China Literature's IPO Soars. How Did Online Literature Shape Today's Entertainment Products and Consumers? | 20 Years of Online Literature ⑦

They have helped shape how young people spend their free time — and maybe more than that.

86 percent — that was China Literature's final share-price gain on its first day of trading in Hong Kong.

Just before the listing on November 8, China Literature had fixed its offer price at HK$55 a share. By the time trading opened, the number had jumped to HK$90, and at one point it touched HK$110. Even after falling back to close at HK$102.5, China Literature was worth more than HK$90 billion, at a price-to-earnings ratio above 150.

No mainland company that listed in Hong Kong this year drew that kind of heat, and the debut ranked near the top of the entire Hong Kong market.

None of which came as a surprise. The Financial Times quoted Kevin Tam, an analyst at Core Pacific-Yamaichi, saying that “people are hoping China Literature can become the next Tencent” — a chance to make up for having missed Tencent itself. Fortune's report cited an institutional investor who said Tencent wants China Literature to do well on the market, so that it sets a precedent for Tencent's other business lines.

Plenty of the commentary came back to Tencent. Karen Chan, an analyst at the investment bank Jefferies, told the Financial Times that as chances to adapt content into film, television and games multiply, the value of online-literature IP rises with them: “Tencent has already become a benchmark for cross-category IP adaptation.”

A month earlier, China Literature had held a press conference to announce an ambitious IP-adaptation plan. Even before that, several of its novels — Ghost Blows Out the Light (《鬼吹灯》) and Fighter of the Destiny (《择天记》) among them — had been turned into films, TV shows and games. To many people working in China's entertainment industry, China Literature's web novels have become the source the whole business draws from.

Tencent, which holds more than 60 percent of China Literature's shares, is the biggest force behind the plan. Through Tencent Interactive Entertainment and Tencent Video, a large stock of existing China Literature IP has started to circulate. Tencent Video's Penguin Pictures worked on the animated version of The King's Avatar (《全职高手》); Tencent Pictures is handling the film.

The entertainment industry is usually thought to be impossible to monopolize, yet Tencent keeps showing more of its reach. Fiction, animation, film, television, variety shows, games — it has been taking positions at every link in the chain, using the traffic and the capital it holds to claim a bigger say in the business.

China Literature, and the online literature it runs, is Tencent's best way in.

1. Five Numbers: A Quick Read on This Web-Fiction Giant

China Literature, founded in 2015, came out of the merger of Tencent Literature and Shanda Literature. Take out the time spent on internal integration, and strictly speaking the company has not run online-literature IP long enough to have much of its own to show.

Most of the hits on the market came from novels published on China Literature's websites — but the credit doesn't belong to China Literature.

The film and TV rights to Ghost Blows Out the Light were sold off in pieces by the old Shanda Literature as early as around 2010, and the film companies planned the projects themselves: Chronicles of the Ghostly Tribe (《九层妖塔》) and Mojin: The Lost Legend (《寻龙诀》) together took more than 2 billion yuan at the box office. Nirvana in Fire (《琅琊榜》) and Empresses in the Palace (《甄嬛传》) both came from Jinjiang Literature City. China Literature holds a stake in Jinjiang, but the site has always run at arm's length.

China Literature is not yet the IP-development company investors picture. IP development brought in just 10 percent of its revenue in 2016. In that sense, it is still a company that sells novels.

China Literature owns nine online-literature websites. Chuangshi Zhongwen Wang and Yunqi Shuyuan are Tencent Literature's sites for male and female readers. The rest — Qidian, Hongxiu Tianxiang, Xiaoxiang Shuyuan, Xiaoshuo Yuedu Wang, Yanqing Xiaoshuo Ba and Rongshuxia — were bought one after another by Shanda between 2003 and 2010. In 2008 they were folded into Shanda Literature, which merged with Tencent Literature in the 2015 deal.

Hou Xiaoqiang, a former CEO of Shanda Literature, was proud of that buying spree: “Acquire literature websites, build barriers around online literature, expand the market.” China Literature is a giant today partly because of what he assembled.

