Good News on Listing | Frost & Sullivan Assists Raccoon Entertainment Group in Successful Hong Kong Listing (2125.HK)

Rice Krispies Entertainment Group (hereinafter referred to as 'Rice Krispies') successfully went public on January 15, 2021, with a global issue of 166 million shares at a price of HK$5.88 each, raising approximately HK$976 million. Frost & Sullivan (Frost & Sullivan, hereinafter referred to as 'Frost & Sullivan') provided exclusive industry advisory services for the listing of Rice Krispies Entertainment Group, and hereby warmly congratulate them on their successful listing.

During the Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: helping the company accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the company's competitive advantages, assisting the company, investment banks, and other intermediaries in completing relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important sections), facilitating communication between the company and the Hong Kong Stock Exchange and investors, helping investors quickly understand the market ecosystem and competitive landscape, and assisting the company in completing feedback on various industry-related issues from the Hong Kong Stock Exchange.

The Chinese drama market consists of two parts: the TV drama market and the online drama market. According to a Frost & Sullivan report, TV dramas refer to dramas that have been issued an issuance permit by the National Radio and Television Administration (NRA) and can be broadcast on television stations or online video platforms; online dramas, on the other hand, require filing with and review by the NRA and can only be broadcast on online video platforms.

The industrial chain of the Chinese drama market is generally divided into (i) upstream - IP development and capital preparation; (ii) midstream - production and distribution; and (iii) downstream - TV dramas and online dramas broadcast. Producers or investors purchase novel copyrights or IPs and then initiate drama production, engaging in IP development and transactions as well as project fundraising. Producers play a crucial role, coordinating various participants such as photographers, directors, actors, and distribution channels. Leading practitioners usually have their own distribution teams and establish deep cooperative relationships with television stations and online video platforms to ensure that the produced dramas are presented to audiences through multiple channels.

Based on copyright licensing, distribution revenue, and advertising revenue, the market scale of China's drama market grew rapidly from approximately RMB 83 billion to approximately RMB 991 billion from 2015 to 2019 at a compound annual growth rate of about 4.5%. With the increasing popularity of the Internet (especially mobile terminals), the Internet's geographical limitations-free nature, its vast content offerings, and the provision of real-time information have effectively broadened the channels for drama broadcasting, allowing viewers to freely watch dramas in their spare time. Under these circumstances, the market scale of dramas is predicted to reach approximately RMB 1213 billion by 2024, with an expected compound annual growth rate of about 4.1% from 2019 to 2024.

Given the rich industry experience and a stable audience base accumulated over the years, television stations have been the main channels for TV drama distribution and broadcasting for decades. Affected by the "one drama, two stars" policy in 2015, the same TV drama could not be broadcast simultaneously on more than two satellite TV stations per night during prime time, and each channel could only broadcast up to two episodes per night, changing the market pattern of dramas. Although this policy has increased the number of TV dramas that stations can broadcast to some extent, it has intensified competition among companies focused on producing and distributing TV dramas. At the same time, with the deepening penetration of the internet, online video platforms (especially iQiyi, Youku, and Tencent Video) have rapidly absorbed a large user base in recent years, creating lucrative opportunities for participation by a significant number of users. In this context, the online drama market has grown rapidly at a compound annual growth rate of about 23.9% from 2015 to 2019, reaching approximately RMB 181 billion in 2019. It is predicted that the online drama market will continue to grow rapidly in the coming years, with an estimated compound annual growth rate of about 11.1% from 2019 to 2024. Meanwhile, the TV drama market increased from approximately RMB 753 billion in 2015 to approximately RMB 810 billion in 2019, with a compound annual growth rate of about 1.8%. It is expected that the market will grow at an estimated compound annual growth rate of about 2.3% from 2019 to 2024, reaching approximately RMB 907 billion by 2024.

