"Wang Yibo" concept stock came, Lehua Entertainment went public, and 58 artists could not compete with 1 Weiya

The source of this article: Times Finance Author: Zhang Xuemei

Image source: Visual China

Recently, Lehua Entertainment Group, which owns artists such as Wang Yibo, Meng Meiqi and Wu Xuanyi, submitted a listing application to the Hong Kong Stock Exchange, with CITIC Construction Investment International and China Merchants Securities International as joint sponsors.

The listing movement has been traced in January. At that time, the equity of Lehua Entertainment changed, Du Hua and others withdrew from the ranks of shareholders, and added Tianjin Lehua Investment Co., Ltd., the legal person is Du Hua, from a large proportion of individual shareholding to the company's shareholding, which triggered speculation that Lehua Entertainment would be listed.

Lehua Entertainment's capital road has not gone well. In 2014, Lehua Entertainment won about 255 million B rounds of financing from Chinese Culture Group, was listed on the New Third Board in September of the following year, and unsuccessfully sought A-share listing after delisting in 2018, until recently, it submitted an application to the Hong Kong Stock Exchange.

The prospectus discloses that from 2019 to 2021, Lehua Entertainment's revenue was 631 million yuan, 922 million yuan and 1.290 billion yuan, respectively, with a compound annual growth rate of 43%. Operating profit also increased from $179 million in 2019 to $398 million in 2020 and further increased to $505 million in 2021.

The performance has been good, but the proportion of artist management income is too high or will bring risks to Lehua Entertainment, Times Finance contacted Lehua Entertainment, but as of press time, the other party has not responded to relevant issues.

Artist management revenue accounts for 91%

In 2009, Du Hua registered and established Lehua Entertainment in Beijing. At present, its revenue comes from three major sections, namely artist management, music IP production and operation, and pan-entertainment business.

Since its establishment, the company's main business and revenue have undergone two major changes. In the early days, the main artists were Singers such as Han Geng, Adu, Hu Yanbin, Alan, and Zhou Bichang, who mainly produced and released music albums.

In 2013, Lehua Entertainment held a financing conference and cooperated with the Chinese Cultural Foundation and other departments to invest in the film and television industry. Film and television series investment production once became its focus on development.

According to Zhongtai Securities' "Fan Economy Industry Report", from 2013 to 2018, Lehua Entertainment invested in a number of film and television dramas, including "To Youth" in 2013, "Former Raiders" in 2014, "Journey to the West 3" in 2016, "Dream Partner", "Breaking Horse Zhang Fei in the Past of Northeast China" in 2017 and "Summer Arbor Yawang Paradise" in 2018. In 2016, Lehua Entertainment's film and television revenue reached 284 million yuan, becoming the largest proportion of business segments.

In 2018, the first year of the internal entertainment draft arrived, "Idol Trainee" set off a national producer boom, followed by Tencent launched "Creation 101" and "Creation Camp", iQiyi's "Youth with You" and Youku's "In the Name of the Group" also joined the competition.

The draft set off a whirlwind in internal entertainment, and as Wang Yibo, Meng Meiqi, Wu Xuanyi, Huang Minghao, Li Wenhan and other artists came out of the circle, the Lehua Entertainment behind it also surfaced. Coupled with the frequent appearances of the boss Du Hua in popular variety shows such as "Every Day Upward" and "Sister With Thorns and Thorns", the influence of personal IP has risen, and the popularity of Lehua Entertainment has also risen.

According to Frost & Sullivan, Loch Wah Entertainment has become the largest artist management company in China and one of the most recognized entertainment brands in China in terms of artist management revenue in 2020.

Seize the pick to take off, thanks to the early layout of Lehua Entertainment in the "cultivation system" trainee market. The year after the establishment of Lehua Entertainment, Han Geng, who was born from the Korean hot boy band Super Junior, returned to China to sign a contract and brought the Korean trainee model to Lehua Entertainment.

In 2014, imitating the Korean star-making model, Lehua Entertainment screened 5 teenagers among 20 teenager trainees and launched the first Chinese-Korean boy group UNIQ, which was among the 14-year-old Wang Yibo. Subsequently, the boy band YHBOYS and the Cosmic Girl who cooperated between China and South Korea have successively formed groups.

At the same time, the artist management business has also become the most profitable section of Lehua Entertainment. Times Finance observed in the prospectus that the income of Lehua Entertainment's artist management business showed an increasing trend year by year. In 2019 and 2020, the revenue was 530 million yuan and 808 million yuan, accounting for about 84.0% and 87.7% of the total revenue in the same year, respectively, and in 2021, the revenue was 1.175 billion yuan, accounting for 91.0% of the total revenue.

However, this revenue is far less than the hottest live streaming industry at present. According to previous media reports, Weiya's three-year consolidated revenue from 2019 to 2021 exceeded 5.7 billion yuan. "Or the top stream of the live broadcast circle earns more, no wonder the stars all go live to bring goods." Some netizens sighed.

Riding on the east wind of the draft, in July last year, Lehua Entertainment, which is good at idol building, was recognized by the capital market and obtained strategic financing from CMC Capital, Ali Pictures, ByteDance and other companies, Ali Pictures held 14.25% of the shares, ByteDance was 4.74%, and Lehua Entertainment also successfully achieved business binding with big manufacturers.

