After experiencing efforts to “reduce costs and increase efficiency,” “lose weight,” and “improve quality and lose weight” in 2021 and 2022, the film and television industry gradually returned to a virtuous cycle in 2023. In the context of the gradual recovery of the industry, boutiquization has once again become the consensus of the film and television market. In the fierce market competition, novel and in-depth works are still the key for film and television companies to stand out and gain market recognition.

According to China Audiovisual Big Data from the State Administration of Radio, Film, and Television, the number of TV series broadcast showed a decline first and then an increase over the three years, with an overall trend of slight decline. In 2023, Star Channel broadcast a total of 893 TV series, a decrease of 78 compared to 2021, and an increase of 14 compared to 2022. Meanwhile, in the online drama market, according to the “2023 Series Market Report”, the effective number of episodes in the online drama market in 2023 was 294, a decrease of 10.6% compared to last year. However, the total broadcast index for blockbuster feature films bucked the trend and increased by 7.7%, while the bujun full-length broadcast index increased 20.5% month-on-month. It can be seen that the trend of boutique production in the film and television industry continues to deepen.

As the film and television industry enters a critical period of recovery, high-quality production companies are expected to take advantage of the momentum in the context of improving quality and volume in the industry and where quality is king. In this context, Straw Bear Entertainment (02125), which always adheres to the long-term principle of producing high-quality content as its development strategy, has entered the eyes of investors.

As a major drama producer and distributor in China, Straw Bear Entertainment has always taken improving the quality of content as its lifeline. While continuing to deepen its platform-based operating model, it adheres to a long-term principle and strives to create high-quality works with the influence of the times.

On March 25, Straw Bear Entertainment announced its 2023 full year results. By deconstructing the company's 2023 results announcement, investors can have a deeper understanding of the company's core competitiveness and medium- to long-term value trends.

Overall performance is resilient, and core business performance is improving

As the market continues to be volatile and challenging in 2023, the film and television industry is gradually recovering but is still facing various challenges. Faced with such a market environment, Straw Bear Entertainment coped with market uncertainty through resilient business performance. According to the company's financial report, as of December 31, 2023, the company's revenue was about 841 million yuan (RMB, same below), and gross profit was about 63.3 million yuan. During the period, benefiting from a significant increase in the number of series aired by the company in multiple rounds (including the first round and reruns), the company's revenue generated from licensing TV series was 481 million yuan to 749 million yuan, a significant increase of about 55.76% over the previous year.

The Zhitong Finance App learned that in 2023, the company broadcast a variety of series, including “Come on Today,” “My Dream Comes True,” “Hello, My Opposite Boyfriend,” “White Castle,” “Daydream Me,” and “My Assistant Is Not Easy”, covering a variety of topics, including youth campuses, modern workplaces, family ethics, comedy themes, etc., which is a significant increase from 4 in the same period last year.

These series have also achieved good broadcast results and a good reputation in the market. Among them, the urban emotional drama “Dreams Come True”, as a key support project of the Beijing Radio and Television Administration, was selected for the 2023 “Big Drama Watch General Station” TV series list released by China Central Radio and Television, and received many honors such as “Excellent Repertoire” by Beijing TV and “Outstanding Drama of the Year” at the Anhui TV 2023 National Drama Festival; the urban medical drama “White Castle” reached the top of the TV network 19 times during the broadcast period; the youth romance drama “Daydream Me” broke 100 million broadcasts in just three days after the launch of Mango TV, and successfully landed on Hunan Wei Hunan Looking at the gold level, it became Straw Bear Entertainment's first “online backstage” Another success story of the broadcast model. This is also an important achievement of the company after becoming a strategic partner of the “Xinmang S Plan”.

According to the Zhitong Finance App, the continuous export of the company's high-quality works is inseparable from the continuous deepening of industrial production under the company's platform business model. It is reported that under the platform-based business model, the company can allocate suitable industry participants to specific topics of drama projects they are good at through accurate matching of existing databases. This not only realizes the rational allocation of professional resources, but also effectively shortens the cycle of series from incubation to production to distribution, and maximizes the value of the series.

