Who owns “internet literature”?
If you ask the 8.1 million authors registered with China Literature, the Tencent-backed ebook platform that’s almost synonymous with the genre, they do.
While a few internet lit authors hit it big and turn pro, most are hobbyists. Internet literature is China’s equivalent of fan fiction, a grassroots literary scene famous for schoolyard romance, swashbuckling adventure, and—especially—time-traveling modern heroines who are sent back to teach the Qing Dynasty a thing or two and marry a prince.
If you ask Tencent, or the new management it installed at the platform in April, it’s the publisher. They began their tenure by offering authors a new contract—one that proposed taking away their royalties and claimed film and TV rights for anything published on the platform.
Authors and fans revolted, with millions of authors refusing to continue serialized stories in protest. Now Tencent is in retreat, but it hasn’t changed its ambitions to tame internet literature and turn it into the IP-generating engine of a multimedia empire. There’s a lot at stake in a fight over fan fiction.
Bottom line: Powered by grassroots fans, Chinese “internet literature” is big business. Dominant platform China Literature does for Chinese TV what Marvel comic books do for Hollywood movies, offering a reliable supply of already popular characters, plots, and settings. But Tencent’s efforts to harness online writers to its multimedia ambitions set off a writers’ revolt, forcing the company to seek a balance between catering to the internet lit community and exploiting it as a source of raw narrative material.
Ebook nation: Online literature first took off almost two decades ago. It has long surpassed print: Chinese readers consumed an average of 14.6 books via screens or smart speakers compared with 8.8 print books in 2019, according to a survey conducted by China Audio-video and Digital Publishing Association.
The change in reading habits fostered a boom of web-based literature, with popular genres including martial arts adventure tales, known as Wuxia, fantasies, campus life, contemporary romance, thrillers, and more. Internet literature is so popular that Disney has tried to use it to sell Star Wars in China, reaching a deal in 2019 to support authorized fan fiction on China Literature.
The king of internet lit: China Literature, best known for its QQ Reading and Qidian apps, is the largest player in China’s RMB 20.48 billion (around $2.89 billion) digital reading market with a 25.2% market share in 2019, according to a report from Big Data Research (in Chinese). Second-ranked Ireader holds 20.6%, and Alibaba-backed Shuqi follows with 20.4% market share.
A brief timeline:
- May 2002: Qidian is founded by a group of fantasy story writers.
- April 2013: Tencent poaches the founders of Qidian from then-market leader Shanda Cloudary.
- May 2013: At Tencent, the Qidian team launches online publishing platform Chuangshi.
- March 2015: Tencent founded China Literature by merging homegrown online literature unit Tencent Literature and Cloudary.
- January 2015: Tencent merged Cloudary, the online publishing business of Shanda, creating joint venture China Literature, or Yuewen, which includes all online publishing sites and digital reading services owned by the two.
- Nov. 2017: China Literature raises about $1.1 billion through a 2017 listing on the Hong Kong stock exchange, one of the largest IPOs for the city that year.
- Aug. 2018: China Literature acquires Chinese digital production company New Classics Media (NCM) for around $2.2-2.3 billion.
- April 2020: China Literature replaces its founding management team, which is also Qidian’s founding team, with a team of senior executives from Tencent.
- Late April 2020: Writers contracted to China Literature begin to voice their discontent on April 28 about a new contract which includes the removal of the site’s paywall for premium content and grants the platform authority to license content without permission from authors.
From micro-payments… The pioneer platform was Qidian, which launched in mid-2002 and found success with the micro-payment model for premium content in late 2003.
Qidian focused on serials: authors would release a few pages at a time, while readers paid a few RMB for each installment. This revenue is split between author and platform, creating an opportunity for hobbyist authors to earn money that laid the foundation for what is now a massive 8.1 million author community.
Qidian stayed independent until 2013, when Tencent took it over in a dramatic series of events.
…to licensing: As online literature got big, China Literature discovered a new way to monetize: film and TV rights. Beginning in 2013, internet companies began mining the online literature sector as a source of ideas for film and TV content. Compared with pennies in the jar from online reading, a TV deal is big bucks for a popular author.
- Last year, the company helped facilitate the adaptation of more than 160 online literary works into movies, television shows, games, animation, and comics, up from 130 in 2018.
- Online books are a major source of characters and plots for television—which often copies dialogue straight out of the source material.
- Popular books come with a built-in fanbase, making them a safe bet for TV producers.
