China Literature Acquires New Classics Media, Creates Major Content Contender

Duff & Phelps congratulates China Literature (0772.HK), China's largest online literature platform, for successfully completing the acquisition of New Classics Media ("NCM"), producer of renowned TV series, web series and films in China on 31 October 2018.¹

As announced last year², China Literature agreed to acquire 100 percent of NCM’s share capital in a transaction valuing NCM at RMB15.5 billion (US$2.25 billion). The deal involved the transfer of RMB 5.1 billion in cash and 153,936,541 shares of common stock to Tencent Holdings and members of NCM’s senior management.

Duff & Phelps was engaged as a professional independent valuer for the acquisition. Its March 2018 analysis of the market value of NCM and its subsidiaries was used as a reference for the sale.³

NCM’s Quality Content up to 31 Oct 2018

Founded in 2007, NCM produces movies and serialized content for TV and online channels.

Its film properties include sleeper comedy hit Never Say Die (羞羞的铁拳)⁴ and the Chen Kaige-helmed drama Legend of the Demon Cat (妖猫传),⁵ which earned US$334.5 million⁶ and US $97 million⁷ respectively in international box office receipts. NCM’s most recent comedy, Hello Mr Billionaire (西虹市首富), recorded almost US$367 million in box office receipts,⁸ with US$130.77 million opening weekend gross⁹ putting it in the Top Ten of all-time China opening weekends.¹⁰
 
NCM’s television series include Tiger Mom (虎妈猫爸) and The First Half of My Life (我的前半生); plus the streaming mystery show Yu Zui (余罪).
 
Thanks to its early focus on producing quality content, NCM earned net profits amounting to RMB161 million (US$23.4 million) in 2016, which doubled to RMB377 million (US$54.8 million) in 2017.¹¹

Increasing Demand for Literary Works

The deal comes as content providers see increasing consumer demands for high quality premium content. Production companies in turn have increasingly demanded literary works for source material.

In 2016, literary adaptations made up about 36 percent of China’s top 50 domestic films (in terms of box office), 28 percent of the country’s top 50 domestic television series and 52 percent of its top 50 web series (in terms of viewership).¹²

Monetizing NCM’s extensive literary intellectual property (IP) was always a long-term strategic goal for China Literature, as they had already participated in co-investment and co-production prior to China Literature IPO.

“We are already the leader in online literature, and we are also the leader in providing source material for China’s leading TV series and films,” says Wenhui Wu, Co-Chief Executive Officer of China Literature. “Our ambitions have always been to gain greater involvement in the IP adaptation process and greater economics from the highly attractive downstream media markets – which are witnessing explosive growth.”

Potent Synergy

The acquisition represents a strategic win for both sides.
 
“Further enhancing our content adaptation expertise is a natural next step for China Literature to unleash the commercial potential of our content library,”¹³ explains Wu, expressing confidence that their content leadership strategy will “create long term value for our shareholders.”

The deal’s potent synergy invites comparison with another notable content and production giant, one located across the Pacific. “[China Literature] could become the next Marvel, which has both content copyrights and movie productions under one roof,” says Meng Wei, an analyst with China International Capital Corp. Ltd.¹⁴

Sources:
¹ Completion of the Acquisition of 100% Equity Interest of New Classics Media (2018, October 31) China Literature Ltd. Retrieved from http://asia.blob.euroland.com/press-releases-attachments/1101763/HKEX-EPS_20181031_003307853-0.PDF
² China Literature Limited. (2018, August 13). China Literature to Acquire New Classics Media. Cision PR Newswire. Retrieved January 7, 2019, from https://www.prnewswire.com/news-releases/china-literature-to-acquire-new-classics-media-300695935.html
³ Major and Connected Transaction (28 Sept 2018) China Literature Ltd, p. VI-1. Retrieved from http://www3.hkexnews.hk/listedco/listconews/sehk/2018/0928/ltn20180928771.pdf
⁴ Cain, R. (2017, October 13). 'Never Say Die' Is Now China's Biggest Comedy Ever. Forbes. Retrieved January 7, 2019, from https://www.forbes.com/sites/robcain/2017/10/13/never-say-die-is-now-chinas-biggest-comedy-ever/
⁵ Legend of the Demon Cat. (n.d.). Emperor Motion Pictures. Retrieved January 7, 2019, from https://www.emp.hk/en/production/all/legend-of-the-demon-cat
⁶ Never Say Die - Financial Information China. (n.d.). The Numbers. Retrieved January 7, 2019, from https://www.the-numbers.com/movie/Never-Say-Die-(China)/China 
⁷ Legend Of The Demon Cat - Financial Information Australia. (n.d.). The Numbers. Retrieved January 7, 2019, from https://www.the-numbers.com/movie/Yao-Mao-Zhuan-(China)/Australia#tab=international 
⁸ Hello Mr. Billionaire. (n.d.). Box Office Mojo. Retrieved January 16, 2019, from https://www.boxofficemojo.com/movies/intl/?page=&country=CH&id=_fHELLOMRBILLIONA01 
⁹ Chu, K. (2018, July 30). China Box Office: 'Hello Mr Billionaire' Opens at No.1 With Stellar $131 Million. Hollywood Reporter. Retrieved January 7, 2019, from https://www.hollywoodreporter.com/news/china-box-office-hello-mr-billionaire-opens-at-no1-stellar-131-million-1130560
¹⁰ China All-Time Openings. (n.d.). Box Office Mojo. Retrieved January 16, 2019, from https://www.boxofficemojo.com/intl/china/opening/ 
¹¹ Major and Connected Transaction (28 Sept 2018) China Literature Ltd, p. 30. Retrieved from http://www3.hkexnews.hk/listedco/listconews/sehk/2018/0928/ltn20180928771.pdf 
¹² Major and Connected Transaction (28 Sept 2018) China Literature Ltd, p. 30. Retrieved from http://www3.hkexnews.hk/listedco/listconews/sehk/2018/0928/ltn20180928771.pdf 
¹³ China Literature Limited. (2018, August 13). China Literature to Acquire New Classics Media. Cision PR Newswire. Retrieved January 7, 2019, from https://www.prnewswire.com/news-releases/china-literature-to-acquire-new-classics-media-300695935.html
¹⁴ Tan, J. (2018, August 14). Tencent-Backed Publisher Has Big-Screen Ambitions With $2.2 Billion Acquisition. Caixin Global. Retrieved January 7, 2019, from https://www.caixinglobal.com/2018-08-14/tencent-backed-publisher-has-big-screen-ambitions-with-22-billion-acquisition-101314946.html