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Romance, mystery, and martial arts — these are some of the most important ingredients that went into one of the year’s biggest initial public offerings (IPOs) of a Chinese technology company.
China Literature, web entertainment leader Tencent’s online publishing unit, saw its share price double on its first day of trading in Hong Kong on Nov. 8 after an immensely oversubscribed IPO that raised HK$8.33 billion ($1.07 billion).
The company, which was formed in a 2015 merger between Tencent Literature and Shanghai-based Shanda Cloudary, operates an online book marketplace similar to Amazon’s Kindle Store, as well as an e-reader service accessible through Tencent’s WeChat messaging app.
Some of China Literature’s e-books are free-to-read for the first few chapters, but users who get hooked must pay a fee to keep reading — a major source of revenue for the company.
China Literature has also been betting big on selling adaptation rights to novels or comic books published on its platform to filmmakers, TV producers or game developers. The Chinese film “So Young,” for example, premiered in 2013 after being adapted from the college romance novel “To Our Youth That Is Fading Away.”
The company recently signed lucrative deals with local video streaming sites seeking to adapt its hit manga series “Fights Break Spheres” and “The King’s Avatar.” Such deals not only help generate income for China Literature through licensing fees. Content adaptors will also share revenue from ads embedded in the TV series and selling animation merchandise.
Chinese investors’ appetite for purchasing intellectual property (IP) for adaptation has been growing since 2015. But the amount spent acquiring IP remains far lower than in developed markets. For example, adaptation rights fees account for about 5-10% of the total cost of production in Europe or the U.S., while the figure is less than 5% in China. Several adaptations have also done poorly at the Chinese box office or failed to covert online readers into viewers, casting doubt about the viability of this approach.