Author | Yi Xin Lu Cun

Typesetting | Cathy

Producer | Yoda

Exhibit | Fuji Research

Star IP concept stocks such as the “Luhan Brand” Huaqiu Shi and the “Jay Chou Concept Stock” Superstar Legend have recently been reported again to the Hong Kong Stock Exchange, causing a new impact on the capital market.

“Fuji Research” found that Fenghua Qiushi and Superstar Legend updated their respective performance data for the full year of 2021 in the new version of the prospectus. Their revenue conditions varied, but net profit was not ideal, and they all declined year-on-year.

In 2021, Fenghua Qiushi's revenue was 82 million yuan, an increase of 16.01% over the previous year; net profit for the same period was 33.251 million yuan, a decrease of 22.16% over the previous year.

Also in 2021, Legend of Superstar's revenue was 365 million yuan, a decrease of 20.05% over the previous year, and net profit was 42.891 million yuan, a decrease of 43.29% from the previous year.

In an old article from December last year, we focused on star IP concept stocks piling up to break through IPOs, but their excessive reliance on star IP is not a long-term solution.

Due to repeated epidemics and other factors, many film and television companies are still on the edge of a cliff. Star IP concept stocks such as Legend of Superstar and Fenghua Qiushi have once again broken through the capital market, and the outcome is still difficult to predict. As a result, “Fuji Research” updated some data and charts from the previous article in December. The following Enjoy:

Star IPs are piling up for IPOs in Hong Kong; which one is superior?

At the end of this year, celebrity IPs began a “feast” of their listing in Hong Kong: “The Sound of China” producer Xingkong Huawen once again sprinted Hong Kong stocks; the company behind the “Lao Ma Ri Daily Review” with 5.6 million subscribers, the company behind the “Lao Ma Ri Review”, submitted to the Hong Kong Stock Exchange for the third time; “Jay Chou Concept Stock” superstar legend and “Luhan Brand” Fenghua Qiushi also began a Hong Kong stock IPO.

Source: Pexel

Under the aura of celebrity IPs, it's hard to hide the many problems within the superstar legend and Fenghuaqiu. According to the prospectus, after experiencing a geometrically high increase in revenue in 2020, Legend of Superstar experienced a cliff-style decline in the first half of 2021; there was a clear decline in Fenghuaqiu, which changed from profit to loss in the first half of 2021.

Compared to the superstar legend “Slash” cross-border new retail, Fenghua Qiushi is more focused on her own music copyright business. As the beneficiaries of the fan economy, capital markets will inevitably have doubts about “selling feelings” about the two. In the short term, the beautiful story of the Star IP Capital Bureau is easy to tell; however, it is difficult to talk about the company's long-term business development because the crux of its heavy dependence remains unsolved. Combining the advantages and disadvantages of a double-edged sword, how will Star IP concept stocks break through?

Revenue: Falling back after high growth vs. net profit changing from profit to loss

2015 was the first year of epoch-making IP. Since then, popular IPs have sprung up endlessly, IP companies have sprung up, and business models tied to IP have also sprung up. In 2015, Fenghua Qiushi signed a music contract for popular star Luhan; in 2017, the superstar legend created by Jay Chou's family was born. The two companies have one obvious thing in common — they are deeply tied to the IPs of famous artists.

The superstar saga is based on Jay Chou's relationships. Its four controlling shareholders include Jay Chou's mother, Ye Huimei, director of Jay Chou's artist agency, Yang Junrong and Chen Zhong, and Ma Xinting, who had commercial cooperation with Jay Chou for a long time, but Jay Chou herself did not own shares. Li Hui, founder of Fenghua Qiushi, has more than 20 years of experience in the music and entertainment industry. Currently, the company manages 8 musical artists and 10 trainee artists, mainly including Black Panther, Luhan, Hao Yun, Zhao Zhao, Xu Mingming, Yang Jiasong, Hulu Boyz, etc. Luhan also co-founded a subsidiary specializing in talent shows in 2018.

Under the reflection of Jay Chou's superstar aura, Legend of the Superstar's financial data performance was quite impressive.

According to the prospectus, from 2018 to 2021, Legend of Superstar's revenue was 95 million, 87 million, 457 million yuan, and 365 million yuan respectively; net profit was 8.7565 million yuan, 22.719 million, 756.31 million yuan, and 42.891 million yuan respectively. Among them, 2020 experienced rapid growth, with revenue and net profit growth rates of 428% and 233% respectively, mainly due to the launch of Jay Chou's reality show “Travels”, where he is the main creator. In the first half of 2021, Legend of Superstar's revenue was 166 million yuan and net profit was 8.293 million yuan. There was a clear decline both year-on-year and month-on-month.

