The Zhitong Finance app learned that Dongwu Securities released a research report saying that the convenience and diffusibility of short dramas are higher than medium and long videos, but lower than short videos; the entertainment intensity of short dramas is higher than that of medium and long videos, but the quality is lower than that of medium and long videos. Therefore, the bank believes that the MAU for short dramas is expected to rise from the current 300 million people to 800 to 900 million people, somewhere between long video platforms and short videos. The scale of domestic mini-program skits may rise from around 30 billion yuan in 2023 to the level of 100 billion yuan. Furthermore, compared to the domestic market, the regulatory environment for overseas skits is more relaxed, the number of users is huge, and there is great potential for growth. The current domestic market pattern is beginning to show, and the market share and profit margins of leading manufacturers are expected to increase further.

The views of Soochow Securities are as follows:

The short drama market grew rapidly in 2023, and the core reason was the change in content production models.

Whether it's traditional movies and TV dramas or mini-dramas, it's essentially a ToB business model. It's far from users, the cost is high, and the cycle time is long. The speed of content production cannot keep up with the speed of changes in user preferences, and the content monetization efficiency is low. The mini-program short drama, on the other hand, uses the C2M model to determine production through sales. Downstream input data is fed back to the upstream production process, improving content monetization efficiency. In addition, the sharing of Shake the Wall, and the support of platforms such as WeChat, Douyin, and Kuaishou for short dramas have also become important driving factors. Douyin is based on accurate user portraits of the short video ecosystem and superimposes the efficient payment capabilities of the WeChat Mini Program to open up a path from drainage to transformation.

It is estimated that the scale of domestic mini-program short dramas will be around 30 billion yuan in 2023. Because of their high convenience, high dispersibility, and strong entertainment, they can reach the level of 100 billion yuan in the long term.

There are many domestic short drama creators, and the supply is sufficient. The long-term scale mainly depends on the demand side. The convenience and diffusibility of content determines the size of users, while content quality and entertainment intensity determine the amount paid per capita. Short dramas are more convenient and diffusible than medium and long videos, but lower than short videos; short dramas have higher entertainment intensity than medium and long videos, but the quality is lower than that of medium and long videos. Therefore, it is believed that the MAU of short dramas is expected to increase from the current 300 million people (to reduce the weight of the MAU for short dramas with shaking and fast applets) to 800 to 900 million people, somewhere between long video platforms (750 million paying users in 2022) and short videos (1 billion users in 2022). Currently, mini-program skits pay an average of about 100 yuan per MAU per year (that is, the scale of 30 billion yuan divided by 300 million MAU). I think the long-term may be close to the annual membership price for long videos, that is, 200 to 300 yuan/person/year. Overall, the scale of domestic mini-program skits may rise from around 30 billion yuan in 2023 to the level of 100 billion yuan.

From IAP to hybrid monetization, from applets to “applets plus apps”.

1) By analogy with the gaming and online writing industry, I believe that short dramas will also move from a payment+free hybrid monetization model, and that the coverage will also expand from high-ARPU groups to price-sensitive groups. 2) Currently, mini-programs are used as the main carrier for short dramas, and the share of apps and quick apps is relatively low. However, in the long term, it is expected that the traffic of mini-program skits will be large and scattered, and that the traffic of app skits will be small and concentrated. The mini-program “Content Finds People” reaches short video users who are not very interested in watching dramas; the app follows the brand route and enhances user stickiness through massive inventory and operation activities. Currently, major Internet companies and state-owned enterprises have launched short drama platforms. The former has the advantage of capital and traffic, while the latter has compliance and licenses.

The domestic market pattern is beginning to show, and the market share and profit margins of leading manufacturers are expected to increase further.

Internet article manufacturers were the first to set up the short drama industry, and have accumulated rich experience in IP reserves, streaming systems, and filming systems. Building private traffic based on massive skits and users, they have gradually moved from streaming models to private traffic operations. The ROI and hit rate are mostly higher than the industry average. The popularity of the industry has attracted many companies to enter the market, but in an environment where traffic costs and filming costs are increasing, regulations are standardized, and user tastes are changing, latecomers may need 3 to 6 months to study. It is believed that by relying on compliance advantages, license advantages, scale advantages, and first-mover advantages, leading enterprises are expected to obtain higher market share, user retention rates, and profit margins. The short drama industry will gradually evolve from a short-term business to a long-term business, and the platform's focus will shift from short-term traffic monetization to long-term content management.

Overseas markets are a blue ocean. ReelShort has successfully completed the business model, and the long-term space may be at the level of 10 billion US dollars.

Compared to the domestic market, the regulatory environment for overseas short dramas is more relaxed, the number of users is huge, and there is great potential for growth. ReelShort started in June, and revenue was concentrated in the second half of the year. Currently, overseas short dramas are limited by insufficient production capacity, limited subject matter, and imperfect distribution systems, but as more manufacturers go overseas for short dramas, they will promote increased production capacity, diversification of topics, accumulate marketing experience, and move from the European and American markets to a wider world. According to conservative estimates, the long-term space for overseas short dramas will be at the level of 10 billion US dollars, somewhere between overseas online articles (about 2.8 billion US dollars in 2023) and overseas movies (about 17.4 billion US dollars in 2023).

Investment advice:

Optimistic about Chinese Online (300364.SZ), which has a forward-looking layout in the short drama industry and has IP advantages, the company has achieved good results in both domestic and overseas markets. The revenue of domestic micro-dramas in 2022 exceeded 300 million yuan, and the cumulative net flow of overseas ReelShort from January to November 2023 reached US$2.81 million (sensorTower data). Continued verification of high-frequency data; AI+IP strategies have also been gradually implemented, and large novel creation models and AI comics have been launched. It is expected that it will gradually be promoted to interactive game studios, animations, and movies and TV dramas.

We recommend Huace Film (300133.SZ), Mango Supermedia (300413.SZ), and Yingxue (03700) with relevant layouts. In addition, it is recommended to pay attention to the Internet text IP targets: Reading Technology (603533.SH), Pingzhi Information (300571.SZ), and Reading Group (00772); the short drama platforms Tianwei Video (002238.SZ), Haiguan Co., Ltd. (301262.SZ), and Zhongguang Tianze (603721.SH); and film and television companies with related layouts Zhejiang Film (), Jeecheng Co., Ltd. (300182.SZ), and Ning Meng Television (09857). 601599.SH

Risk warning: policy and regulatory risks, increased industry competition risk, change in user demand risk, risk of overseas short drama production capacity falling short of expectations.