As Chinese gaming and social media behemoth Tencent Holdings contiues to make strategic moves in the content business, its publicly-listed e-publishing spinoff has made a key acquisition. China Literature is to acquire film and TV producer New Classics Media, whose Hello Mr Billionaire has made over $344M in a few short weeks locally. Under the deal, China Literature will acquire 100% of the share capital of NCM from certain members of that company’s senior management team and from Tencent in a transaction valuing NCM at RMB15.5B ($2.25B)
The news comes just days before Tencent, Asia’s most valuable company — and one Deadline recently highlighted as a Disruptor — reveals its Q2 earnings on August 15. The Hong Kong-listed company has two-thirds of the Chinese population using its messaging services WeChat and QQ, boasts the top-grossing mobile game in the world, and has in the recent past invested in Skydance, STX Entertainment and Tang Media Partners.
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The move to acquire all of New Media Classics is more of a local push, and is part of a play to feed the bulging streaming masses in a turf-war market. However, with the IP held by China Literature married to a successful producer one has to wonder about the global possibilities. Unrelated, but worth noting, is the success this past weekend of China-U.S. co-pro The Meg which found a better balance than its predecessors in terms of harnessing global appeal. As Deadline has noted for 2018 (and likely beyond) Tencent is a company to watch.
NCM is behind such TV and web series as The First Half Of My Life and Yu Zui, as well as films such as Wukong, and current smash Hello Mr Billionaire. Tencent saw the writing on the wall having acquired Beijing Enlight’s 28% in NCM last March for $524M
China Literature says the transaction combines its “unparalleled content library and NCM’s industry leading expertise in script development and production, and will help unlock the full potential value of China Literature’s high-quality original literary content offerings.”
Putting a fine point on it, Wenhui Wu, Co-CEO of China Literature, says, “Users are increasingly demanding high quality video entertainment content which in turn drives the demand for literary works for various content adaptations. We are the pioneer and leader in online literature market and thus in providing source material for China’s most-watched TV series, web series and films. Further enhancing our content adaptation expertise is a natural next step for China Literature to unleash the commercial potential of our content library, drive integrated development of blockbuster titles, and enhance engagement of our writers and users.”
Adds Xiaodong Liang, Co-CEO, “NCM represents a scarce opportunity for China Literature to extend its content capabilities downstream, enabling it to participate further along the IP value chain and enhance the services it can bring to its writers as well as its users. We believe that this combination will create significant long term strategic value for China Literature’s shareholders.”
The current management of NCM will continue to oversee the TV series, web series and film production business and will be empowered to make original content selection choices, including those from outside of China Literature’s platform.
In terms of financials, the parties said China Literature will fund the transaction with RMB 5.1B in cash and RMB 10.4B in stock, including an earn-out mechanism to align the long term performance and incentives of NCM’s management team. The China Literature shares that will be used as stock consideration will be issued at HK $80 per share. At closing, management of NCM will receive approximately 40% of their consideration (RMB1.5B in cash and RMB 2.6B in stock) with the balance being deferred and subject to future performance earn-out.
The transaction is currently expected to close during the second half of 2018, and is subject to the customary regulatory rule
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