Meanwhile, the “Luhan Brand”'s flourishing revenue data has experienced a decline.

According to the prospectus, Fenghua Qiushi's revenue from 2018 to 2021 was 100 million yuan, 506 million yuan, 71 million yuan and 82 million yuan respectively, while net profit for the same period was 18.63 million yuan, 18.82 million yuan, 42.72 million yuan and 33.25 million yuan. However, in the first half of last year, Fenghua Qiu actually achieved revenue of only 15.25 million yuan, and changed from profit to loss, with a net loss of 10 million yuan.

In the prospectus, Feng Huaqiu actually attributed the decline in performance to the epidemic and policy reasons. Approvals for various large-scale performances became stricter in 2019, and 2020 was affected by the COVID-19 pandemic, and the number of concerts or events held was drastically reduced. The company held 27 concerts each in 2018 and 2019, but only one concert was held in 2020 and 2021. At the end of 2020, due to the implementation of stricter epidemic prevention measures, all eight large-scale concerts led by Luhan to be held were cancelled or rescheduled.

In 2018, concert hosting and production achieved revenue of 60 million yuan, accounting for more than 60% of total revenue, which was Fenghua Qiushi's main source of revenue, but from 2019 to the first half of 2021, the business contributed only 1.8 million yuan, 0 yuan, and 224,000 yuan in revenue, which became the main reason for the shift from profit to loss.

“Fuji Research” found that being backed by celebrity IPs did not have the peace of mind that one would imagine. Judging from the data disclosed in the prospectus, the revenue data of Legend of Superstar and Fenghua Qiushi are in the midst of sharp fluctuations: whether it is high growth exponentially in individual years or a sudden decline after the hot spots have dissipated, there is no steady trend to follow.

This may be due to the characteristics of the industry — as the pandemic continues to be affected, the entertainment industry has also been impacted; however, the negative impact of its excessive reliance on single-star IPs cannot be ruled out. After all, even celebrity IPs have cycles of ups and downs, and the untraceability of various decisions in operation also exposes performance to the risk of high fluctuations.

Business: Slash New Retail vs. Focus on Music Copyright

“Fuji Research” found that while being deeply tied to celebrity IPs, the superstar legend “Slash” participated in new retail; Feng Huaqiu actually focused on the music copyright business.

According to the prospectus, Legend of Superstar has two main businesses: new retail and IP manufacturing and operation.

In 2017 and 2018, Legend of the Superstar participated in planning Jay Chou's world tour “The Strongest on the Surface”; in 2019, Legend of the Superstar mainly acted as the planning service provider for Jay Chou's Zhanjiang superstar concert; in 2020, Legend of Superstar launched the variety show “Travels of the Week (Season 1)” with Jay Chou as a resident guest. According to the prospectus, during the broadcast period from March to June 2020, “Travels of the Week (Season 1)” ranked first among all TV programs broadcast during the same period with an average rating of 1.165%.

Surprisingly, Legend of Superstar's main revenue comes from Devil's bulletproof coffee in the new retail business, and a significant crossover can be described as a deep “slash” approach.

According to the prospectus, from 2019 to 2021, Monster's bulletproof coffee revenue accounted for 83%, 72.8%, and 62.3% of total revenue, respectively, contributing to the vast majority of Superstar Legend's revenue. At the same time, Devil's bulletproof coffee is also one of its business segments with the highest gross margin, which remained around 70% during the reporting period.

According to the Insight Consulting Report, the market size of China's bulletproof beverage market increased from 200 million yuan to 3.1 billion yuan from 2015 to 2020, with a compound annual growth rate of 70.6%; it is expected that 2020 to 2025 will also grow at a rate of 30.3%. Meanwhile, Legend of Superstar has a 40.6% share of the domestic bulletproof drink market, ranking first. The rapid rollout of the product also took advantage of Jay Chou's strong private traffic.

Distribution is the main sales model in Legend of Superstar. According to its prospectus, as of December 31, 2021, the distribution network of Bulletproof Coffee included 699 distributors and 18,871 dealers respectively. Distributor revenue from 2018 to 2021 accounted for 100%, 100%, 99.2%, and 96.8% of total revenue, respectively.

