TV drama distributor faces fragmented market

Money Glitz | Tereza Cai 11 Nov 2019

Drama series distribution company Litian Pictures is looking to list in Hong Kong.

The company, established in 2013, is mainly engaged in the business of licensing the broadcasting rights of drama series, most of which were anti-Japanese television shows.

For self-produced drama series, Litian Pictures applies for and obtains the relevant approvals and distribution licenses from government authorities, and then licenses broadcasting rights to customers, such as the major TV channels and online media platforms in China.

For outright-purchased drama series, Litian Pictures buys copyright or broadcasting rights from the third-party copyright owners/licensors and in turn, license the broadcasting rights to customers.

In addition, it also sells drama series scripts, starting from this year acting as a distribution agent for the copyright owners and licensors of TV series, promoting TV series to TV channels. Also, it acts as a non-executive producer, investing in drama series.

In terms of revenue generated from the drama series market in 2018, Litian Pictures ranked 16th among all China's drama series groups in 2018 with revenue of 385.9 million yuan (HK$430.29 million) and a market share of 0.34 percent. The market is highly competitive and fragmented with the top 20 market players accounted for 15.6 percent of the overall market size in terms of revenue in 2018.

In terms of the number of drama series first broadcast on satellite TV channels in 2018, it ranked second, according to a commissioned Frost & Sullivan report.

Revenue skyrocketed by 4.14 times from 2016 to 378.74 million yuan in 2017, mainly as a result of a rise of 312.6 million yuan in revenue from licensing the broadcasting rights of outright-purchased drama series. The company expanded this business significantly in 2017 by establishing three subsidiaries, namely, Horgos Tiantian Meimei, Horgos Haohao Xuexi, and Tiantian Xiangshang.

Net profit for the year jumped by 175.4 percent to 56.76 million yuan, while the net profit margin fell from 28 percent to 15 percent in 2017.

For the first six months this year, Litian Pictures revenue increased by 24.4 percent year-on-year to 197.96 million yuan, and profit for the period increased by 65.3 percent to 45.67 million yuan.

Litian Pictures warns that it had trade and bills receivables of 517.1million yuan as of June 30, up from 376.2 million yuan at the end of 2018. The average trade and bills receivables turnover days also extended from 276.8 days at the end of 2018 to 420.2 days as of June 30.

Meanwhile, the mainland government is increasingly strict on TV content quality with the average episode per drama series falling. There were 73 drama series shot in recordation in September totaling 2,648 episodes, down significantly from 89 drama series totaling 3,723 episodes in September last year, according to The State Administration of Press, Publication, Radio, Film, and Television.

It also cautions the risk that the distribution of its licensed web series on the internet may be found objectionable by China's regulatory authorities.

Litian Pictures' chairman Yuan Li held 30.35 percent of the company's shareholding and his wife Tian Tian is Litian Pictures' chief executive, owning 28.61 percent of the interest.

The company says it depends on the continued contributions of senior management, in particular, Yuan and Tian. If personnel are unable or unwilling to continue to work with it, it may cause a significant disruption to its business operations.

Net proceeds are expected to be used mainly to produce drama series, to make outright purchases of copyrights or broadcasting rights and to hire additional experienced professionals in the next three years. The remainder of proceeds is to be used to fund working capital and general corporate purposes.

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