The industry has no single standard for measuring market share, but the figures in China Literature's prospectus make the point anyway. Close to 200 million active users, more than 2.5 billion yuan in annual revenue, a library of nearly 10 million works — barring surprises, every one of those numbers is the highest in the business.

2. Who Reads Online Literature Now?

According to a report from the China Internet Network Information Center (CNNIC), online literature had 353 million readers as of June 2017 — one in every four people in China reads novels online.

Zhu Weilian, who founded Rongshuxia, once told QDaily that soon after he opened the site to reader submissions, both its traffic and its submissions began climbing fast. In the early years, most sites never ran a single ad; readers found them on their own.

That organic growth seems never to have stopped. Between 2009 and 2016, the online-literature audience grew from 162 million to 333 million, while its share of all internet users held steady at around 43 percent. More people got online, and because reading text costs so little, online literature became a staple.

Who made up that 43 percent did change over the 20 years. Early on, computers and connections were both expensive; as mobile internet spread, the cost of getting online fell sharply, and the readership widened from an elite to the general public.

Online-literature readers also skew younger than internet users as a whole. Hou Xiaoqiang, now the founder of Mars Fiction, told QDaily: “People born after 2000 grew up on the internet. They grew up playing online games, watching web animation, reading web novels.”

CNNIC found that internet users under 29 account for 52.5 percent of all internet users. By comparison, a report published two months earlier by the online-literature company iReader said readers born in the 1990s and 2000s made up 74 percent of its users — and 92 percent of its authors.

Along the way, online literature has turned into a way to pass the time. A report from the Sootoo Research Institute found that buses and subways, breaks at work, bedtime, meals and the bathroom are now the main places and moments people read novels on their phones.

3. What Kind of Business Has Online Literature Become?

It did not start out as a pastime.

The roots go back to the early 1990s, when Chinese students in North America began writing literature over email lists. “Only the internet could bring students abroad together. It gave them a patch of ground where they could use their mother tongue inside a foreign-language environment, and that was hugely appealing,” Fang Zhouzi told QDaily. In 1994 he founded the electronic journal New Threads (《新语丝》), one of the earliest outposts of online literature.

Online literature inside China is usually dated to Rongshuxia, founded in 1997 by the Chinese-American Zhu Weilian. As the audience grew, Zhu hired a team to help run the site, and Rongshuxia started to become a business.

The sites that followed — Hongxiu Tianxiang, Huanjian Shumeng, Long De Tiankong — also turned commercial, some pushed by the demands of managing the operation, some by competition outside. The most original thing about the business model was that online literature became one of the internet's earliest users of micropayments.

Duxie Wang and Mingyang Pinshu Wang were charging readers as early as 2002, but the credit for making the model work usually goes to Qidian and its founder, Wu Wenhui. In October 2003, Qidian launched its VIP service: readers topped up an account, then paid three to five fen — 0.03 to 0.05 yuan — per thousand characters to read VIP works and chapters.

The sites soon discovered how strong that demand was. Mobile payment did not exist yet, and readers still went to the trouble of opening online banking accounts or sending money by wire transfer.

As the audience widened and readers grew more willing to pay, revenue climbed quickly. Shanda Literature, formed in 2008 by combining Qidian, Jinjiang and Hongxiu Tianxiang, made only 53 million yuan that year. By 2013 the figure was 1.2 billion yuan.

Paid reading is the foundation the whole industry rests on. Companies have looked for other income — print publishing, selling film and TV rights — but paid reading is still where the money comes from. It accounted for more than three-quarters of China Literature's revenue in 2016.

The model itself has barely changed in more than a decade, but as readers moved from the PC to the phone, that revenue now has to be divided between the sites and the channels that reach readers.

In the feature-phone era, the carriers had the upper hand. Some readers topped up their accounts on literature sites by text message, and the carriers took a cut. The carriers also delivered novels over SMS or WAP themselves, splitting the proceeds with the sites.

When smartphones arrived, a group of companies grabbed the new channel fast and won. iReader, founded in 2008, is the clearest example: it went public at the end of September this year and is already worth more than 27 billion yuan. Alongside it are Tadu Literature, Duokan Reading, and Migu Reading and Tianyi Reading, owned by China Mobile and China Telecom.

