Media & Gaming

Stars aligned

A major merger between key TV production firms

Li Feier w

Star of Huace’s Happy Noodles

It’s not every day that you hear a television studio being compared to a fast food chain.

But Zhejiang Huace Film and TV did just that when it announced at the end of last month that it will acquire the smaller and unlisted Shanghai-based producer Croton Media for Rmb1.7 billion ($272 million). The reason? Huace says Croton is like McDonald’s when it comes to speed and efficiency.

Jin Qian, deputy general manager of Huace, says the company was attracted to Croton because of how it uses data analytics to track, monitor and evaluate TV programmes. The goal is to figure out what viewers want to see and when they want to see it. The comparison is to the way that McDonald’s central kitchen decides what food is offered at every store and how it is offered, Jin explains.

“To put it simply, the software analyses what channel is suitable for what type of content and what programmes will perform well in which time segment,” Jin told Tencent Entertainment, a portal. “From all the data they decide to produce specific content for the particular station designed to air during an exact time slot. It’s all very scientific and reduces the overall risks for all the companies involved.”

Science aside, the deal is significant because it is the most expensive acquisition in the country’s media industry to date. Croton is one of the largest TV and film producers in China. Since 2004, the studio has churned out 215 television shows with 6,883 episodes, rendering it the sixth largest producer of TV programmes. Its revenue last year was Rmb585 million – that’s about 80% of its new owner Huace’s revenue in the same period.

Huace isn’t the only Chinese media company that has been shopping. In late July, Huayi Brothers, one of the largest film studios (see WiC34), bought a controlling 51% stake in the mobile games developer Yinhan Technology for Rmb672 million. The move suggests that Huayi, which has been diversifying away from film and TV productions, is now counting on mobile gaming as a major revenue stream.

“Croton Media is very consistent with our future development and business plan,” Jin told the Beijing Commercial Daily. “Compared with Huayi Brothers, which has gone into a different business, we hope that we can start from what we are good at (TV production) and choose a company that has complementary advantages.”

Even though Huace is one of the largest show producers in China, it controls less than 5% of the total market. After joining forces with Croton, the new entity will be the largest but still control only about 10% of the market, says China Culture Media Network. The latest acquisitions suggest that China’s media industry may be heading into a round of consolidation, with larger and more financially resourceful studios chewing up their smaller rivals, says Century Weekly, citing the fears of some of the smaller studios that they could well become the next acquisition target.

With almost 600 million internet users and increasing convergence in the internet, film and TV sectors, China’s media industry has already attracted plenty of investor interest. Just this week, veteran investor Bruno Wu (also the husband of ‘China’s Oprah Winfrey’ Yang Lang) announced that he plans to raise a $500 million private equity fund for media investments, focusing on companies in China.

More than 300 media M&A deals totalling almost $10.3 b0illion have gone through since 2009, data from Dealogic shows. Private equity and venture capital firms accounted for about 10% of the total, although foreign firms are missing in action because the industry is considered off-limits.

For Huace, the first order of business is to use the Croton acquisition to boost production of programming that viewers like to watch. That sounds like a solid move, especially if it leads to higher quality work. China Culture Daily says TV programming this year has been “high in quantity but low in quality” and according to CSM, a media research firm, only 20 shows have recorded a score over 1 in the ratings (China’s top-rated show gets around 3), far below the 30 that were recorded last year.

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