HONG KONG (Reuters) - Tencent's e-books require some Hollywood stardust. The tech giant's publishing arm may raise up to $800 million in a Hong Kong listing, according to IFR. Catering to bookworms isn't very lucrative, even if more and more readers are paying for electronic literature. The real payoff will lie in turning stories into blockbuster films, video games and merchandise.
The $327 billion social media and gaming group is listing China Literature. The business resembles Amazon’s Kindle Store, doubling up as a publishing house with an in-house editorial team. The subsidiary could be worth as much as $5.3 billion, assuming 15 percent of the firm's enlarged share capital is sold in the initial public offering.
That looks pricey, even for the country's largest online publishing and e-book platform. Net profit last year was just 30.4 million yuan ($4.5 million).
To be sure, it boasts 8.4 million literary works from 5.3 million writers, both amateur and professional. And growth is promising: sales rose 59 percent to 2.6 billion yuan last year. But charging as little as 0.05 yuan per 1,000 Chinese characters is not much of a money-spinner, especially after splitting fees with authors. Piracy remains rampant, too. China Literature estimates it cost the industry 11.4 billion yuan in sales last year - more than double the size of the legitimate market.
So the sales pitch will focus more on Chinese cinema, which increasingly looks to novels and comics for inspiration. Last year, more than a third of the top 50 local films were adapted from literary works, bringing in $1.1 billion in ticket sales, China Literature says. Tencent recently partnered with Wanda Cinema, the country's largest cinema chain, to develop movies, television shows, games, virtual-reality content and even theme parks. The sums involved should be bigger, and the margins higher, than selling novels.
So rather than a traditional book publisher, this could optimistically look more like Disney, which owns intellectual property ranging from Star Wars to Iron Man. However, these franchises have been developed over decades. China Literature will need to find some truly outstanding characters lurking in its huge library.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.