In 2019, although the revenue from TV dramas still accounted for a major portion of the market size (about 54.9%), TV ad revenue has been continuously declining in recent years, limiting their ability to purchase new TV dramas at competitive prices. As a result, many TV stations have turned to purchasing second- or third-round broadcasted TV dramas at relatively lower prices. Consequently, the revenue from TV dramas generated by TV stations showed a slight decline from 2015 to 2019, decreasing from about RMB 605 billion to about RMB 544 billion. At the same time, online video platforms have been making significant investments in self-produced or customized online dramas over the past few years, gradually shifting their focus to online dramas. This has led to a rapid increase in the revenue from online video platforms, rising from about RMB 225 billion in 2015 to about RMB 447 billion in 2019, with a compound annual growth rate of about 18.7%. The revenue from online video platforms is expected to grow at a compound annual rate of about 8.9% from 2019 to 2024, reaching about RMB 683 billion by 2024.

The competition in the Chinese drama market is fierce, with over 18,000 market participants from diverse backgrounds and strengths in 2019. Despite the large number of market participants, leading drama production and distribution companies have acquired high-quality industry resources and established long-term cooperative business relationships with leading broadcasting channels such as five major television stations and three major online video platforms. Therefore, the top ten market participants accounted for approximately 24.8% of China's drama market licensing and distribution revenue in 2019, amounting to approximately RMB 10.8 billion.

● The demand for high-quality video content continues to grow during leisure time.The Chinese economy has entered a new era of growth under the 'new normal', with the economic growth model shifting from an investment-oriented one to a consumption-oriented one. At the same time, the cumulative impact of decades of increased disposable income and living standards has brought about significant changes in the consumption patterns of the general public in China. Chinese consumers have begun to pursue high-quality spiritual enjoyment products rather than basic necessities. These favorable macro conditions and the sustainable growth of entertainment demand have created numerous opportunities for the development of the video entertainment industry. Watching TV dramas, online dramas, movies, and other video programs has gradually become a popular daily entertainment activity.

● The popularization of the Internet and mobile Internet.Riding on the wave of "Internet+" advocated by the central government, 2016 became a glorious year for the vigorous development of the Internet and mobile internet. The Internet's geographical boundaries are non-existent, it encompasses a vast array of content, and it provides real-time information, making it a major source of traffic for many commercial activities and video entertainment industries. To expand channels and reach more audiences, most TV dramas are broadcast on Internet platforms. Many Internet platforms also invest or produce their own dramas to attract users and traffic. Given the interactivity and fluidity of the Internet, online video platforms have gradually replaced television stations as the dominant broadcasting channel for audiences. Considering the huge opportunities provided by the Internet and mobile internet, the development of China's video entertainment market is expected to accelerate.

● Episode innovation.To more properly meet the audience's growing expectations for the quality of dramas (such as scriptwriting, shooting techniques, post-production standards, and actor performance), drama producers and online video platforms are committed to innovation. Some have established internal research teams focusing on content creation and audience behavior analysis, thereby improving the quality of dramas and enabling them to achieve higher ratings in a highly competitive market. In addition, technological innovation is considered a key success factor. For example, new special effects technologies can enhance visual effects. Moreover, technologies such as big data analysis are widely used in content design, marketing, and distribution processes. The relentless efforts of all market participants drive the further development of the entire market.

● Chinese dramas will see accelerated exports.With the promotion of Chinese culture around the world and its adaptation to the development of series production, in recent years, the overseas distribution of Chinese dramas has continued to expand in terms of quantity and transaction value. Television stations and internet media have jointly shaped the pattern of drama export. On many overseas internet platforms, the influence of Chinese dramas has significantly increased, with profits mainly coming from the sale of copyrights and on-demand services. With the advancement of drama production technology and creative efforts in overseas promotion (such as establishing localized Chinese TV channels), Chinese dramas will accelerate their export.

● The series content and business model are diversified.The rapid development of the drama market has attracted a large number of participants to enter this business. Online literature, online games, and animation are the main sources of drama content. In addition, the accumulated experience in content operation and audience analysis by internet media allows them to produce high-quality dramas that directly target the audience to meet their ever-changing preferences. Especially for online video platforms, advertising is the main source of profit. Traditional media have adopted new advertising models such as flexible advertising placement, multi-screen interaction, and data-driven marketing solutions to diversify their business models. In addition to advertising revenue, with the gradual strengthening of intellectual property protection and the reduction of piracy, internet media platforms can profit from user-pays-per-view services.