Du Hua's ambition is hidden in Lehua's listing road.
Text | Xu Shang
| Director
According to the official website of the Hong Kong Stock Exchange, on March 8, 2022, Lehua Entertainment Company listed on the Hong Kong Stock Exchange for listing in Hong Kong.
According to the prospectus, the company's business scope is divided into three major sectors: artist management, music IP production and operation, and pan-entertainment business, and the revenue in 2021 accounts for 91%, 6.1% and 2.9% of the company's total revenue, respectively. The prospectus also mentioned that the company has 58 signed artists including Han Geng, Wang Yibo, Huang Minghao, Wu Xuanyi and 80 trainees who participated in the trainee program.
From the company's performance, from 2019 to 2021, the company's revenue was 631 million yuan, 922 million yuan and 1.290 billion yuan, respectively, with a compound annual growth rate of 43.0%. In the same period, the company achieved net profit of 119 million yuan, 292 million yuan and 335 million yuan respectively, with a compound annual growth rate of 67.6%.
Prior to the listing, Ms. Du Hua, the founder and chairman of the company, held 50.18% of the shares, Alibaba Pictures held 14.25% of the shares through Interform Construction Supplies Limited, Quantum Leap, a subsidiary of ByteDance, held 4.74% of the shares through Afflatus Limited, and Huaren Culture held 14.25% of the shares through CMC Sports Investment Limited. Also in the prospectus, Leroy also mentioned the above three companies as its main investors.
The "idol cultivation" company, which calls itself "China's largest artist management company" in the prospectus, has been listed on the New Third Board in 2015, delisted in 2018, and now officially intended to be listed on Hong Kong stocks, it has been nearly 7 years.
According to Yien's "2018 China Artist Agency Industry Trend Insights" report, in 2017 alone, among the newly established companies in the mainland, there were as many as 3,036 related to artist brokerage. According to Guotai Junan Research Report, the scale of China's artist agency market is expected to reach the level of 100 billion in 2020. In such a huge talent agency market, how did Lehua get to where it is today?
A long road to market
For an entertainment company, the desire for capital has never stopped. From fundraising to going public, how many companies are ultimately dreaming.
Founded in 2009, Lehua Entertainment has been ambitious from the beginning, and its vision has never been limited to China. In 2010, Han Geng, who had just returned from abroad, was signed by Lehua. It should be known that Han Geng, as the first trainee in China to debut in South Korea that year, the group Super Junior has a high reputation at home and abroad, and has won major awards at home and abroad. In the same year, Lehua tailored his solo album "Gengxin" for Han Geng, and held a concert of the same name.
In 2011, Alain, who debuted in Japan, and Adu, a singer from Malancia, were signed by Lehua. With a number of well-known artists at home and abroad, he has held An Asian tour for artists, and joined hands with the two giants of China Film Paramount to co-produce the 3D fantasy action blockbuster "Mark Polo". Large multinational entertainment company, is Lehua's positioning of itself, such ambitions, but also means that the largest shareholder, Ms. Du Hua, for the dream of listing for a long time.
Since 2014, Leroy has tried its best to attract capital to settle in. According to relevant data, in 2014, Shanghai Wen invested in Lehua Entertainment and obtained a 25% stake for 254 million yuan. In September 2015, Lehua Culture landed on the New Third Board. In the same year, Gongda Electroacoustic reorganized Lehua culture and spring harmony with 4.12 billion yuan. As the only company in the field of artist management that is favored by Gongda Electroacoustic, Lehua Entertainment quickly gained the favor and trust of capital.
Unfortunately, for an entertainment company with unstable operating income, the imagination that has always been given to capital is limited.
From April 2016 to February 2017, it took just over a year for Gongda Electroacoustic to terminate its restructuring plan with Lehua Entertainment. The reason is related to the successive failures of Lehua's investment in the film and television field, and the box office revenue of films such as "The Broken Horse Zhang Fei of the Northeast Past", "Xia You Qiaomu Yawang Paradise" and "Dream Partner" did not meet expectations, resulting in the operating performance in the first half of 2016 not meeting expectations. Lehua rubbed shoulders with A-shares, and the road to listing was forced to end.
