Enlight Media has lost more than 1 billion in total in two years. What impact will the rise of artificial intelligence have on the revaluation of IP value?

When it comes to the application of AI technology in film production, animated films are expected to be the first to benefit. But overall, Enlight Media is in the exploration and practical stage of this, and it is still unable to accurately evaluate the efficiency improvement brought by this technology

"Investment Times" researcher Wang Zixi

The film and television industry has gradually recovered, but the company’s major shareholders have chosen to reduce their positions.

A few days ago, Beijing Guangguang Media Co., Ltd. (hereinafter referred to as Guangguang Media, 300251.SZ) announced that from April 13 to 28, the major shareholder Hangzhou Alibaba Venture Capital Co., Ltd. (hereinafter referred to as Alibaba Venture Capital) reduced its holdings in the company 12.4718 million shares; and the 12.4718 million shares held are used to participate in the refinancing securities lending business, with a lending period of 182 days. After this equity change, Alibaba Venture Capital’s shareholding dropped to 146 million shares, accounting for less than 5% of Enlight Media’s total share capital.

According to the announcement, the reduction of Alibaba Venture Capital’s holdings was mainly based on its own business arrangements. If roughly calculated based on the closing price of Enlight Media of 10.22 yuan/share on April 28 (non-rights restoration), Alibaba Venture Capital will cash out approximately 127 million yuan from its holding reduction this time.

The last time Alibaba Venture Capital reduced its holdings was in the first quarter of 2021. At that time, Alibaba Venture Capital reduced its holdings to less than 30 million shares at an average price of 13.32 yuan per share, cashing out about 391 million yuan. The reduction in holdings occurred again after two years, and at a time when the industry was recovering, which puzzled the market.

It is worth noting that in 2022, Enlight Media’s revenue dropped sharply to 755 million yuan, and the net profit attributable to shareholders of the listed company (hereinafter referred to as the net profit attributable to the parent company) lost 713 million yuan. In 2021 and 2022, the company's total net loss attributable to its parent company will exceed 1 billion yuan. Entering 2023, the predicament of the film and television sector has reversed, and several films invested by the company have been released, among which "Man Jiang Hong" has a box office of over 4.5 billion. However, in the first quarter, the company increased profits but not revenue. The high increase in net profit was mainly due to investment income and the better box office performance of invested films.

In addition, as my country's leading animation film company, Enlight Media's previous production of "Nezha: The Devil Boy Comes into the World" has achieved a box office of 5 billion yuan, a "myth". The company's animated films to be released this year include "Tea No. 2 Middle School" and "Heavy Rain", and it has some reserve films. Some brokers believe that animated films are expected to be the first to benefit from the application of AI technology in film production. The reasons are that animated films are time-consuming and the project is more complex. However, when AI is used in production, the company is now in the exploration and practical stage, and there is no need for the efficiency brought by the technology. Improvement cannot yet be accurately assessed.

In response to the reduction of Alibaba Venture Capital's holdings and the development of the IP derivatives market, a researcher from the "Investment Times" emailed a communication outline to the relevant departments of the company. As of the time of publication, no reply has been received.

Alibaba Venture Capital’s shareholding situation before and after the equity change of Guangguang Media

Data source: Company announcement

Enlight Media Q1 increased profits but not revenue

Guangguang Media’s business is mainly focused on the investment, production and distribution of film and television projects. Its business has covered movies, TV series (online dramas), animation, music, literature, artist management, live entertainment, industrial investment and other fields. The company's profit model is to obtain income from investment, production, and distribution of film and television drama projects, as well as income generated from related derivative or related fields, while using equity investment income as an important supplement.

In 2022, the film industry as a whole will be under pressure. According to data from the National Film Administration, the national movie box office has just exceeded 30 billion yuan, which has shrunk significantly from the 47.258 billion yuan in 2021. And due to the postponement of most of the company's film release plans, the poor box office performance of major films such as "Sniper", "Ten Years of Wen Ruyan" and "I Really Hate Long Distance Relationships" directly affected the company's performance.

Data shows that in 2022, Enlight Media’s film and related derivatives business revenue will be 593 million yuan, a year-on-year decrease of 35.13%, and the gross profit margin has also dropped to 13.13%, a year-on-year decrease of more than 23 percentage points. Film and related derivatives business revenue still accounts for more than 78%. At the same time, because the revenue recognition period has not yet arrived, the TV drama business revenue was only 359,000 yuan, a year-on-year decrease of nearly double. Although the artist management business achieved growth and recorded 161 million yuan, the gross profit margin also dropped significantly to 40.86%.

Overall, Enlight Media’s revenue dropped by 35.35% in 2022, achieving only 755 million yuan; the net profit attributable to the parent company lost 713 million yuan, a drop of 129%. The company has suffered losses for two consecutive years, with a total net loss attributable to the parent company of more than 1 billion in 2021 and 2022.