By the time the literature websites realized they needed to hold the mobile channel too, it was too late. According to a Sootoo Research Institute report, iReader held 22.88 percent of the mobile reading market in 2016, while Qidian Reading — the app belonging to the largest online-literature site in the country — held less than 4 percent.

4. What Is It Like to Be an Online Novelist?

Paid reading paid the writers well too. Liu Wei, who writes as “Xuehong” (“Blood Red”) and was one of online literature's first “great gods” — the term for its top authors — became the first writer on Qidian to earn 1 million yuan, less than a year after the site started charging readers.

Today the numbers are startling. The Writers Rich List put the highest-earning traditional author of 2016 as Zheng Yuanjie, the “King of Fairy Tales,” with 30 million yuan in royalties — and six online authors earned more than he did. At the top was Tangjia Sanshao, with 122 million yuan for the year.

That isn't all of it. As IP development has matured over the past few years, game, animation and film rights have become a second major source of income for online writers. Tangjia Sanshao is the example again: his best-known work, Soul Land (《斗罗大陆》), is being made into a game, an animated series and a comic, and none of that will pay badly.

As the money arrived, the industry began looking for standing as well — by finding itself a title inside the establishment. In 2009 a group of online writers in Hubei tried to set up a China Online Writers Association and failed. By 2014, Chen Qirong, a vice chairman of the China Writers Association who had once turned those writers down, decided the moment had come; over the next year or two, online writers' associations were set up as affiliates of the Writers Association at the national level and in many localities.

That did not close the gap between traditional and online writers. Chen Cun once tried to steer online literature's development at Rongshuxia; now he watches from a cool distance. “On the whole, I don't think much of online literature as art,” he says.

By now writing online is a profession. Because online writers live on what readers pay, they follow a work ethic built around pleasing readers.

The story has to suit the reader's taste. In GQ's profile of Tangjia Sanshao, Hongcha, chief editor of one of Qidian's editorial groups, said: “Writers come running to me all the time asking why their subscriptions suddenly dropped. I don't even have to look. Nine times out of ten they killed off the hero's wife. Readers read novels for the rush. They don't want to be sad, you can't do that to them. So I tell them: fake her death, resurrect her, whatever — go rewrite the plot and bring her back.”

The other rule is updating on schedule. In a world where people are less and less willing to wait, a writer has to keep feeding readers in real time, or they go hungry and look elsewhere.

A writer who manages both won't do badly, even without reaching the top. A former online novelist told QDaily that a good number of mid-tier writers now earn about what white-collar office workers do.

Liu Wei put it this way: “Without online literature I'd be punching a clock nine to five. Whether you like that job or not, you keep doing it. With online literature, writing books is the thing I love. I get to do what I love every day.”

5. Genre: What Kind of Literature Is Online Literature?

Chen Cun thinks the clearest trend in online literature today is how far genre fiction has developed. You can see it in the way the websites are built.

The sites split into two halves — the “male channel” and the “female channel,” for male and female readers. Qidian and Zongheng belong to the first; Jinjiang and Hongxiu Tianxiang represent the second. Inside each broad genre, the subgenres keep multiplying: traditional romance now breaks into CEO romance, palace-intrigue fiction, farming fiction, sweet-pampering romance and more.

The internet, the readers, the writers and the websites all made this happen. First, “in China popular literature has always been looked down on, and the authorities sometimes suppressed it on purpose. With online literature, it finally got a space of its own,” Chen Cun says.

Then readers' appetite for entertainment sped up the production of genre fiction. Set against serious literature, heavy with suffering and grievance, light wuxia and romance obviously suited popular taste better. Before Liu Wei started writing, he spent his days online hunting for xuanhuan — fantasy — novels to read.

Watching that demand, the sites moved to meet it. Around 2005, Hongxiu pulled a large batch of male-oriented work off the site to concentrate on fiction for women, CEO romance above all, and ended up as “the biggest gathering of CEO romance on the internet.”

Many writers found their own place too. Tangjia Sanshao told GQ: “My main readers have always been people between 8 and 22. The key is holding on to them.”

Early online literature held serious work and popular work, poetry and essays alongside novels. Now enormously long serialized genre fiction rules nearly the whole field — readers love it, and it earns the sites and the writers the most money.

