China's online culture market is entering its best stage of development.

As people's willingness to pay increases, now more and more authors are joining the team to create high-quality online articles, and high-quality content further increases users' willingness to pay to watch, forming a virtuous cycle in this industry.

Driven by trends such as refinement, accelerated IP transformation, and globalization, the overall market size of the online literature industry exceeded 300 billion yuan in 2023, of which the Internet literature IP market reached 26.5 billion yuan, an increase of 10 billion yuan over the previous year; as an upstream online culture market, the size of the online culture market grew from 15.9 billion yuan in 2018 to 40.4 billion yuan in 2023, with a compound annual growth rate of 20.5%, and the scale of the industry expanded rapidly.

Data source: Institute of Literature, Chinese Academy of Social Sciences

In 2023, the number of online writers increased by 2.25 million, reaching 24.05 million; the number of works was added by 4.2 million, reaching 36.2 million; and the number of users increased by 45 million, reaching 537 million, continuing to reach new highs.

As a representative company in the online writing market, what kind of answers did Reading Text submit in the past year, and what kind of opportunities will 2024 usher in?

1. Revenue rebounded in the second half of 2023, and net profit returned to mother surged 32.3% for the whole year

On March 18, Reading Wen Group announced its 2023 annual results report. Revenue of 7.01 billion yuan; net profit attributable to shareholders of the company was 800 million yuan, an increase of 32.3% over the previous year, and the corresponding net interest rate to mother reached 11.5%, an increase of 3.5 percentage points over the previous year. At the same time, Reading's operating profit reached 710 million yuan, an increase of 12.8% over the previous year.

The current results are generally in line with market expectations. Judging from the month-on-month trend, revenue for the second half of '23 increased 12% month-on-month, and the upward trend is obvious.

Among them, online revenue growth fell slightly short of expectations, mainly due to the company's strategy of optimizing distribution channels, focusing on producing high-quality content, and improving operational efficiency.

The increase in copyright operating revenue is the highlight of this financial report, with a 50% month-on-month increase in the second half of '23. Looking at the full year, copyright operating revenue was 3,063 billion yuan, down 6.07% from the previous year. It was mainly affected by the release time of movies and TV series. The actual impact was not serious. Excluding the influence of Shinih Media, the increase in copyright operating revenue was even more significant.

In 2023, Reading Group reduced costs and increased efficiency. On the operating rate side, the annual operating expenses were 2.88 billion yuan, a year-on-year decrease of 11.12%. The sales rate declined quarterly, and the efficiency improvement was obvious.

2. What efforts have been made by Reading in 2023 to prepare for the future?

Reading the literature in 2023 is a year to practice internal skills and enhance competitiveness. Specifically, there are the following aspects:

1. Optimize product operation and implement quality content strategies

The content industry has long entered the “quality is king” era. Only by continuously producing high-quality content to attract readers can the platform guarantee its long-term vitality, serve users well, and discover high-quality new writers. These two points are particularly important.

According to reports, 60% of the writers added to the reading platform in 2023 were post-00s, and the number of works ordered by post-00s writers increased by 230% year-on-year. A new generation of young writers is becoming the main force in writing on the reading platform, and the operation of the platform's products is an element of a positive ecological cycle. On the user side, using the IP community as a link, Reading Text continuously strengthens the close connection between readers and works through a series of operational activities. Thanks to an active creative ecosystem, continuous improvement in product operation, and effective copyright protection mechanisms, Reading Wen's “Starting Reading” has shown a continuous growth trend in recent years, with revenue growth of 40% year-on-year in 2023.

2. Improve the IP full life cycle development system

IP adaptation is a powerful tool to amplify value. All of the world's most valuable IPs have gone through multiple IP adaptations, and a successful classic IP can continuously create immeasurable commercial value returns for the owner.

Therefore, the biggest highlight of reading the financial report is that copyright operations and other revenue grew 46.2% month-on-month in the second half of the year. The increase was obvious, making people look forward to the future.

IP monetization includes various forms such as film, television, animation, comics, games, etc. In the field of comics, IP monetization blossomed a bit. In the field of comics, popular animation sequels such as “Through the Wind”, “An Ordinary Path”, “The Sun Accompany Me”, and “Stalker” were launched. In the field of animation, popular animation sequels such as “Fighting the Sky”, “The Changing Stars”, “The Full-Time Mage”, and “Wu Dong Qiankun” performed brilliantly; in the comics field, they launched in 2023 Among the comics adapted by IP, 13 comics have surpassed 100 million in popularity. At the same time, Reading Text Group announced that it plans to acquire Tencent Animation assets to include famous national comic IPs such as “Under One Man” and “The Little Matchmaker” in the copyright library; in the game field, the successful launch of the works “Mortal Immortals” and “Devouring the Starry Sky”, which were authorized by Reading, and the smooth progress of IP game projects such as “Defeating the Sky” and “The Daily Life of a Chat Group”, demonstrated the competitiveness of Reading IP in the game market.