Entering 2023, the market begins to recover. In the first quarter, the films "Deep Sea", "River Red", "Exchange Life" and "China Ping Pong: The Last Strike" invested by Enlight Media and its subsidiaries were released. According to Maoyan Professional Edition data, as of May 17, the box office of "Man Jiang Hong" has exceeded 4.5 billion, ranking first on the 2023 movie box office list; "Deep Sea" has a box office of 900 million yuan, ranking fifth on the list; "Exchange Life" and "China The total box office of "Ping Pong: Jedi Strikes Back" is less than 500 million.

In terms of performance, in the first quarter of 2023, the company achieved revenue of 413 million yuan, a year-on-year decrease of 6.43%; net profit attributable to the parent company was 122 million yuan, a year-on-year increase of 63.38%. Among them, net investment income had a positive impact on profits of 57.89 million yuan, and the company's overall gross profit margin was almost the same as the same period last year.

Huatai Securities believes that the company’s Q1 net profit increased mainly due to investment income and the better box office performance of the main or participating films. CITIC Securities judged that the release of more key content has promoted the company's overall stable gross profit margin. In addition, the investment income from associates is better, which may come from contributions from Maoyan Entertainment (i.e. Tianjin Maoyan Weiying Culture Media Co., Ltd.).

Many brokerages believe that the company has a rich reserve of film projects. The live-action movie "So Many Years" was released at the end of April, and "I Passed the Storm" and "Transparent" are scheduled to be released on May 26 and June 30 respectively. It is expected that "Solid as a Rock" and "Sweep the Dark: Clear the Clouds to See the Sun" will be released during the year, and the animated film "Tea No. 2 Middle School" is scheduled to be released in mid-July; and catalyzed by AI technology, it may have a great impact on film production, especially animated films. Change.

Guangguang Media’s main accounting data and financial indicators for Q1 2023

Data source: The company’s first quarter report

Does AI application affect the revaluation of IP value?

As my country’s leading animated film company, Enlight Media’s previous productions of “Nezha: The Devil Boy Comes to the World” and “Jiang Ziya” achieved box office successes of 5 billion and 1.6 billion respectively. In 2022, the company established a new animated film label "Light Animation" in addition to the original label "Color House". The new label mainly develops the content of the "Chinese Mythology Universe" system. In addition to the aforementioned "Tea No. 2 Middle School" and "Heavy Rain", the company also reserves animation films such as "Nezha: The Devil Boy Havoc in the Sea", "Journey to the West: The Monkey King Havoc in the Heavenly Palace", "Big Fish and Begonia 2", etc. "Nezha: The Devil Boy in the Sea" and "Xiao Qian" are expected to be released next year.

Investment Times researchers sorted out relevant research reports and noticed that AI applications have two main impacts in the film and television industry. One is to empower the content production process; the other is to re-evaluate the value of IP. In terms of derivative value, film and television IP is expected to improve subsequent monetization efficiency through technology, such as accelerating the development of series of derivatives, making animated protagonists into virtual humans for marketing or e-commerce, etc. The recent popularity of "AI Stefanie Sun"'s singing has also brought about commercial imagination space for AI singers and other companies. Companies with artist management business and film and television content copyrights may benefit.

For example, in the film and television production process, Soochow Securities believes that from the perspective of AI application value and path, animated films are expected to be the first to benefit. The logic is that compared to the 1-2 year production cycle of live-action films, animated films take longer (3-4 years), the projects are more complex, and production capacity is obviously limited. Generative AI technology is expected to empower multiple aspects of animated film production and break performance bottlenecks. CITIC Securities also recommends paying attention to the cost reduction and efficiency increase of animation content and the room for production capacity improvement catalyzed by Enlight Media technology.

However, at the investor event on May 5, Enlight Media stated that the use of AI in the production of animated films is still in the exploratory and experimental stages, and it is not yet possible to accurately evaluate the efficiency that AI brings to animated film production. promote. Once the technology is mature and used proficiently, it may bring about a 50% efficiency increase.

As for the development plan for IP derivatives, the company stated that in the past, there was no particularly radical advancement in the development of derivatives for animated movies. The main reason was to protect these IPs, and there is currently no time for large-scale development. The entire market and the derivatives market also need to mature, and the current market size is not very large.

However, researchers from the "Investment Times" noticed that Shanghai Film (601595.SH) has recently completed the relevant equity acquisition. The target company has obtained exclusive licenses for IP including Havoc in Heaven, Calabash Brothers, Black Cat Sheriff, etc., while non-exclusive licenses include There are Brainless and Unhappy, Shuke and Beta, etc. The company’s strategic plan includes a “big IP strategy”. Aofei Entertainment (002292.SZ)'s IPs include Super Wings, Pleasant Goat and Big Big Wolf, Balala Little Demon Fairy, etc. Some of the IP images have been created into virtual idols, participating in offline activities and interactions, and bringing goods online to assist broadcasts, etc.

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