JD Capital Optimizes Investment in Culture and Media Industry
2016-12-23
Source: Media Insiders
Introduction: JD Capital carefully selects, among fast-growing companies, industrial bellwethers with steady high performance as targets of investment, so as to optimize its investment and achieve industry line synergy effect; as for listed companies and public companies, JD Capital cooperates with industrial leaders to promote private placement and M&A business, so as to reap benefits of industrial consolidation by hedging high valuation of primary market with high valuation of secondary market.
In the latter half of this year, Xuanyixia Technology, the parent company of Miaopai, Xiaokaxiu and Yizhibo, announced on a press conference that it had raised USD 500 million in its E-round financing, setting a record of amount financed in a single round of fundraising in China’s mobile video industry.
Although winter has set in on the capital market, China’s culture industry seems uninfluenced. In the first half year of 2016, there were 443 equity investment cases in culture and entertainment industry, the capital involved amounting to RMB 78.252 billion, already 80% of the total financing amount of 2015; A-share market saw 105 M&A cases with a total amount of RMB 60.856 billion, far exceeding that of last year. Film and television, video games, live video streaming, animation, sports and other industry segments became the main investment target for industrial leaders and institutional investors.
“As China slows down its macro-economic development and implements economic restructuring, the lipstick effect of culture and media industry comes to the fore, and becomes the major force driving consumption and industry upgrading with its strong anti-business-cycle capability, ” said the leader of the culture and media investment team, “in future JD Capital will, guided by the core philosophy of ‘industry upgrading’, take industrial leaders as our main investment target, and enter more deeply into the entertainment industry with our rich investment experience and strong capital operating ability. ”
Bellwethers of industrial segments will stand out in the golden era
History of development shows that when national per capital GDP exceeds 5000 dollars, the share of total consumption that goes to cultural consumption will show a sharp increase. In 2015, China’s per capital GDP reaches USD 8016, which enables the country’s consumption structure to upgrade into a new level, with its center switching from mere subsistence to spiritual and cultural pursuit. Culture and media investment team of JD Capital pointed out that the emerging middle class in China has laid a solid social foundation for the development of culture and media industry.
In the Guideline for the Thirteenth Five-ear Plan, the Chinese government points out that, by 2020, the culture industry will become the backbone of our national economy, entering into a fast growing stage with an expected market size of one trillion yuan. Driven by the state strategy, the recent years have witnessed the promulgation of several guidelines and policies favorable to different segments of the culture industry, including film and television, music, cartoon, video games, etc.. These favorable policies have encouraged the marketization of the culture and media industry, strengthened the protection of intellectual property right and improved IP value.
“As the government continues to strengthen IPR protection and more and more users become willing to pay, China’s video industry which used to be plagued by pirating, is embracing the age of paid use. IQIYI, for example, has now more than 20 million paying users; and the number is still growing rapidly”, said the leader of JD Capital culture and media investment team.
Apart from favorable government policies, the development and maturation of the Internet, digital technology, communication technology and AR/VR technologies is driving great transformation in the culture and media industry in terms of production methods and transmission channels. According to JD Capital culture and media investment team, the integration of the Internet into the culture industry gives birth to new content and improves relevant supplying ability; also, as a new generation of culture consumers emerge and the depth and width of user engagement improves, capability on the demand end is also enhanced, with the number of people engaged on the B end and C ends increased considerably.
As the earliest users of the Internet, the generation born after the 1990s are rapidly emerging as the largest consumer group of the culture and entertainment industry. The rise of sub-culture group has given rise to new demands like Fans Economics and ACG (Anime, Comic and Games) culture. “For example, the combination of internet community interaction and fans economics has brought about innovative business models and vertical investment opportunities like content e-commerce,” as remarked by the leader.
Some industry insider comments that, the current favorable macro-environment has driven China’s culture and media industry into a golden era of fast growth, which helps attract huge capital flow and in turn promote industry development.
JD Capital predicts that, in the near future, many quality companies will stand out among competitors and become leaders of their respective industrial segments. The investment model of the culture and media industry will also change from VC investment featuring fast growth and high return to PE investment featuring industrial consolidation.
Promote industry upgrading with optimized investment
Over the years, investment and M&A cases in the culture industry greatly differs from those in earlier stages. Angle investment, VC investment in the early days and the later industry capital acquisition were more active, while PE investment in the current stage mainly focuses on film and television, games, advertising and other mature industries, and IPO exit cases are relatively small in number. Against this background, as a famous PE institute in China, JD Capital has developed its own investment strategies.
According to the team leader, JD Capital will “extend the investment timeline and adopt different investment models in different investment stages; the priority is to engage in long-term cooperation with segmental bellwethers for value enhancement.”
JD Capital carefully selects, among fast-growing companies, industrial leaders with a steadily high performance as investment targets, so as to create investment portfolios and arouse synergic effects along the industrial chain; as for listed companies and public companies, JD Capital plans to, together with industrial leaders, promote private placement and M&A business, in a way to reap benefits of industrial consolidation by hedging high valuation of primary market with high valuation of secondary market.
The culture and media industry is a wide-covering industry composed of many segments with uneven development. JD Capital has its own vision as to which areas to focus. The team leader says, “The culture and media industry can be divided into different segments according to two standards. In terms of industrial line, the industry involves content creation, production, publishing, channeling, and derivatives cashing; in terms of content forms, however, the industry consists of literature, animation, film and television, music, video games and sports.”
Seen from industrial development stages, segments serving as platforms and channels for production and transmission are the earliest to mature, and thus have the highest industrial concentration ratio. Coming next is the segments where content creation develops rapidly or segments of promotion and publishing. Derivatives cashing closely connected with economic activities matures the latest. Therefore, among all segments of the culture and media industry, video game and culture are more mature than film, television and performance, while animation and sports are still in its infancy or the early growing stage.
Based on such judgments and adopting models adjusting to the segments’ maturity levels, JD Capital has located many different investment opportunities. “We mainly focus on animation platform, film and television PGC producer, electronic sports content and platform, creative performance organizations, and consumption-oriented platforms based on content or communities. For those relatively mature segments, we will seek M&A possibilities and focus on the technology-driven renovation of traditions” says JD Capital culture and media investment team.
The team also has its eye on supporting suppliers of the culture and entertainment industry, such as actor selecting and training, film and television financing, SaaS service and big data marketing. Besides, innovative opportunities brought about by the combination of overseas resources and Chinese market, like Korean variety shows, Japanese animation, European sports and American films, are also areas of interest to JD Capital.
However, this capital bonanza trending through the culture and media industry is not without its risks.
According to JD Capital, there still exists uncertainties in the regulation of cultural policies, and we should pay high attention to any policy alterations. Besides, the huge capital inflow since 2015 has greatly intensified competition and led to overvaluation. Speaking from the industrial chain, the culture industry is labor and capital intensive, leading to uncertainties on the content end and a long-term waste of money on the channel end. Meanwhile, the complicated industrial chain and the long way it has gone from IP to the current stage all hold risks for investors.
JD Capital culture and media investment team says, “In future, we will engage in the transformation of the culture and media industry more actively, seize opportunities and bonus generating from explosive industrial growth, and, by virtue of our rich investment experience and strong capital operating capability, promote industrial consolidation and upgrading in collaboration with the industrial bellwethers.”