Once pleasing readers became the highest standard, online literature could even stop appearing as paragraphs of prose. Dialogue fiction is the newest trend: the original text is rewritten as dialogue and served up in the form of chat-app message bubbles.

Or you can listen instead. Beyond hiring people to read novels aloud, some reading apps let a machine do it. Listening is a slow way to take in a book, but if you can't wait, there's the approach of the American audiobook site Audible, which lets you skip straight to the best part of whatever romance novel you're listening to.

6. Copyright: The Core of Big Companies' Fortunes and Fights

Film and television has always been a business of high costs, long production cycles and heavy uncertainty. Under the “protection” of online literature, some of that risk might come down — or so investors believe.

The logic: a film or show adapted from a novel that several million people have read starts with a bigger fan base than something written from scratch.

And film, television and games reach far more people than text does. Adapting a web novel means a wider audience, and a bigger return.

Hou Xiaoqiang told QDaily that from 2008, when he took over Shanda Literature, he wanted to turn it into a copyright-management company that would magnify the value of online literature in film, television and games.

But there was no precedent then, and Shanda Literature's methods were crude. It judged a copyright mostly by click count — how popular the book was with readers. To sell one, Hou Xiaoqiang went to see people in the film and TV industry one by one and tried to talk them into buying the adaptation rights. If a big-name director was willing to shoot it, Shanda Literature would hand over the rights for nothing.

It was hard going. Ghost Blows Out the Light was Shanda Literature's most successful book, and when Hou Xiaoqiang pitched it around, most film companies told him it was supernatural nonsense that could never be made into a movie.

With so few buyers, Shanda Literature had no room to worry about keeping one novel's screen life coherent. Ghost Blows Out the Light runs to eight volumes, and it was broken apart. The first four went to the Hong Kong director Johnnie To, changed hands several times, and finally became Le Vision Pictures' Chronicles of the Ghostly Tribe. Wanda bought the last four in 2010. Six years later two Ghost Blows Out the Light films came out at the same time, and a lot of people had no idea what was going on.

By now Ghost Blows Out the Light has produced two films and three web series, the deepest the screen industry has gone into any web novel. Not every book does so well. Nirvana in Fire and Empresses in the Palace became benchmark TV dramas because they landed with reliable production teams. Noble Aspirations (《诛仙·青云志》) is the standard failure, mocked for cheap effects and a plot that drags.

Adapting a web novel used to be mostly the film company's business — it bought the rights outright and assembled its own production. Now the literature sites push further into the process. At a minimum they invest and take a producer credit. In closer partnerships they make demands on every part of the script and the production, and sometimes join the production themselves.

7. What Has All This Changed?

Chen Cun's point — that “popular literature in China has always been looked down on” — is one the writer Ah Cheng has made too. Secular literature has always been kept in a thin, flavorless corner, and more so since the modern era, filed under labels like worker-peasant-soldier literature or scar literature. Online literature rose in a somewhat strange way, moving from an early mix of the serious and the entertaining to today's blanket entertainment, as if adding a new footnote to secular literature. Answering it is the full arrival of the age of fragmented information, in which stories, feelings and knowledge itself turn into fast-moving consumer goods.

Under the IP economy, screen adaptation will widen online literature's reach further. What its readers — mostly people born in the 1990s and 2000s — select becomes the entertainment of society as a whole, the way The Journey of Flower (《花千骨》) and Nirvana in Fire have replaced Golden Marriage (《金婚》) and Drawing Sword (《亮剑》) in recent years, and Mojin: The Lost Legend and Once Upon a Time (《三生三世十里桃花》) have replaced The Flowers of War (《金陵十三钗》) and Sacrifice (《赵氏孤儿》). A work of online literature is no longer only literature. It can take any shape: a book, a film, a TV series, a game, merchandise, a fan club, a theme park, a brand collaboration, a catchphrase, an idol and its followers. The big companies want it this way, and they will keep pushing the model along.

This kind of consumption shapes what we call the mainstream — not all of it, of course. But there is no doubt that it has helped shape how young people spend their free time — and maybe more than that.

Graphics: Feng Xiuxia

Cover image: Nirvana in Fire, Mojin: The Lost Legend