Starlink Huawen Holdings Limited (hereinafter referred to as 'Starlink Huawen') successfully listed on December 29, 2022. The company plans to issue 1,473 million H shares, of which 90% will be international offerings, 10% will be public offerings, and an additional 15% will be underwritten options. The issue price per share is HK$26.5, raising approximately HK$390 million net proceeds.
During the process of listing in Hong Kong this time, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the issuer's competitive advantages, assisting the issuer, investment banks, and other intermediaries in completing the relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business, and other important chapters), helping the issuer complete communication with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on various industry-related issues from the Hong Kong Stock Exchange, etc.
Investment highlights
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Based on 2021 revenue, the company is the largest creator and operator of variety show IPs in China;
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The company owns and operates a vast library of Chinese film IPs, and is a creator and operator of music IPs in China;
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The company owns a diverse and extensive range of popular variety show IPs, including music programs, dance variety shows, talent shows, talk shows, outdoor/cultural variety shows, and other variety shows. It is one of the few companies that can create and operate variety show IPs across various major program genres.
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The company's variety shows reflect the contemporary social and cultural environment, with authentic content that can resonate with a wide audience;
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The company adheres to the highest operational standards and is committed to building a team based on excellence in operations and social responsibility;
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The company is a leading creator, owner and operator of cultural entertainment IPs in China;
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The company is a pioneer in the field of Chinese entertainment IP creation;
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The company leverages its strong IP operation capabilities to effectively achieve synergies among various IP resources, further extending the IP value chain;
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The company focuses on IP promotion, providing audiences with comprehensive and extensive content access channels.
According to a Frost & Sullivan report, calculated based on revenue for 2021,Company:
Ranked first among market participants in China's variety show market (excluding dedicated radio channels), accounting for 1.6% of the overall variety show market;
Ranked seventh among market participants in the Chinese music market, accounting for 0.4% of the overall music market.
Overview of China's Variety Show Market
The scale of China's variety show market refers to the advertising revenue, sub-license revenue, and derivative product revenue from TV variety shows and online variety shows. From 2017 to 2020, the TV variety show market experienced a slight decline during this period due to a decrease in advertising revenue from television stations and a reduction in the number of TV variety shows broadcast. In particular, the outbreak of COVID-19 in 2020 led to delays in the shooting and distribution of variety shows, as well as reduced marketing budgets for brand owners, further shrinking the scale of the TV variety show market in 2020.
In addition, the licensing fees paid by online video platforms for broadcasting TV variety shows have shown a downward trend over the past few years. Although IP owners of TV variety shows are actively diversifying their monetization methods through content, the rapid growth of derivative product revenue cannot offset the decline in advertising and licensing income. At the same time, due to the continuous growth of advertising revenue, the online variety show market has steadily increased from RMB 15.6 billion in 2017 to RMB 18.2 billion in 2021, with a compound annual growth rate of 4.0% during the same period, partially offsetting the decline in the TV variety show market.
In the next few years, due to the market development entering a mature phase, it is expected that the annual broadcast volume of TV variety shows will remain stable. In addition, the annual broadcast volume of online variety shows is expected to increase slightly, which has promoted the growth of the variety show market size to some extent. At the same time, the further development of content operation centered on IPs, including the development of derivative products such as co-branded consumer goods, the organization of offline commercial activities, and cooperation with overseas streaming platforms, will bring new growth potential to the market.
Therefore, it is expected that the TV variety show market will remain stable, with a compound annual growth rate of about 1.2% from 2021 to 2026, reaching approximately RMB 407 billion by 2026. It is anticipated that the online variety show market will increase to RMB 226 billion by 2026, with a compound annual growth rate of 4.4% from 2021 to 2026.
Source: Frost & Sullivan report
The revenue of TV variety shows mainly comes from advertising, sub-licensing, and derivative products. From 2017 to 2019, the market scale of China's TV variety show market slightly decreased from about RMB 45 billion to about RMB 38.6 billion. This was mainly due to the popularity and competitive intensity of online variety shows, which led to a reduction in TV advertising and the number of TV variety shows broadcast; as well as the development of entertainment industry regulations and policies and the trend towards platform-controlled costs, which reduced sub-licensing revenue.
The outbreak of COVID-19 in 2020 led to delays in the shooting and distribution of variety shows, as well as reduced marketing budgets for brand owners. This further reduced the market size of TV variety shows to RMB 374 billion in 2020. In 2021, the decline in TV channel advertising revenue was significantly narrowed, the number of broadcast TV variety shows slightly increased, and the market for TV variety shows reached RMB 382 billion. This indicates that the negative impacts of the COVID-19 outbreak and the development of entertainment industry regulations and policies, which led to the shrinkage of the TV variety show market, are gradually weakening. The TV variety show market is expected to experience moderate growth in the coming years.
As the market recovers from the impact of COVID-19, it is expected that TV ad revenue will stop declining. In addition, the market scale for TV variety shows is expected to gradually recover and grow moderately. The reason is that producers of TV variety shows are actively exploring diversified monetization methods based on high-quality variety show IPs, including developing derivative products, organizing offline commercial activities, and collaborating with overseas streaming platforms. In particular, the rise and rapid development of the derivative product industry are expected to drive future growth in the TV variety show market.
In addition, the rapid development of online video platforms has gradually changed viewers' viewing behavior and preferences, especially among the younger generation who are mainstream customers in the media and entertainment market. As a result, online video platforms have attracted a large audience base, which has increased the reach of TV variety shows and created more monetization opportunities. TV variety shows are mature and will continue to develop to meet various needs of viewers. This trend is expected to further increase the popularity of TV variety shows in the coming years. By 2026, due to the potential adverse effects of COVID-19 cases reappearing in several regions and cities in China, the market size of China's TV variety show market is expected to reach approximately RMB 40.7 billion, with a compound annual growth rate of 1.2% from 2021 to 2026.
