still owns just over 50% of China Literature. Retail investors—particularly those who missed out on the giant’s own IPO in 2004—may be hoping China Literature is the next Tencent. As the latter expands its entertainment empire into films and TV dramas, China Literature’s library offers a trove of intellectual property; local analysts have nicknamed it “Tencent’s natural son”.

China’s book market (fiction and nonfiction) is the biggest in the world by number of new publications. Of total written fictional output, online storytelling, which is mainly read on smartphones, is thought to make up 11%. Within the next three years that share is expected to double. To capture more bookworms, Tencent combines tentacular reach—over 960m monthly users alone on WeChat, its mobile-messaging app—with a host of algorithms that push appealing content to customers. China Literature’s dominance has helped it to attract 6m authors to its platform, representing 88% of all those writing online books, according to a study by Frost & Sullivan, a consultancy. Hit writers are among them. Of the country’s ten bestselling authors in 2016, six were online-literature writers.

Many of the authors are amateurs, though two-fifths write full-time, and they are young, with an average age of 28. China Literature’s repository—close to 10m works in genres from fantasy to sci-fi, mystery to romance—attracts close to 200m readers a month across its web and mobile platforms, and half of China’s total daily online-literature fans. China Literature is home to 72% of all original online works; Alibaba Literature and Baidu Literature, owned by China’s two other tech giants, came later to the field and have just 5% of the virtual library between them.

About four-fifths of China Literature’s revenues come from charging, on some books, a small fee to read on after sample chapters (proceeds are shared with authors). Most are serialised. Readers are enticed to pay per 1,000 Chinese characters or subscribe for 18 yuan ($2.70) a month. For now, only 5% of its customers are paying readers. But Morgan Stanley, a bank, expects that share to grow to 8% within the next two years. As their incomes rise, young Chinese are spending more on higher-quality entertainment. There is room for growth: Ms Xu says she is still spending far less on online books than on mobile games, for example. Mobile wallets, including WeChat Pay, which is owned by Tencent, have made paying a cinch.

The remaining share of the company’s revenue is from owning the rights to stories that are adapted for film, television, games and so on, and from licensing them to other producers. Investors expect that this income stream will grow quickly, says Nelson Cheung of Formula Growth, a Canadian investment firm that owns shares in China Literature.

Wu Wenhui, one of China Literature’s bosses, says he aspires to be “China’s version of Marvel Comics”, the American creator of Spider-Man and the X-Men, and corporate sibling to Marvel Studios. Tencent is the “perfect incubator” for those ambitions, says Wang Chen of TF Securities, a brokerage: China Literature is already co-operating with Tencent Penguin Pictures, a newish film-making arm, and Tencent Games, the largest gaming company in the world by revenue. In 2016, 15 of the 20 most popular TV dramas and video games adapted from online works were licensed from China Literature.

Twists are possible. Copyright protections are weak. China Literature reported in its filing document that pirated online content led to a loss in revenue of 11bn yuan for the market in 2016. Tighter regulation or new censorship rules could upset the narrative. Drafts are reviewed before publication by editors at China Literature, but the firm knows the value of the relative creative freedom that its online realm allows. Its own story is testament to that.

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Julio Marchi ©

Publisher / Editor at BS News & Media Services
A free thinker, not labelled as anything, not associated with any party, not part of any group or engaged with any religion... A simple guy tired of the nowadays bullshit who decided to promote more serious debates about what is really happening hoping to bring back intelligence to the superficial and shallow news & headlines that unfortunately took over the existing media scene.
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