Original link: https://www.latepost.com/news/dj_detail?id=1641
“LatePost” exclusively learned that China Literature Group CEO Cheng Wu resigned today due to personal life planning reasons, and his position will be concurrently held by China Literature Group President Hou Xiaonan. Hou Xiaonan is also vice president of Tencent Content and Platform Business Group (PCG) and head of Tencent’s animation business.
This is the second time that China Literature has changed its coach since its establishment. In 2015, Tencent Literature and Shanda Literature merged to form China Literature, and Wu Wenhui, the former president of Shanda Literature, served as the CEO of the new company. In 2020, Wu Wenhui resigned, and two Tencent executives Cheng Wu and Hou Xiaonan took over as CEO and president respectively.
Cheng Wu joined Tencent in 2009. He promoted the establishment of Tencent Animation, Tencent Literature and Tencent Pictures. He was also one of the first people who proposed to develop the copyrights held by Tencent into multiple forms such as literature, film and television, animation, and games. He was also in charge of marketing and public relations of Tencent Group. However, in July 2022, Cheng Wu has resigned from Tencent-related positions.
Hou Xiaonan joined Tencent earlier and joined Tencent after graduation in 2003. It was the first batch of school enrollment since Tencent was established. During his tenure, he was mostly responsible for open and cooperative businesses. For example, he developed the social game QQ Farm during the period of QQ Zone; The market share ranks first in the industry.
Hou Xiaonan is one of the first batch of managers trained by Tencent from within. Because he has been developing new businesses, he is also evaluated as an “intrapreneur” by many people in Tencent. A person from Tencent told LatePost that Hou Xiaonan once led the establishment of the “Double Hundred Plan” project in Tencent to incubate Internet start-ups through capital and traffic. With his promotion, Tencent became an early investor in Pinduoduo.
When the two were in charge of China Literature, the company was facing multiple challenges: the rise of free reading products took away a large number of users who originally belonged to China Literature, while the growth of China Literature’s own products stagnated; The development of film and television is not as expected; the cooperation with the parent company Tencent’s various businesses is also not smooth. At the end of 2020, China Literature’s stock price once fell below HK$21, a 75% drop from when it was listed—that was the time when the stock price of Chinese Internet companies was the highest.
In the past three years, China Literature has turned losses into profits, and its business has returned to the growth track. “LatePost” learned that in 2022, the monthly active users of Qidian.com.cn will increase by more than 80%, and the annual increase will exceed The sum of ten years; IP adaptation projects such as “Zuo Son” and “Fights Break Sphere” have been hatched. Although the stock prices of Chinese Internet companies are generally only 40% of what they were at the end of 2020, China Literature’s stock price once returned to above HK$40 this year.
Reading stabilized its pace, and Hou Xiaonan faced even bigger competitors. Reading’s financial report shows that its revenue in 2022 will be 7.63 billion yuan, mainly based on paid reading, copyright operations and advertising revenue. According to “LatePost”, the revenue of Byte Tomato novels has exceeded 10 billion yuan, which is basically advertising revenue. According to ByteDance sources, Tomato Novels’ e-commerce GMV target is 10 billion yuan in 2023. If readers accept shopping while reading novels, Tomato Novels will bring more e-commerce related advertising revenue. At the same time, Tomato Novels also began to explore paid novels.
The new CEO has reorganized the China Literature business in the past two years
Since 2019, free novel platforms such as Tomato Novel and Seven Cats have emerged. Relying on the free model, exciting cool articles and extremely low-cost traffic, they have quickly gained momentum and snatched away a large number of users who like to read cool articles. Reading Articles, which started with paid reading, has had a huge impact. The core product in the hands of China Literature, Qidian Chinese.com, had a history of nearly 20 years at that time.
According to the financial report, the revenue of China Literature’s online business this year was 3.71 billion yuan, a year-on-year decrease of 3.08%. In the following year, Yuewen’s expenses greatly exceeded the growth rate of revenue, and the annual loss reached 4.5 billion yuan.
Cheng Wu and Hou Xiaonan spent three months researching the internal operation of China Literature. A reader recalled to LatePost that they sent a severely worded internal letter to express their dissatisfaction, saying that the internal situation they saw was: “proud and complacent”, “self-sufficient”, and “not thinking about making progress”. Soon, China Literature launched organizational optimization and adjustment, performance appraisal system reform and brand-new corporate culture construction.
A former middle-level executive who participated in the reform commented on Hou Xiaonan, who is good at sorting out complex businesses and acts “organically”. He told “LatePost” that after sorting out and analyzing all the products under China Literature, Hou Xiaonan found that there was almost no difference in positioning, content library and personalized recommendations. Therefore, “when the free tide hits, all Platforms will be hit together.”
Among them, only Qidian Reading is a special case. It only produces relatively high-quality paid novels, has a solid user base, and is least affected by free products.
In view of this, Hou Xiaonan and his team set a product “layering” strategy, that is, each product must be differentiated, rather than blindly following competitors, or wanting to do whatever content and functions.
According to this strategy, Qidian Reading should focus on paid and high-quality products, and win over “deep web users”. Therefore, in terms of its transformation, China Literature has introduced new technologies to deal with piracy; on the product side, it has upgraded community and social functions such as “Benzhangshuo” to convert pirated users into genuine users. QQ reading is positioned as a “wide-reading user product”, and it has also changed from a paid product to a paid and free membership product. Reading also restarted Xiaoxiang Academy, specializing in female-oriented online content. The original free product Feidu was closed by Hou Xiaonan.