In terms of IP adaptation, Reading Text Group has a treasure trove of huge potential. According to data, out of 950,000 new works added by Reading Text in 2022, less than 5 per 1,000 have entered IP adaptation. This is both insufficient and an opportunity for reading the article. It requires a determination to fight a protracted battle — continuing to build a development system that spans the entire life cycle of IP across all forms of content.

3. 2024 is the big year of IP monetization, ready to be read

If 2023 is a dormant year for reading, then 2024 will be a brilliant year.

2024 is rich in boutique reserves, and the IP business will usher in a large product cycle. It will be the “hot year” for the company.

1) Movie: “Hot and Hot” has accumulated a total box office of about 3.5 billion dollars, ranking first in the Spring Festival category;

2) TV series: “With Feng Xing” was launched on March 18. The popularity broke 30,000 in 25 hours and 39 minutes after broadcast, setting Tencent Video's record for the fastest trending club series, and achieved a true “hit when launched”. In addition to this, a number of “Reading Literature Produced” plays are expected to be screened in 2024. “Celebrating the Years 2” is written by Wang Juo, directed by Sun Hao, and starring Zhang Ruoyun. The previous work “Celebrating the Past Years” is an early work by the platinum writer Cat Puty of Reading Group. It has also become a masterpiece, and has reached 9.3 billion views on Tencent Video. As of February 11, the number of reservations for “Celebrating the Years 2” has surpassed 12 million, and the popularity is rising. Over 2 million pre-orders have been made for “Dabong Dafeng Gengen”. “Dabong Strikes People” is a costume drama that takes you through the growth of heroes. It is the “most anticipated IP adaptation of the year” in the 2023 World Chinese IP Festival. “The Fox Demon Little Red Moon” stars Yang Mi and Gong Jun, and currently has over 3 million pre-orders.

All of these have added bricks and tiles to Reading's copyright operating revenue growth this year, and I believe its performance will increase dramatically in 2024.

4. It is best to look at customs for the long term. AIGC and going overseas are future growth points

For a long time, one of the core pain points of the online text production and IP adaptation industry has been insufficient industrial productivity, especially for high-quality IP. I believe that the vast majority of people have the experience of “urging” good works. Whether it's a good online article or an adapted movie or TV series, if you wait too long, the audience's enthusiasm may gradually weaken, and the commercial value of IP cannot be maximized in a timely and effective manner.

AIGC provided a solution to the problem. First, AIGC's support helps online articles achieve stable content updates. Domestic AIGC can already replace many repetitive and high-frequency tasks, greatly improving the efficiency of content production and increasing the income of authors. Second, as multi-modal AIGC creative applications enter the production field, costs can also be reduced.

In July of last year, Reading Text Group released the “Reading Pen”, a large-scale model for online articles, and the application “Writer's Assistant Wonderful Pen Edition”. Reading pens can help creators by setting the worldview of the online text and depicting fight scenes; it can greatly improve efficiency in the comic editing and coloring process. The application “Writer's Assistant Wonderful Pen Edition” was launched based on a large model. Currently, the weekly usage rate in Writer's Assistant has reached 30%.

At the same time, AI translation has helped open up space for reading texts. According to reports, AI can help reduce the average cost of online text translation by more than 90%. AI machine translation is expected to help WebNovel, an overseas reading platform for reading texts, gradually establish competitive advantages with strategic value in some core regions. In December 2023, 21 of WebNovel's top 100 best-selling works were translated by AI.

epilogue

The 2023 financial report shows a more steady and at the same time aggressive reading. This is not a contradiction. The online revenue business has begun to focus on reading articles, follow the path of high-quality content, and stabilize the basic market; copyright operating revenue has been picking up since the second half of last year and is about to enter a “hot” year next year. Furthermore, there is still room for decline in the company's operating rates. There is reason to believe that 2024 may be a good year for both the company's revenue and profit. In the future, AIGC and Dongfeng culture may become a long-term growth point; perhaps the inflection point of reading literature is just around the corner.