China’s Tencent buys film studio New Classics Media for $2.25b

China Literature, the publicly listed e-books unit of Chinese internet giant Tencent Holdings, has reached a deal to fully acquire the powerhouse film and TV studio New Classics Media for $2.25 billion.

The deal brings together one of China's largest original content development platforms with one of the country's top video production outfits.

The agreement was unveiled Monday to the Hong Kong Stock Exchange, where China Literature trades. Upon completion of the acquisition, New Classics Media will become a fully owned subsidiary of China Literature, but the studio's current senior management team will remain in place and continue to oversee creative decisions.

New Classics Media is regarded as one of the leading production outfits in China, having led or participated in the production of numerous hit TV series and Chinese blockbusters, including The First Half of My Life, Never Say Die ($334 million domestic box office), Goodbye Mr Loser ($226 million) and Hello Mr Billionaire ($344 million and counting).

"This transaction combines China Literature's unparalleled content library and New Classic Media'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," the two partners said Monday in a statement.

China Literature, formerly known as Tencent Literature, was spun off from the Tencent parent company last November. The company, which combined Tencent's myriad online publishing and e-books services, raised more than $1.1 billion in its initial public offering and currently has a market cap of approximately $7.5 billion.

Online literature is a big business in China, comprising everything from digital comics to serialised short-form storytelling to full-length ebooks — much of it user-generated but commanding readerships numbering in the tens of millions. Tencent's China Literature, like rival e-publishing services from Alibaba and Baidu, monetises its many reading platforms in various ways, and integrates the services with its flagship social message services (WeChat and QQ) and online video offerings. The film and TV adaptation rights to China's most popular online comics and e-books can often attract enormous licensing fees.

"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," said Wenhui Wu, co-chief executive officer of China Literature. "Further enhancing our content adaptation expertise is a natural next step for China Literature to unleash the commercial potential of our content library, drive the integrated development of blockbuster titles and enhance engagement of our writers and users."

China Literature will fund the transaction with $740 million in cash and $1.51 billion in stock. The company said New Classic Media's senior management will receive approximately 40 per cent of their payout upfront, with the balance deferred to an earn-out incentive mechanism pegged to long-term performance benchmarks.

At least a 27 per cent chunk of New Classics Media was acquired from the Tencent parent company, which purchased its sizable stake earlier this year for $524 million. That deal valued New Classics at about $1.9 billion, said Hollywood Reporter.

Tencent already held minority positions in leading Chinese studios Huayi Brothers Media and Bona Film Group, as well as movie ticketing service Maoyan. The company also operates growing film and television production banners of its own. Overseas, Tencent holds stakes in everything from Skydance Media to Donald Tang's Global Road, STX Entertainment, Snap and Tesla. It also is one of the lead local partners of power agency Endeavor's Beijing-based joint venture, WME-IMG China.