This defeat did not make Lehua dead hearted. According to public information, in April 2018, Lehua began to accept the listing counseling of China Merchants Securities Co., Ltd., and did not stop the counseling until June 2021.
During this period, Leroy has deployed three rounds of financing plans to ensure adequate funds. As early as October 2012, Lehua held a financing conference, and at that time, it received tens of millions of yuan of investment from Loeb Capital and Sunxi Venture Capital. Subsequently, the scale of the financing enterprises became larger and larger, and the major investors mentioned in the prospectus, Chinese Culture, ByteDance, and Ali Pictures, all entered the market.
Image source Sky Eye check screenshot
Even if Lehua later went public as Ms. Du Hua expected, the problems faced were far greater than the dream of listing. At the same time, with a number of traffic stars such as Wang Yibo, Fan Chengcheng and Huang Minghao, Lehua looks like an infinite scenery on the surface, but behind it there is still a risk of contract expiration and artists leaving.
In the prospectus, Leroy made it clear that today's operating income is too dependent on traffic stars. In 2019, 2020 and 2021, the revenue of the artist management business accounted for about 84.0%, 87.7% and 91.0% of the total revenue of the same year, respectively. With more than 80 percent of revenue, it is inevitable that people will not question the rationality of their income structure.
Artist Agency Market How big is the cake?
According to the prospectus: "According to the Frost & Sullivan report, the size of China's artist management market is expected to be about 102.5 billion yuan in 2025, with a compound annual growth rate of 14.4% from 2020 to 2025." As of December 31, 2020, the market had more than 1200 participants. In 2020, the five major artist management companies generated a total revenue of 3.2 billion yuan, accounting for about 6.1% of the total market share in the same year. ”
Artist agency since around 2000, it has gradually developed into a part of the entertainment market, the artists it cultivates, in the circulation of the entire entertainment market plays a key role in the inheritance of the bottom, the company's entire development process for the entertainment industry ecology, to some extent, has a vital significance.
In fact, in foreign countries, the artist agency industry has a long history. As early as 1975, five young agents from William Morris Agency co-founded CAA, an innovative artist agency, which took about 30 years to become one of the three major cultural agencies in Hollywood. For example, the domestic Yixin Entertainment Company has learned from the CAA model.
With the development and expansion of the entertainment market, capital has entered the game, the fields of the industry have become more vertical, the demand has gradually been subdivided, the number of mainland artist agencies has been increasing, and the scale and type have also been expanding. According to the "2020 Artist Agency Research Report" released by the TV Guide, the current artist agency can be divided into four categories: the artist agency collaborative content production model, the self-reliant portal model, the "cultivation" idol operation model, and the pan-entertainment IP integrated marketing platform model.
Artist agent collaborative content production model, representative companies include Taiyang Chuanhe, Jiaxing, Huace, Ciwen, Tang Ren Film and Television, etc. The characteristics of this model are based on content production, and artist management and content production "two legs" walk in two lines. When the resources and fame of the artist are mature enough, once the contract expires, it will leave the company and set up its own portal, such as Dongshen Future, which was jointly established by Zhou Xun and Chen Kun, and Longtao Entertainment, which was established by Huang Zitao.
Lehua, on the other hand, belongs to the representative company of the "cultivation" idol operation model, in addition, there are also wow wow wow, times Fengjun, Siba media and so on. The operating model of such companies draws on the company models of SM and JYP in South Korea and AKB48G in Japan. Lehua Entertainment's idol groups UNIQ, Cosmic Girl, YHboys, Lehua Seven Sons, etc., wow wow wow X Jiu Youth League, Rocket Girl 101, R1SE, etc., are all "idols" created in this mode.
Lehua's artists, picture source Lehua official Weibo
In addition, there is a kind of mango super media, Alibaba's cool entertainment, iQiyi's guoran entertainment, etc., which belong to the large platform model of pan-entertainment IP integrated marketing.
As mentioned above, the idol operating model represented by Lehua and the profit model rely too much on traffic stars, so the business development of other sectors is gradually put on the agenda. For example, companies can continue to increase their investment in the music IP operation business, which accounts for the second largest proportion of revenue. According to Frost & Sullivan, the mainland digital music market is growing rapidly, and the willingness of users to pay for music content continues to increase. In the next step, with the advantages of short, flat and fast dissemination of short video platforms, the company can further disseminate and diffuse good music content.
