The Zhitong Finance app learned that Cinda Securities released a research report saying that the micro and short drama industry has now reached a critical development point after experiencing high growth rates in the early stages. In fact, many problems are hidden under the high growth rate of the industry, such as serious homogenization of content and frequent topics of irregularities and edging. With the introduction of a “supportive supervision” policy for the micro-drama industry and the trend of improving content quality, the micro-drama industry chain is expected to usher in long-term steady development. Looking at the long-term, the bank suggests focusing on two types of companies: one is companies that are familiar with film and television content production capabilities, and companies that use classic IPs and have been adapted from popular IPs in the past; the other is companies that have experience in the creation and operation of film and television content overseas.

Recommended attention: 1) Content production companies: Shanghai Film (601595.SH), Huace Film (300133.SZ), Ning Meng Film (09857), etc.; 2) IP/copyright companies: Chinese Online (300364.SZ), Pocket Reading Technology (603533.SH), Jebsen (300182.SZ), Fubo Group (03738), etc.; 3) License and investment companies: Haijian Co., Ltd. (301262.SZ), Tianwei Video (002238.SZ), etc.

Cinda Securities's views are as follows:

Policy supervision maintains the healthy development of the industry. The short drama industry has now ushered in a critical development point after experiencing a high growth rate in the early stages. In fact, many problems are hidden under the high growth rate of the industry, such as the serious homogenization of content and the frequent occurrence of irregularities and edging topics. Judging from the current regulatory attitude of the State Administration of Radio, Film, and Television on the micro-drama industry, the bank would rather call it a “supportive supervision” policy.

State Administration of Radio, Film, and Television: In addition to issuing “Opinions on Promoting the Prosperity and Development of Short Drama Creation”, it also issued a series of notices earlier on how to manage the healthy development of the industry, such as “On Further Strengthening the Management of Online Short Dramas and Implementing Creative Enhancement Plans” and “Matters Relating to the Management of Domestic Web Drama Distribution License Services”, the core of which is the implementation of methodological measures such as increasing quality support, strengthening content review, and strict licensing. Beginning in late 2022, a three-month period of intensive use began to organize and carry out special rectification work on “mini-program” online mini-dramas. Recently, another month of special rectification work on online micro-dramas has been carried out simultaneously, and the trend of “supportive supervision” is obvious.

Douyin platform: Byte Massive Advertising Rules Center recently issued an announcement. In order to promote the compliance development of the short drama advertising business, it has updated the qualification requirements for new customer entities that post short drama advertisements. Currently, advertisers promoting short dramas on the Douyin platform need to provide the following corresponding qualifications: the advertiser's “Value-added Telecom Business License” and “Information Network Dissemination Audiovisual Program License”; the advertiser's “Radio and Television Program Production License”; “Short Drama Copyright Notice and Commercial Promotion Commitment”; the subject of the mini-program, quick application, or app to be launched, and the subject of the corresponding application must be consistent with the advertiser.

WeChat Mini Program Platform: At the request of the State Administration of Radio and Television, the applet entity providing online short drama broadcasting services must complete the registration of information in the radio and television system. Applications for the same subject can only be registered for one account, and applications exceeding the number of registered registrations will be rejected. According to the announcement of the WeChat Public Platform Operation Center, the bank can observe that the WeChat Mini Program's qualification requirements and review management for short dramas are being strengthened month by month.

Risk factors: The growth rate of the short drama industry falls short of expectations, policy regulation risks, content risks