In recent years, short dramas have rapidly become popular on various platforms. According to the data, in 2023, there were 500 short dramas with over 100 million broadcasts on Douyin; the average number of daily active users of Kuaishou's short dramas reached 270 million.

According to some reports, the size of the Chinese short drama market has climbed to 37.39 billion yuan in 2023. It is estimated that by 2027, the size of the Chinese short drama market will break the 100 billion yuan mark.

Compared to TV dramas and movies, short dramas have the characteristics of low investment, fast return, and high cost performance, and have attracted many film and television companies to participate. Major internet broadcasting platforms are not satisfied with just earning advertising fees, and are beginning to invest in filming quality short dramas one after another.

According to a research report released by Guotai Junan, the startup company Lighttricks released LTX Studio, an AI-driven video generation and editing software on March 1, 2024. It includes a complete set of tools for video production, including automatic scripting tools, scene control tools for adjusting multiple cameras, tools to ensure character consistency, camera control, and one-click editing. This kind of AI tool in the video production workflow helps improve the efficiency of film and television content production while reducing the cost of all aspects.

According to the Hualong Securities Research Report, AI+ products have been released intensively at home and abroad, and the AI 3D modeling product Dust3R has attracted attention on GitHub. Dust3r can significantly improve the production efficiency of 3D modeling and shorten the production cycle.

The continuous iteration of AI products such as AI+2D and AI+3D will further promote the implementation of AI in downstream industries.

The application of related products in industries such as gaming, film and television, education and e-commerce has brought significant cost reduction effects to various industries.

According to the Guojin Securities Research Report, focus on the empowerment or transformation brought by AI tools to the film, television, gaming and other industries. The continuous iteration of AI tools and models has made the downstream industry more clear about how to apply AI. Although AI-generated content has not yet reached a level where it can be commercialized, the possibility of AI producing movies, TV series, and games has been further strengthened. Pay attention to investment opportunities and performance implementation in the gaming and video sectors.

1) Looking ahead to 2024, the performance of companies in the content production industry is expected to be divided, mainly due to the different pace of product launch and uneven performance after launch. At the same time, AI models/tools similar to Genie and Sora may boost the valuation of the entire sector. It is recommended to focus on companies with marginal improvement in subsequent performance and strong certainty, and actively embrace AI targets.

2) Both box office supply and demand have been repaired. Focus on box office performance and investment opportunities in the cinema sector before important schedules.

Film and television related concept companies include:

Ling Meng Film & Television (09857): Ning Meng Film and Television announced that it expects to obtain a net profit of about RMB 208 million to RMB 218 million for the year ended December 31, 2023, while a net loss of approximately RMB 732 million was achieved in the same period last year. Mainly due to the increase in the number of episodes broadcast of the Group's copyrighted dramas during the year, resulting in revenue growth, comprehensive budget management results, and effective cost control. At the same time, overseas business continued to grow rapidly, and the rapid expansion of the skit business also brought considerable revenue and profit contributions.

Happy Media (01003): The Group expects revenue to increase to about HK$1.3 billion to HK$1.35 billion in 2023, up 94 to 98 times; profit before tax is about HK$200 million to HK$220 million; loss before tax is about HK$223 million; net profit of about HK$150 million to HK$170 million, and net loss of about HK$222 million in 2022.

Alibaba Pictures (01060): Alibaba Entertainment released the “Hong Kong Arts Revitalization Plan”, announcing that it will invest no less than HK$5 billion in the next 5 years in the four major fields of Hong Kong dramas, movies, performances, and young talent training. Alibaba Pictures officially unveiled the Phoenix Yunzhi International Edition iCiRena, exploring a new path for the entertainment industry to “go overseas with technology”.

Weimeng Group (02013): On March 6, Weimeng Group issued an announcement to lay out a skit track through a strategic investment in merger and acquisition of bibimbap technology. After the transaction is completed, Shanghai Mengxun will acquire 53.5% of the target company's shares. Established in 2017, Mingbai Studio, a subsidiary of Bibimbap Technology, is a comprehensive film and television creative service organization that currently produces over 100 short dramas. According to the announcement, in the future, bibimbap technology will improve Weimeng's ability to create skits.

Reading Group (00772): On March 19, Reading Group announced on the Hong Kong Stock Exchange that the company and Tencent Group agreed to renew the 2022 advertising cooperation framework agreement and the 2022 online platform cooperation framework agreement, that is, sign the 2025 advertising cooperation framework agreement. According to the main provisions of the agreement, from 2025 to 2027, the maximum total commission income generated by Yuewen Group through advertising cooperation with Tencent will not exceed 400 million yuan, 470 million yuan, and 550 million yuan respectively, that is, the total amount of the three-year cooperation is expected to not exceed 1.42 billion yuan. According to the announcement, in addition to the existing cooperation model of providing online literary works and earning revenue through advertising, Reading Text and Tencent are currently negotiating potential new collaborations related to audio works and skit works, which is expected to attract more advertising cooperation, thereby increasing the overall advertising rate on the Reading Group platform. Shinih Media's investment project pipeline is developing well this year. For example, successfully investing in the hit movie “Hot and Hot,” the agency expects strong profit growth. At the same time, it believes that as more IP content is licensed, other IP adaptation businesses may experience some growth; however, the performance is expected to be stable in the first half of this year after optimizing the online reading business channel.