Wang Yibo alone earned 300 million yuan in revenue

In 2018, while "Creation 101" fired Meng Meiqi and Yang Chaoyue, Wang Yibo, who was a mentor, also went out of the circle with his dance skills and cool style. The following year, "Chen Qingling" was broadcast, and Wang Yibo exploded, becoming the hottest artist in Lehua Entertainment.

In 2020, Wang Yibo carried 29 business endorsements, and the digital album "No Sense" released in the same year was launched for 11 hours, with sales exceeding 10 million copies and an income of more than 30 million yuan. As of December 31, 2021, two digital albums, No Sense and Minecraft Code, have sold more than 17 million and 15 million copies.

According to the prospectus, "Entertainment Capital" speculates that from 2019 to 2021, the revenue obtained by Wang Yibo from Lehua Entertainment has increased from 32.27 million yuan to 300 million yuan, which can glimpse Wang Yibo's ability to absorb gold. However, "honor and disgrace" are all tied to the artist, which still brings hidden worries to Lehua Entertainment.

In 2020, Li Wenhan, the leader of the UNINE male team under Lehua Entertainment, was photographed, and then posted on Weibo that he was single and won the reputation of "Bachelor", and Meng Meiqi also single-handedly produced the new word "456" on the Internet, and his reputation was once damaged. Lehua Entertainment disclosed its risk in the prospectus: An artist's misconduct may have a material adverse impact on the business, reputation and performance.

In fact, while the income brought by artists, the management costs of Lehua Entertainment are also rising. From 2019 to 2021, it spent 240 million yuan, 318 million yuan and 529 million yuan in management costs for artists, accounting for 68.4%, 74.3% and 76.9% of the total operating costs, increasing year by year.

According to the prospectus, in 2024, the contracts of Artists such as Wang Yibo, Meng Meiqi, Huang Minghao, Wu Xuanyi and Cheng Xiao of Lehua Entertainment will expire in the same year, at which time, they may face a situation of lack of success. Among the 58 artists currently signed by Lehua Entertainment, 46 are graduates of the trainee program, including well-known artists such as Wang Yibo and Meng Meiqi, and if they fail to maintain their relationship with artists and trainees, Lehua Entertainment's financial situation will also be affected.

Artists are financially risky and target virtual idols

Lehua Entertainment's emergence is inseparable from the boost of the tide of internal entertainment drafts, and the wind of drafts that has blown for several years also came to an abrupt end last year.

iQIYI's talent show "Youth with You 3" was ordered to stop broadcasting, and subsequently, CEO Gong Yu said that iQIYI will cancel the idol talent show and any off-site voting links in the next few years. Youku and Tencent have not launched similar variety shows. This undoubtedly has an impact on Lehua Entertainment's "training trainees - debut" model.

However, in the face of the dilemma of domestic talent selection activities being blocked and the list being cancelled, 91% of the revenue comes from artist management of Lehua Entertainment, and it is temporarily unable to give up its good profit model.

Up to now, Lehua Entertainment has a total of 58 signed artists and 80 trainees participating in the training program. On December 1, 2021, Lehua Entertainment launched the girl group NAME headed by Jin Zihan for the domestic market, but there were few splashes. In February this year, Lehua Entertainment launched the boy band TEMPEST, which consists of 6 Korean members and 1 Vietnamese member, and is currently facing the Korean market.

Compared with artist management companies in the same industry, although Lehua Entertainment has the highest income in the artist management section, it is also the most risky. The prospectus lists the top five artist management companies in terms of revenue in 2020, and combined with public information, the other 4 companies are speculated by the outside world to be Jiaxing Media, Happy Twist, Taiyang Chuanhe and Tianyu Media.

As an artist management company, Jiaxing Media has Yang Mi and Di Li Reba's first-line traffic stars as the façade, and Shen Teng and Ma Li, the pillars of Happy Twist, also have a wider audience market. In addition, unlike Lehua Entertainment's dedication to the trainee model, the other four companies have deeply bundled artists and diversified businesses.

Jiaxing Media, Tianyu Media invested in self-made dramas, Taiyang Chuanhe relied on papi sauce to develop the short video market, Happy Twist on the one hand to develop offline theater, on the other hand to invest in movies, and at the same time this year, jointly launched the group roundup "Twist Flower Special Happy" with Youku, the practice of multi-party investment is conducive to avoiding the risks caused by the instability of artists.

In fact, Lehua Entertainment is also aware of the existence of risks. In 2020, it launched the female virtual person group A-SOUL, and in December 2021, it created a virtual human group quantum teenager.

Marketing expert Lu Shengzhen told Times Finance: "Compared with the early stage of sound virtual characters, virtual idols are more complex in terms of technical requirements, more delicate requirements for sound sources, actions, and expression data, and strict requirements for human packaging. Therefore, the resources and energy consumed to create a successful virtual idol with individual characteristics are no easier than creating a live star idol. ”

He stressed: "The biggest advantage of creating a virtual idol is not to worry about the risk of artificial design, even if it is commercialized in the future, there will be no hidden dangers such as the collapse of human design and the division of interests, which is an important focus of Lehua's attention to virtual idols." ”

As of December 31, 2021, A-SOUL's single "Quiet" has been played more than 2 million times on Douyin, and A-SOUL has become a major source of revenue for Lehua Entertainment's pan-entertainment business.

However, in terms of its three major business sectors, the revenue of music IP production and operation and pan-entertainment business in 2021 is only 6.1% and 2.9%, and the source of income is seriously inclined to artist management, and artist risk is still a time bomb on the way forward for Lehua Entertainment.