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Booking profit: Tencent’s Pony Ma

Two of China’s ‘Four Great Inventions’ pertain to the written word: the creation of paper, and the advent of printing. But in the modern day, there have been concerns that the Chinese are losing interest in literature, something that Premier Li Keqiang mentioned in his annual report to the National People’s Congress three years ago.

In fact, it’s more the case that there are huge changes in how the Chinese read, spurred by the ubiquity of mobile devices and the surge in consumption of e-books.

Indeed, demand for digital books is such that original works are often appearing online before they reach print publishing.

One company betting on the trend is China Reading, which sells electronic books similar to Amazon’s Kindle Store. In February it announced that it will be raising $800 million via an IPO this year, probably in Hong Kong. Also known as Yuewen Group, it was formed in 2015 when tech giant Tencent took control of Shanda Cloudary, creating China’s largest publisher of online literature by merging it with Tencent Literature.

Cloudary was launched in 2008 as Shanda Literature, comprising the various digital platforms that Shanda Interactive had acquired over the years (see WiC49).

The logic of the original merger with Tencent was to consolidate around a platform that could attract Tencent’s huge customer base in mobile messaging and social media. And according to company data, China Reading had over 600 million users across its nine platforms by March last year and a catalogue of about 10 million books. Every day about 30 million people access content from its catalogue, says China Daily.

Another four million people are writing for the platform on a wide range of topics, and China Reading paid about Rmb100 million to its writers last year.

The primary platform Qidian.com is regarded as the pioneer of the pricing model that has become the mainstay of sales, says Technode, a blog. Qidian started out by charging Rmb0.03 per 1,000 words read (see WiC11). The meagre unit fee has much greater potential amid the huge readership numbers in the Chinese market, and today China Reading makes 90% of its profits from its sales to readers, HK01 reports. The remaining 10% comes from copyright licencing.

Revenues would be greater if the industry wasn’t plagued by piracy. According to New Business Daily, online literature firms lose Rmb10 billion a year to the counterfeiters who copy texts and print them elsewhere online. But the government’s “Strike the Net” campaign (which has sought to tackle “illegal publications” along with other online misbehaviour, see WiC352) and the formation of the China Online Literature Copyright Alliance, led by China Reading, has seen a reduction in pilfered content.

NBD suggests that progress on these two fronts encouraged Baidu to close forums on Tieba, its messaging board service, that were marketplaces for contraband texts.

Another upside from the campaign against piracy over the longer term is that it has encouraged China Reading to look for growth from its copyright licencing arm. HK01 also sees positives in the market for book derivatives – such as spin-off TV shows – which has grown tenfold since 2010.

Langya Bang is one of the more successful TV shows derived from a book of the same name and published online (see WiC314), as is Candle in the Tomb (see WiC11).

And as Shanda Interactive began life in online games (it was the largest gamer in China by revenue before it was surpassed by Tencent), China Reading will hope to grow profits by licencing its library to gamemakers too, including its parent Tencent.

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