When invited to deliver a speech at the 2024 Annual Meeting of the Boao Forum for Asia - Private Entrepreneurs Roundtable held on March 27, Ms. Zhai Fang, the executive director of Straw Bear Entertainment Group, pointed out that Straw Bear Entertainment's platform-based operating model has the following major advantages: First, it improves drama production efficiency. Under the company's standards of specialization, industrialization, and refined division of labor, Straw Bear Entertainment can accelerate a movie and TV series from the normal cycle of 2-3 years to only 10 months at the fastest, and maintain a stable level of 10 months -Annual production capacity of 15 movies and TV series. It can be seen that under the platform-based operating model, the company has the ability to efficiently integrate at the level of project production and operation. Second, through a platform-based operating model, the company can quickly integrate the industry's high-quality resources and explore them in depth, and fully address the diverse challenges brought about by market changes while giving full play to the scale and efficiency advantages of industrial production. She also emphasized that Straw Bear's platform-based operating model is essentially an incubator to build an open and secure creative ecosystem for industry participants by incubating outstanding projects and teams in the industry.

Thanks to the continuous strengthening of the company's “big and medium” service capabilities, the company maintains a virtuous cycle in content production capacity and quality, and achieves healthy content transformation while improving the content quality rate. With its refined upgrade of drama development and excellent performance at the production level, the company won the Golden Puffer's “Ten Best Drama Company of the Year” award. It can be seen that the strength of Straw Bear Entertainment has been recognized by professional organizations in the industry.

Driven by the industrial production process, the company also continues to seize cooperation opportunities with various online video platforms and continues to develop customized series production business. During the period, the company customized, developed and accurately distributed content according to the style, preferences and clear user portraits of each broadcasting platform. Through the company's high-quality production level, the company delivered two high-quality customized series, including “Summer Flower”, to customers. It is worth noting that the custom-made series “Harbin 1944”, which is still in the post-production stage, is no longer popular, and won the Golden Puffer Award for “2024 Anticipated Series”.

Diversified IPs consolidate the foundation for long-term development, and lay out AI to open up room for growth and imagination

At the same time, the diversification of IP reserves also provides a solid guarantee for the company's long-term development. During the period, Straw Bear Entertainment actively reserves high-quality IPs by strengthening the evaluation dimensions and market acumen of the content evaluation team to ensure a sharp increase in the “quantity and quality” of IP development. In addition, the company's IP pre-development model is also becoming more mature. By strengthening independent creation and R&D, it cooperates with outstanding screenwriter teams in the industry at the source of IP development, thus laying a solid foundation for the serialization and branding of high-quality IP.

The Zhitong Finance App learned that currently Straw Bear Entertainment's overall IP reserves are rich, with original IPs and adapted IPs each accounting for half of the country. The topics cover various topics such as history, martial arts, youth campus, modern workplace, family ethics, comedy, and suspense. Judging from its IP reserve data, Straw Bear Entertainment has gradually strengthened its strategic deployment of self-derived IP in content development and production.

As of December 31, 2023, the company has a large number of high-quality reserve series “queued up” for broadcast. These include the modern spy drama “Lone Battle” directed by Xie Ze and starring Huang Jingyu and Xin Zhilei; the contemporary drama “Above the Clouds” directed by Hua Qing and starring Sun Li and Luo Jin; the police action drama “The Fighter”, directed by Gong Zhaohui and starring Huang Jingyu and Xiu Rui; the police-themed drama “Trident 2”, directed by Liu Haibo, Cao Kai, and starring Chen Jianmibin, Dong Yong, and Hao Ping; the original suspense drama “Har Spies 2”, directed by Zhang Li and starring Qin Hao and Yang “Bin 1944”; the youth campus and passionate rescue drama “Stole His Heart”, directed by Wu Qiang and starring Ma Sichao and Wan Peng; directed by Cao Dun, High quality dramas such as the ancient military drama “Night Never Harvest” starring Jing Boran, Wu Xingjian, and Zhang Yifan.