Source: Frost & Sullivan report
The revenue of online variety shows mainly comes from advertising and derivative products, including IP licensing to consumer goods brands and various forms of IP operation income. As Chinese video platform users increasingly focus on the quality and originality of video content, online video platforms have begun to pay attention to professionally produced or co-produced content to meet the ever-changing needs of audiences. Therefore, between 2017 and 2021, the market scale of China's online variety show market increased from RMB 15.6 billion in 2017 to RMB 18.2 billion in 2021.
Source: Frost & Sullivan report
Overview of the Chinese Music Market
The Chinese music market can be divided into three parts: physical music, online music, and music copyright. Physical music refers to music recorded in physical forms such as physical albums and tapes. Online music refers to music stored and downloaded in digital form on online platforms. Music copyright refers to all royalties and fees collected during the creation and distribution of music. The market size of the music copyright market has grown rapidly, increasing from RMB 6.2 billion in 2017 to RMB 22.3 billion in 2021, with a compound annual growth rate of 37.5%. This is mainly due to the significant growth of the online music market caused by national copyright protection in China. For the same reason, it is expected that the market size of the Chinese music copyright market will further increase to RMB 439 billion by 2026, with a compound annual growth rate of 14.5% between 2021 and 2026.
The total market size of the music market increased from RMB 21 billion in 2017 to RMB 666 billion in 2021, with a compound annual growth rate of 33.5%. It is expected that by 2026, it will further increase to RMB 1164 billion, with a compound annual growth rate of 11.8%.
Source: Frost & Sullivan report
Overview of the Chinese Drama Market
Driven by the cumulative effects of continuously rising income levels and upgraded consumption patterns, Chinese consumers are increasingly pursuing high-quality and diverse entertainment products. This naturally leads to a continuous growth in demand for cultural and entertainment activities. Dramas include TV dramas and online dramas, which have vivid and comprehensive artistic expressions with storytelling elements. Watching dramas has also become a popular cultural and entertainment activity among consumers during their fragmented free time.
The market scale of the episodic TV market (measured by licensing revenue and advertising revenue) fluctuated between 2017 and 2021, reaching RMB 902 billion in 2021. This market scale is expected to grow moderately and reach RMB 1018 billion by 2026, with a compound annual growth rate of 2.5% from 2021 to 2026.
Source: Frost & Sullivan report
Overview of the Chinese Film Market
The quality of Chinese films has been continuously improving, and their international recognition has also risen. In addition, Chinese cinema is diverse in genre, ranging from comedy and action to horror and science fiction, attracting a wide range of audiences. From 2017 to 2019, the number of film viewers saw a considerable increase, leading to a market size that grew from RMB 611 billion in 2017 to RMB 757 billion in 2019.
Due to the COVID-19 pandemic, especially social isolation measures such as temporary closures of cinemas, the film market saw a sharp decline in 2020, with a market size of RMB 332 billion. As the cumulative impact of rising income levels continues, entertainment consumption demand has continued to grow. It is expected that by 2026, the market size of the cinema film market will reach RMB 989 billion, with a compound annual growth rate of 11.2% between 2021 and 2026.
Source: Frost & Sullivan report
The competitive landscape of the Chinese variety show market
According to a Frost & Sullivan report, calculated based on revenue from advertising, syndication, and derivative products, the overall market share of the top five participants in China's variety show market (excluding dedicated radio channels) is about 3.6%. Among them, Starlink Culture & Media ranks first with a market share of about 1.6%.
Source: Frost & Sullivan report
The competitive landscape of the Chinese music market
According to a Frost & Sullivan report, the Chinese music market is highly fragmented. In terms of revenue in 2021, the top ten market participants accounted for a market share of 7.6%. Among them, Starlink Culture ranked seventh with a market share of about 0.4%.
Frost & Sullivan has extensive research experience in the culture and entertainment industry, assisting well-known enterprises in successfully listing on capital markets. Successful listings include: Grindr Inc. (GRND.NYSE), Ningmeng Pictures (9857.HK), Boviewise (1204.HK), Deying Holdings (2250.HK), Qingci Games (6633.HK), Pop Culture (CPOP.NASDAQ), Straw Bear (2125.HK), Kuake Music (KUKE.NYSE), Changxin Media (XJB.SGX), Brilliance Tomorrow (1351.HK), Yala Technology (YALA.NYSE), Lexiang Interactive (6988.HK), Zurong Entertainment (9990.HK), Blue City Brothers (BLCT.NASDAQ), Litian Pictures (9958.HK), Nine Honors Digital Entertainment (1961.HK), Yusheng Culture (1859.HK), Donkey Trail Technology (1745.HK), New Stone Culture (1740.HK), Touch Heart Company (2400.HK), Travel Orange Culture (8627.HK), Friend Times (6820.HK), Wanda Sports (WSG.NASDAQ), Tuyi Holdings (1701.HK), Hometown Interactive (3798.HK), Feiyang Group (1901.HK), Huoyan Holdings (1909.HK), Lingbang Group (2230.HK), Haitian Tianyue Tour (1832.HK), Zen You Technology (2660.HK), Ruhuan Holdings (RUHN.NASDAQ), Fosun Tourism Culture (1992.HK), Dream World (1119.HK), Yingke Interactive (3700.HK), Huya (HUYA.NYSE), Reeds (1337.HK), Readview Group (0772.HK), Meitu (1357.HK), China Digital Video (8280.HK), Yashiwai (1993.HK), Wald Animation (1566.HK).
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