Management: Returning to high-quality paid content and focusing on ROI (minutes of the 2H22 conference call of China Literature)

Below is the summary of the performance call of Yuewen Group. It explains the important incremental information outside the financial report, with financial review available on "Yuewen: Is the Oriental Disneyland really saved?".

I. Management Report

1. Two Main Strategies for 2022:

    (1) Strengthening high-quality payments, expanding investment in paid content, and reducing investment in free reading on Yuewen's online platform. It also cut down on low-return channel cooperation.

    (2) IP copyright operation: Strengthening the popular content, although the total number of TV dramas broadcast last year decreased, the quantity of popular works reached the highest level in three years.

2. Two Successful Directions for Film and Television in the Future:

    (1) Serialization-making series of high-quality IP plays, such as "Joy of Life", "Fights Break Sphere", "The Story of Yanxi Palace", and "The Longest Day in Chang'an".

    (2) Cross-product linkage-IP penetration in different fields such as animation and games.

3. Gaming: 

    Two games licensed from reading IP development are expected to be launched this year. They are "Swallowed Star" (developed by Zhongqingbao) and "The Taoist Ascension" (developed by 37 Interactive Entertainment).

II. Analyst Q&A

Q1: What TV content will be there in 2023? What is the development progress for serialization of "Joy of Life 2", "The Longest Day in Chang'an", and "The Story of Yanxi Palace"?

    A1: TV dramas for 2023 include "Fights Break Sphere 2", "With the Wind," "Undercover," "The Road of the Common Man," "Sunshine Accompanying Me," and "Rose Tales." The films "Customs Frontline" and "Under the Skies" are expected to be released in 2023.

    Progress on various popular IPs includes: "Joy of Life 2" is expected to start production soon, "Fights Break Sphere 2" is expected to be launched during the summer of 2023, "The Longest Day in Chang'an" is expected to start production in the middle of the year, and "Ya She" will begin production in the second half of the year.

Q2: Progress on IP derivatives, and what is the strategic plan? Which IPs are making faster progress?

    A2: In 2022, several statue models of "Fights Break Sphere" had a total GMV of 20 million yuan, and the GMV of collectable cards exceeded 100 million yuan. The self-developed "The Master of Mysteries" series mystery boxes will also be launched soon.

            The following IPs will be released, including "The Master of Mysteries," "The King's Avatar," "Joy of Life," and "The Longest Day in Chang'an." Forms of the product include action figures, clay figures, mystery boxes, statues, and soft peripheral card games, which will be promoted by related content online.

            At present, IP operations have two models: one is authorization (light asset), and the other is self-development (heavy asset, requiring control over the original drawings, production, channels, and the entire supply chain, which requires higher cash flow resources). Yuewen currently tends towards self-development and hopes to have better control over its product quality. They will consider authorization for soft peripheral products.

Q3: What are the enhancements of AIGC's IP visualizations for Yuewen, and what is the current progress? A3: In the IP visualization process, AIGC can greatly reduce repetitive labor in creation. For example, in anime production, a lot of fundamental work can be reduced in industrialized processes such as rendering and refining, so companies can focus on creative, imaginative and high value-added environments.

AIGC can also transform text into audio, images, and videos to improve content production efficiency and reduce costs.

Q4: What is the space for further optimization of costs?

A4: Focusing on ROI, we will not simply put in volume or blindly compress costs. We will be firm on investment with high ROI. If there is strong macroeconomic recovery or in the industry by 2023, the company's costs may also increase benignly along with income growth.

The key is to continue to improve ROI and operational efficiency and sustain profit growth.

Q5: After the crackdown on piracy, how does the company anticipate the increase in the payment rate and payment amount in the future?

A5: After the implementation of the anti-piracy system, 40% of new users who subscribed to Qidian Reading in the first 30 days were converted from piracy. In addition, anti-piracy measures have promoted the virtuous circle of the entire author ecosystem. These works that have incorporated anti-piracy systems have shown noticeable increases in subscriptions and income.

In 2023, we will continue to invest in anti-piracy measures. Currently, there are still many piracy issues that need to be resolved regarding paid reading. In the video and music fields, anti-piracy has achieved good results, and the payment rate for these products is around 15%-20%. At present, the payment rate for reading is only 3%, so there is still a lot of room for growth.

Q6: What are Xinhua Li's development plans for content creation? Where is the further growth space? What are the short, medium, and long-term revenue targets?

A6: Xinhua TV hopes to maintain a production scale of around 6-8 pieces per year and strive to improve production while pursuing excellence and quality.

In the first half of last year, the Tencent film team joined in at Yuewen, forming Yuewen Film and Television. During the 2022 Spring Festival, "In the World" jointly produced by Tencent Film and Television, Yuewen Film and Television, and Xinhua achieved a near 8-year high in the CCTV prime-time slot. In addition, the jointly-invested "Heart's Residence" also received very high ratings.

In the second half, Tencent Film and Television controlled the most popular drama "The Ultimate Law of the Wise" in partnership with Yuewen and it aired on iQiyi. After Tencent Film and Television's commercial projects joined Yuewen, the pipeline is still quite rich, and some projects are progressing smoothly. It is expected that 1-2 works will be launched in the second half of 2023.

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