According to a person close to the strategy department of China Literature, Hou Xiaonan believed that the team at that time was neither good at advertising nor commercialization – Feidu spent hundreds of thousands of yuan to buy volume every day, and the conversion efficiency was extremely low. Still hovering around 1 million, Tomato Novels built 30 million DAUs in the same time.
He turned his goal to cooperate with Tencent. QQ browser has more than 100 million daily active users, and its user profile is low. It is a natural audience for free novels. Adding a novel entry on the browser to incubate free novels can make better use of it. The strategy also worked quickly. Currently, the number of daily active users of the QQ Browser Fiction Channel has stabilized at tens of millions.
More external cooperation has also been introduced to China Literature: under the leadership of Hou Xiaonan, China Literature no longer develops free reading products by itself, but establishes a joint project team with QQ Browser to incubate free content; promotes the solution of cooperation with WeChat Reading Friction; even established cooperation with Palm Reading, Midu, and Chinese Online, which have been competing for a long time, to purchase content.
“LatePost” learned that in 2023, China Literature will also cooperate with Huawei, Xiaomi, vivo, and OPPO to import the novels of China Literature into the browsers of these mobile phones. “Internal calculations show that these platforms can bring more than 200 million new users to China Literature’s free novels,” said the above-mentioned China Literature strategist.
Free as a defense, paid reading and IP incubation are still the focus of China Literature
China Literature’s current strategy of mainly cooperating with browser products to promote free content is more like a defense——China Literature provides reading content for QQ browsers and browsers of mobile phone companies, retaining users and sharing a part of advertising revenue. Although these browsers together have more than 300 million daily active users, most of them do not open the browser to read novels. The 80 million daily active users of Tomato Novel have clearer goals and contribute more advertising revenue to the platform.
Entering 2022, affected by the general environment, the advertising industry will continue to decline. According to China Literature’s 2022 financial report, its advertising revenue also fell by more than 25% year-on-year. But at the same time, its core product, the starting point of reading revenue with user fees as the main source of income, increased by 30%.
In January 2023, Hou Xiaonan said at the Tencent PCG staff meeting that “free platforms must not be taken lightly”, but “building a high-quality content platform like Starting Point is still the core strategy of China Literature.”
A person present relayed Hou Xiaonan’s speech at the time to LatePost, saying, “Free platforms are very dependent on the advertising system, and writers’ income also comes from advertisements, and any fluctuation in advertising prices will shake the stability of the writer’s ecology.” The product leverage is very high, and the income brought by one paying user to the company is equivalent to ten free users, which is more capable of creating a high-quality ecology.
The person mentioned above said that the free novel platform does not yet have the ability to generate IP, which is the greater advantage and room for imagination of China Literature.
The content of the free platform is distributed based on algorithms, and there is no pre-screening by writers and editors, which can easily lead to good books being buried. The monthly recommendation list of Tomato Novels changes frequently every month. The author follows the algorithm and writes a new book every month. “Write what is popular, instead of writing a story well and complete, with a solid plot and worldview.” The above-mentioned person who read the article said.
The payment mechanism encourages authors to write relatively better works to retain paying users. Beginning in 2020, China Literature has successively adjusted its writer service system and launched the Starting Point Creation School, Young Writer Support Program, etc. A reader told LatePost, “Hou Xiaonan pays New Year’s greetings to writers in person every year.”
China Literature started as a paid reading business. The problem with this model is that it has a high threshold for users and low monetization efficiency. In 2022, China Literature’s online business revenue will be 4.36 billion yuan. For China Literature, it must maximize the value of each IP in order to obtain greater benefits.
From the current point of view, the world’s largest content platforms are almost all based on film and television content, and their source of income largely depends on the derivative development of film and television IP. In Disney’s fourth fiscal quarter of 2022, its theme park and consumer product revenue reached US$7.4 billion, which is not only its largest source of income, but also the fastest growing business.
At the China Literature 2022 financial report conference call, Hou Xiaonan said that China Literature will focus on developing IP commercialization and derivatives business next. According to the statistics of “LatePost”, in 2022, among the top 10 works on the new domestic animation popularity list on Tencent Video, there are 7 works adapted from China Literature. Among them, “Douluo Dalu” has become the most famous animation IP in China. A number of games adapted from this have accumulated turnover of more than 10 billion; in addition, more than 230 works of China Literature have been adapted by Tencent Animation.
At present, the copyright operation business contributes more than 40% of the revenue of China Literature. The prospect of this part of the business depends on whether Tencent can continue to adapt IP into successful films and games, and also depends on whether the environment for film, animation, and game production and consumption will be more relaxed.
When free novel reading was just emerging three years ago, the entire industry was shocked. It was suspected that free reading would swallow up paid products and become the ultimate future of online literature. Now some companies and products are gradually declining, but there is a clearer boundary between free and paid, and the representatives on both sides have clearer directions. Tomato Novel continues the flow and rapid iteration that Byte is good at, relying on Byte’s advertising infrastructure to print money at a high speed. China Literature focused on IP and returned to the dream of building a Disney.
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