Zhangyue Technology breaks through IPO, giants compete for digital reading
"In the field of reading in China, no company is more focused and pure than Zhangyue." Cheng Xiangjun, chairman of Zhangyue Technology (Zhangyue Technology Co., Ltd., hereinafter referred to as "Zhangyue Technology"), said in an interview in May 2015.
In order to maintain this "focus" and "purity", Zhangyue Technology insisted on not financing in the first seven years of its establishment. But in December 2015, Zhangyue Technology finally used about 10.9% of its shares to introduce two external investors-Sinolink Tianji and Aofei Culture, and released a pre-disclosure document in June this year. What made Palm Reading Technology change its mind? After entering the capital market, can Palm Reading Technology still maintain its original focus and purity? Zhangyue Technology told the Times Weekly reporter that it was in a sensitive period at this time and it was inconvenient to be interviewed.
In the past, Zhangyue Technology was confident in not financing. Cheng Xiangjun also said that the income from paying users is enough to support the healthy operation of Zhangyue. And whether it is the scale of registered users, the scale of active users or the number of e-books on the platform, ireader, the digital reading platform owned by Zhangyue, once had great advantages. The prospectus quoted the "China Mobile Reading Market Annual Comprehensive Report" released by Analysys Think Tank, which shows that in 2014, ireader ranked first in terms of registered user scale and active user scale, with market shares of 26.1% and 32.3% respectively; and in terms of content resources, ireader also ranked third with approximately 350,000 e-book works.
But now, with the rise of the "IP" craze for literary works, the price of digital reading content copyrights has also skyrocketed. For companies like Zhangyue that need to purchase the source of digital content from genuine books, the "self-sufficient" way of survival can no longer help them maintain a competitive advantage. Palm Reading Technology disclosed in its prospectus that due to the company’s capital strength, the digital copyright of high-quality works with high market appeal, especially the digital copyright of high-quality works with exclusive exclusive authorization, is still insufficient.
On December 31, 2015, in an internal letter sent to employees, Cheng Xiangjun stated that “Zhangyue’s model has been in operation for seven years, and there have been almost no major changes or breakthroughs in terms of product form, operational ideas, and promotion strategies in these seven years.”; “2015 Transformation began in 2017, and the layout is no longer as simple as Palm Reading; 2016 was a painful period of transformation, and each new business required several times the energy and physical strength of the current one; in 2017, it will break out of its cocoon and become a butterfly, and people will see a brand new Palm Reading."
Financing is mainly to buy copyrights
The prospectus shows that Palm Reading Technology’s goal is to create the most influential digital reading ecosystem in China. Based on the digital reading platform, the company will gradually build a business layout in multiple sectors such as content creation, content distribution, IP development, film and television promotion, and games, with a view to integrating pan-cultural entertainment resources upstream and downstream of the industry chain and creating an ecosystem with digital reading as the core.
The changes in Palm Reading Technology can also be seen through the composition of operating income: in 2013, 100% of the revenue came from digital reading; in 2014, game combined operations contributed 1.69% of revenue; by 2015, the revenue from game combined operations reached 29.495 million, accounting for 4.61% of total revenue. In addition, the company has also added new businesses such as advertising marketing and hardware products, although the revenue contributed by the new business is limited.
"The company will focus on building four major platforms of high-quality creation, content distribution, IP development and film and television games in the next three years." Palm Reading Technology wrote in the prospectus, among which "IP development" refers to the high-quality books created by Palm Reading using its own original literary creation platform, introducing top film and television, comics, and game production companies, and adopting a profit sharing and revenue sharing model for in-depth cooperation. The "movie game platform" business refers to Zhangyue's involvement in mobile advertising and marketing business through big data mining to carry out precise and deeply integrated marketing strategies.
According to the plan in the prospectus, if this IPO is successful, the funds raised will be used in the "digital reading resource platform upgrade", "digital reading technology platform upgrade" and "digital reading overseas development" projects. The total investment amount of the three projects is approximately 1.047 billion yuan, of which the "digital reading resource platform upgrade project" requires a capital scale of 933 million yuan.
Times Weekly reporters reviewed the prospectus and found that Palm Reading Technology plans to invest approximately 773 million yuan in the next three years to introduce 370,000 publications and 110,000 original reading materials. At the same time, it will also prepare approximately 103 million yuan for copyright processing, and the remaining funds will be used as working capital.
In order to maintain the competitive advantage of platform content, Palm Reading Technology has always been generous when purchasing copyrights. During the reporting period (2013-2015), Palm Reading Technology purchased 25.2005 million yuan, 87.2311 million yuan and 111 million yuan for copyright content respectively. Palm Reading Technology also stated that the increase in copyright costs was the reason for the slight decrease in the company's gross profit margin during the reporting period.
