(Yicai Global) Aug. 13 -- The stock price of Tencent's China Literature tumbled to its lowest after the online reading platform posted waning profit growth due to declining revenue streams from its online business amid rising marketing costs.
China Literature's [HKG: 0772] share price dropped 14.7 percent to HKD24.90 (USD3.20) in the morning session. The Shanghai-based company went public in November 2017, ending its first trading day at HKD102.40.
China Literature's net profit decreased by 22.4 percent from the previous year to CNY393.2 million (USD55.7 million), its earnings report shows. The firm has increased its quality control over paid content, which has resulted in a 9.3 percent decrease in the number of monthly paid subscribers to 9.7 million. In effect, its online business revenue fell 11.5 percent to CNY1.7 billion (USD240.7 million). Meanwhile, the firm sought to lure in customers with ads and free content, causing its marketing costs to increase by 85.2 percent to CNY976.7 million.
However, China Literature found another lucrative source of revenue as copyright licensing of literature into movies, TV series and games lifted the company's operating income by 30.1 percent to CNY3 billion. Revenue streams from intellectual property licensing nearly quadrupled to CNY1.2 billion.
The substantial increase in copyright income indicates that this type of monetization is effective as it increases and diversifies a certain brand's life cycle, Wu Wenhui, founder and co-CEO of China Literature, told Yicai Global.
Adapting online literature into movies and TV series became very popular about four years ago as many video production firms saw IP licensing of popular online works as a ready-made tool to attract traffic and gain profits, said Wu. However, some titles have not been developed well, he added.
Despite the momentary downturn in the teleplay field, the value of online books' IP rights is still large in China, Wang Wenhua, executive director of China Insights Consultancy, told Yicai Global. Last year, the Chinese movie market had 1.8 billion viewers, which is more than twice as many as in 2014, Wang added.
Editor: Dou Shicong, Emmi Laine