Among them, the entrepreneurial comedy “Riding the Waves”, directed by Zhang Silin, scripted by Xu Zhengchao, and starring Qiao Shan and Yang Zishan, will premiere on iQiyi and Mango TV networks starting March 29, and will be broadcast simultaneously on Beijing TV and Oriental TV. According to reports, the film tells the story of how difficult it is for little people to start a business in a comedic way, and recreates the rise of domestic brands. Integrate personal destiny with the dramatic transformation of the times, show the history of transformation of reform and opening-up with a small perspective, write the entrepreneurial legends of the 80s of the last century, and use the spirit of hard work and struggle of the previous generation to inspire the younger generation to forge ahead, forge ahead without fear of hardships, and bravely realize the value of life. This is another experiment and breakthrough for Straw Bear Entertainment in terms of realistic content.

It is worth mentioning that during the reporting period, the company also actively explored the future application of AI technology in the film and television industry. Among them, the company tried to apply AIGC products and technology to the production and development process of the series. Furthermore, the company has tried to actually use virtual shooting technology. In the contemporary urban drama “Thoughts Come True,” which will be broadcast in the first half of 2023, some shooting scenes have already been virtually produced on LED screens.

Guojin Securities said that AI tools are increasingly empowering the film and television industry. With the continuous iteration of AI technology, the downstream industry's understanding of AI applications has gradually become clear. Although AI-generated content has yet to fully meet commercial standards, its potential for movie and TV series production continues to grow. The agency also emphasized that AI models and tools similar to Genie and Sora are expected to increase the valuation of the entire industry sector. Investors are advised to pay attention to companies that actively embrace AI technology.

In response, Ms. Zhai Fang said in her speech at the round table that Straw Bear Entertainment has always actively explored the implementation of AI technology in the field of film and television production, and has made full use of existing AI tools in the market, including virtual shooting and intelligent production management systems. In the future, the company will make more use of AIGC products and technology in the production and development of series, including auxiliary script creation, production of high-quality virtual scenes, special effects, production of soundtracks, subtitles, and promotional materials to build more efficient production methods and cost control systems.

Zhitong Finance App believes that as the company continues to thoroughly implement the multi-party integration of AI and the company's business, it is expected to transform more application scenarios into innovative business models, which will also inject more new possibilities into the future of Straw Bear Entertainment.

Summarize

Taken together, as the points that have plagued the film and television industry for many years have gradually been unlocked, and the content ecosystem has entered a positive cycle, how to create the most cost-effective high-quality works has also become the latest proposition in the industry. This is exactly the direction Straw Bear Entertainment has always been working towards. The company successfully seized development opportunities under the platform-based operating model. By efficiently integrating upstream IP production, midstream content production, and downstream marketing distribution into the internal ecosystem, the company achieved large-scale and efficient content production, and continuously launched quality series to the market, so as to become a high-quality target with long-term potential for sustainable growth in the film and television industry.

It is worth noting that due to the unique industry attributes of the film and television industry, the content incubation process will inevitably face the loss rate of IP reserves and the conversion of film and television products. Zhitong Finance App has also observed that many companies in the film and television market have optimized their asset structures, and Straw Bear Entertainment has also processed them accordingly in financial statements. During the reporting period, the company calculated impairment preparations for inventory showing signs of impairment (reserve IPs that are judged to be unable to meet start-up conditions or are less likely to be successfully incubated) based on various factors such as industry development, project topics, policy orientation, storage time, intended sales, current reserve IP conversion rate, and future business conditions. Although such impairment will affect the company's short-term performance to a certain extent, under the overall positive trend of the industry, Straw Bear Entertainment can prioritize and allocate its own resources and development priorities to more definitive and stable projects according to market conditions, and strategically lock in growth certainty for Straw Bear Entertainment's subsequent performance in advance.

Returning to an investment perspective, as the industry picks up at an accelerated pace and the trend of boutique products strengthens, Straw Bear Entertainment, which adheres to the long-term principle and “content is king”, will gradually achieve valuation repair in future development.