Originality does not have an advantage
Nowadays, the digital content of genuine books mainly comes from publishing houses, copyright agencies, literary websites and writers. Times Weekly reporters learned that many online writers sell their copyrights to their literary websites in one go. Therefore, some literary websites with a large number of high-quality literary copyrights have become the targets of capital. In 2013, Baidu bought Zongheng Chinese.com from Perfect World for 191.5 million yuan; in January 2015, Tencent and Shanda established China Literature Group, which included high-quality online literature websites such as Qidian Chinese.com, Chuangshi Chinese.com, and Xiaoxiang Academy.
Palm Reading Technology has also invested in two companies that operate original literature websites - Shanghai Longyue Information Technology Co., Ltd. and Hangzhou Quyue Information Technology Co., Ltd. The former mainly operates "Hongshu Network" and the latter mainly operates "Quyue Chinese Network". However, Palm Reading Technology holds only 4.76% of the shares in these two companies.
The "Current Status of China's Online Literature Market" released by Sutu Research Institute shows that in the market distribution of original online literature works in China in 2015, China Literature Group ranked first with a market share of about 90%. It is reported that it has nearly 10 million original works; Baidu Literature ranked second with a market share of 3.4%; Alibaba Literature ranked third with a market share of 1.6%.
The huge original resources also give QQ Reading, a subsidiary of Tencent, a lot of room for growth. "Current Status of China's Online Literature Market" shows that in 2015, QQ Reading had the highest proportion of mobile daily active users in the online literature market, accounting for 33.86%, and Zhangyue Bookstore's market share was 27.83%. If the indicator of "digital user coverage" is taken into account, China Literature ranks first with a share of 90.29%; PalmReader ranks second with a user coverage rate of 38.94%; Alibaba Literature also ranks third with its vigorous development of mobile terminals.
In addition, when purchasing copyrights through publishing houses, giants undoubtedly have huge advantages over ordinary small and medium-sized enterprises. Zuo Zhijian, the founder of Thumb Reading, once said, "In terms of copyright, we have to negotiate with publishing houses one by one. Others purchase hundreds of thousands of copies at a time, but we can only purchase tens of thousands. There is no advantage in terms of manpower and material resources, and the publishing process is mostly very slow, so it is very troublesome and trivial. In addition, in terms of publicity and promotion, Thumb Reading also encounters great difficulties, because publicity costs a lot of money, and the company's size and strength are currently unreachable." Thumb Reading was acquired by JD.com last year.
IP derivation may be difficult to achieve
For giants, perhaps the derivative value of literary IP is even more fascinating. In 2015, popular TV series such as "Why Sheng Xiao Silence", "Flower Thousand Bones" and "Nirvana in Fire" were all adapted from the novel of the same name. The monthly revenue of the online game "Flower Thousand Bones", which was adapted from the TV series, once exceeded 250 million yuan.
Times Weekly reporter learned from Chen Hong (pseudonym), who works at a large online literature website, that the copyright of online literature like "Why Shengxiaomo" has now reached seven figures. "Even if some novels are still being serialized, five or six companies will come to negotiate with the website for copyright." Chen Hong also told Times Weekly reporters that in general, games are mostly adapted from fantasy novels, and in the field of fantasy novels, Qidian Chinese, a subsidiary of China Literature, The Internet has great advantages in terms of size and quality; many film and television dramas are adapted from romance novels. In the past two years, more than 50% of the IP in the film and television drama market came from Jinjiang Literature City, and China Literature Group holds 50% of Jinjiang Literature.
Times Weekly reporter also learned throughChina Intellectual Property Lawyer NetworkChief Lawyer Xu Xinming that whether it is changed into a film, television drama or game, the re-creation of a literary work requires prior permission from the owner of the original work. At the same time, the exercise of the right to perform the work is also subject to the copyright of the original work. This also means that Zhangyue Technology, which has limited originality capabilities, has limited capabilities in the field of "IP derivation".
An industry insider told a reporter from Times Weekly that for BAT, the literature department is more like a "material library." Cheng Xiangjun also believes that BAT's reading is more of an investment. A business needs to calculate the input-output ratio. If reading is too commercial, it will affect the reading atmosphere.
In addition to the software field, Zhangyue is also focusing on the hardware field.On June 23, the iReader Plus e-book received another firmware upgrade. According to estimates from market research company Statista at the beginning of the year, the current penetration rate of e-books in China is only about 1%, which means that even if global e-book sales decline, China can still be a growth market. However, there are many players who want to enter this field, which means that PalmReader must not only challenge Kindle, the dominant player in the e-book field, but also compete with giants such as Tencent and JD.com in another market. In February this year, Jingdong Reader also completed external testing of the product; Wu Wenhui, CEO of China Literature Group, also revealed to the outside world in March that China Literature Group will launch independent research and development of e-book products.