- An author known as “Maoni” earned RMB 65 million (about $9 million) from the rights to his popular novel “Joy of Life,” which became a hit TV series last year.
- China Literature earns revenue from fixed licensing fees as well as revenue sharing deals on licensed content.
The threat of free: The paid reading model worked for years, with the first wave of Chinese online users—mostly better-off young readers from first- and second-tier cities—content to pay for premium literature. As the market grew saturated, however, users from lower-tier markets, less willing to pay for online content, became the driver of growth.
In 2018, Qutoutiao’s Midu and Lianshang Literature disrupted the market by offering all content for free. The app bombarded readers with constant, disruptive ads, which were the primary revenue source for such platforms, but they caught on with budget-conscious readers.
The number of paid online reader subscribers in China dropped 27% to 330 million in Q4 2019 from 420 million in Q1 2018, while those with free accounts surged five-fold to 250 million in Q4 2019 from 50 million in Q1 2018, data from Big Data Research showed.
China Literature suffered significantly from the change. Revenues from its online business, mostly paid reading subscribers, declined 3.1% on an annual basis to RMB 3.71 billion in 2019 compared with a 9.7% increase in 2018 and 73.3% year-on-year increase in 2017.
Where the money is: With subscription revenue in decline, China Literature has committed to IP. It’s quickly overtaken subscriptions as a source of revenue. In 2018, China Literature brought adaptations in house with the $2.25 billion acquisition of television and film production company New Classics Media (NCM).
- NCM is paying off with blockbuster TV dramas including “The Joy of Life,” “Memories of Peking,” and “The Best Partner,” all based on bestselling online novels from the platform.
- In 2019, China Literature earned 53% of its total revenue this way, up from 19.9% in 2017.
- Meanwhile, revenue from online reading fell to 44.5% in 2019, from 83.6% in 2017.
- The company’s revenues from intellectual property operations increased by 341.0% year-over-year to RMB 4.42 billion in 2019.
- The surge is mainly driven by consolidation of NCM’s revenues in 2019, and an increase in revenue from IP-related self-operated online games and co-invested drama series.
The ‘pan-entertainment’ strategy: Tencent executive Cheng Wu has been talking about developing multimedia properties since 2011 under a strategy he calls “pan-entertainment.” In pursuit of a pan-entertainment empire, Tencent has built a foothold across all verticals.
While film and TV adaptations are usually the flagships, the strategy calls for IP to serve every part of the entertainment portfolio. While film and TV adaptations are usually the flagships, the strategy calls for IP to serve every part of the entertainment portfolio, with brand tie-ins appearing in music and games alongside TV adaptations.
Cheng was appointed CEO of China Literature in April. With additional executive roles in Tencent’s film and TV holdings, his appointment signals a commitment to turning the platform into an IP factory.
All your IP are belong to us: This year has seen Tencent accelerate its push for licensing. In April, it replaced the original management team from Qidian with Tencent executives. Then, in May, the company proposed a revamp to its author contract which would remove the paywall for all content on the site, in an attempt for the platform to catch up with free reading platforms—ending subscription royalty income for authors. It also assigned all rights to film and TV adaptations to the platform.
Tactical retreat: Authors revolted at the new contract, with millions refusing to continue stories on the platform and fans taking to social media to criticize the company. In the face of this backlash, the company pulled back, issuing updated contracts for its writers on June 3. The new contract has three versions: authors can opt to allow adaptations, and decide whether the platform can charge readers for content or offer it for free.
The company’s new president, Hou Xiaonan, denied that the company was considering an all-free model and pledged to continue to “forge payment mechanisms” for authors.
Peace at hand? The move may have settled the dispute for the time being, satisfying at least some authors (in Chinese) who say on social media that they can see the company’s “commitment” to solve the problem.
But for others, it may have spurred a tug-of-war between the platform and authors over IP rights.
Although the company is making compromises now, they may grab control over author IP in a more subtle way in the future since the general [monetization] trend is shifting,” (our translation) wrote renowned online writer Zeng Dengke, known as Angry Banana, in a lengthy Weibo post about the controversy.
The pan-entertainment market is yet another battlefield for the internet giants. China Literature is the largest player, but not the only one in the sector. It’s up against rivals backed by Alibaba, Baidu Inc., and ByteDance, who are also looking to build their own entertainment empire. Conflict with writers could risk access to readers and the IP pool, but giving up on the IP strategy is not an option for Tencent.