At the same time, actively promoting the development of offline entertainment business and creating a comprehensive cultural entertainment platform with the help of meta-universe is also the next direction of Lehua. In the prospectus, Lehua mentioned that it plans to build a multi-functional entertainment center with the theme of Lehua, interact with artists in the meta-universe space through VR and AI technology, and also allow visitors to purchase related derivatives in themed restaurants and cafes.
Lehua's expansion of the business field is likely to be its initial plan to extend from a single artist management company to a real entertainment empire, which can also be seen in December 2021, Tianjin Huamei Network Technology Co., Ltd., which was established with Li Jiaqi's affiliates.
According to Tianyan, Tianjin Huamei Network Technology Co., Ltd. is jointly held by Tianjin Yihua Management Consulting Co., Ltd., an affiliate of Lehua Entertainment, and Meijian (Shanghai) Culture media Co., Ltd., an affiliate of Li Jiaqi, with a shareholding ratio of 60% and 40% respectively.
The plan of the Hong Kong stock listing will be of great significance to Lehua on the road to successful transformation in the future.
Lehua's unsolved question
In fact, companies in the entertainment industry are inherently extremely risky. Once the industry trend, audience aesthetics, or the relevant supervision is strengthened, the impact on its performance is inevitable.
Taiyang Chuanhe, a brokerage company with many stars such as Li Bingbing, Zhao Liying, Yang Ying, etc., once won the favor of capital from all parties such as ByteDance, Star Map Capital, and Zhen Fund, but with the expiration of contracts of Zhou Dongyu, Wang Ziwen and Yang Ying, they have left the nest one after another, coupled with the departure of internal executives, the subsequent capital road has not been so smooth.
The mode of centralized and mass production of trainees, due to the short cycle and excessive pursuit of industrial production, can easily lead to problems such as the quality of trainees or artists is not high, and their own ability is not proportional to their value. At the same time, when the power of fans becomes more and more huge, the traffic of an artist snowballs, the company gradually relies on it, and when the artist's contract expires, there is a risk that the artist will leave at any time. In Lehua's prospectus, this issue was also mentioned.
Therefore, in order to reduce the over-reliance on artists or obvious risks, increasing the company's business and proportion in other business areas is a more long-term development strategy. In the prospectus, Lehua Entertainment also said that in addition to increasing its music IP operation, it will also increase the proportion of business in the field of pan-entertainment, and the virtual artist girl group that has attracted much attention before, A-SOUL, belongs to its pan-entertainment business category.
Virtual artist girl group A-SOUL, image source A-SOUL official Weibo
In 2020, Leroy Entertainment and ByteDance jointly created A-SOUL. According to the hedgehog commune, the number of official Weibo fans of A-SOUL has reached 857,000, and the average number of Weibo fans of the five members is also about 1 million. The latest national style single released by the group invited Jay Chou as the lyricist Fang Wenshan, and the composer invited Xu Song, a post-90s "QQ memories" musician.
As a company with rapid development in the entertainment industry in the mainland, Lehua Entertainment's proposed listing on the Hong Kong stock market also released a signal: mainland entertainment companies are increasingly launching a sprint towards Hong Kong stocks.
Whether it is Straw Bear Entertainment, which is owned by Liu Shishi and Zhao Liying, or the blockbuster program "The Voice of China" and "This! It is the starry sky Chinese of "Street Dance", or the lemon film and television that produces the blockbuster TV series "Thirty Only" and "Little Joy", all of which have been or are actively seeking to be listed. However, judging from the situation of many previously listed companies in the entertainment industry, there are many examples of falling all the way down shortly after their listing.
For a cultural and entertainment enterprise with more than 80% of the artist's management income, Lehua's transformation in business scope and the next step of planning will directly determine the confidence of capital. The active cooperation with Byte can also show Lehua's ambition to seize other areas of the industry. After the listing of Hong Kong stocks, whether Lehua can break the "nightmare" of cultural and entertainment stocks will also be one of the most concerned focuses of the industry.