However, since the effectiveness of ketogenesis in weight loss has not been proven, the frying of ketone bulletproof coffee seems to be just a perfect “hot spot” act. Furthermore, according to the “Beijing News” report, in June 2020 and May 2021, Legend of Superstar was investigated twice by the local Market Supervisory Authority for alleged “pyramid schemes,” and several bank accounts were frozen in accordance with the law. Although the account was unfrozen in full and unconditionally, the hidden dangers of the distribution model still exist.

Compared to the superstar legend taking the initiative and crossing the border with a “slash”, Fenghuaqiu is actually in the middle of the industry and “focuses on itself.”

As a music copyright provider, Fenghua Qiushi has three major business segments: music copyright licensing and recording, concert hosting, and artist management. Among them, music copyright is its main source of revenue.

From 2018 to 2021, Fenghua Qiushi's music copyright licensing and recording revenue was 3,044 million yuan, 50.56 million yuan, 687.65 million yuan, and 73.78 million yuan respectively. The year-on-year increase was interrupted in the first half of 2021; accounting for 30.3%, 90.9%, 97.5% and 90.1% of total revenue respectively. The reason for the low in 2018 was that concert hosting and production contributed 607.37 million yuan in revenue, contributing as much as 60.5%.

According to the prospectus, there are currently 689 pieces of music in the popular music library, covering genres such as rock, pop, pop rock, folk songs, etc.

In addition to relying on Luhan as the “trump card,” Fenghua Qiu also relies on downstream streaming platforms, record companies, etc. to monetize. Currently, Tencent Music, the largest streaming platform in China, is its biggest backer. From 2018 to 2021, revenue from Tencent Music accounted for about 26.2%, 78.6%, 68.1%, and 38.1% of the Group's total revenue, respectively. However, when Tencent Music went public, it said that it will no longer pay guarantee fees to most copyright companies and split it according to broadcast volume, which means that whether the music copyright business makes money depends on song quality and market acceptance, and the market pressure for song production and distribution will shift to the copyright side.

Furthermore, Tencent Music is also vigorously developing its own music production business, and the two sides have a competitive relationship to a certain extent.

Under the influence of the black swan of the epidemic, the main business of the entertainment industry has stagnated, and “slash” has undoubtedly given it more development ideas; the combination with new retail can also make better use of the value of celebrity IP. However, slashes also require moderation. Attempts that span too much will inevitably make the plate seem too big and reduce professionalism.

Strategy: Ditch Preconceived Impressions vs. Stuck in Selling Feelings

The deep binding with celebrity IPs has made Superstar Legends and Fenghua Qiushi the beneficiaries of the fan economy, but it has inevitably caused the market to “sell feelings.”

As Legend of Superstar said in its prospectus, only a few market participants in the new retail industry that it works in have received celebrity IP empowerment; in fact, Feng Huaqiu has more directly enjoyed the deep fan dividends of popular celebrities such as Luhan. Thanks to the support of celebrity IPs, large amounts of traffic within the fan base can easily be attracted, helping the company expand rapidly, and to a greater or lesser extent underwriting the bill.

According to “Fuji Research,” star IPs seem to have formed the core competitiveness of superstar legends and celebrities.

According to business logic analysis, when Legend of Superstar is deeply tied to Jay Chou, the specific categories of products sold became a secondary contradiction: Star IP plus the ace style of hype with a new concept, even if sales of Magenta Coffee were blocked in the future, the consumer base converted from fans gave Superstar Legend room to develop other products.

Source: “Journey to Zhou” official WeChat

According to the prospectus, after tasting the sweetness of magic ketone bulletproof coffee, after June 30, 2021, Superstar Legend launched products such as Monster Soda, Monster Cake, and Mana Konjac Snail Powder, which is expected to be officially distributed in the last quarter of 2021. The company's future profit points will also be bet on “low-carbon health management” products. In addition to “Devil's Food,” Superstar Legend will also enter the skincare market for middle-aged and younger generations through two sub-brands, Dr. Mouson and Miss Cha.

However, whether the “selling feelings” situation can be maintained is also unknown.

After all, Legend of Superstar is only a subcontractor, planner, and investor of Jay Chou's many concerts. They are not the organizers, nor are they the only investors; their Zhou Travels and Chou's IP are only extended licenses of Jay Chou's IP; they are not authorized for core content such as person/portrait business endorsements; let alone owns Jay Chou's music copyright.

Fenghua Qiushi also only has Luhan's music contracts, and the revenue it contributes to the “Luhan Brand” is declining year by year. From 2018 to 2021, revenue from Luhan was 708.91 million yuan, 14.194 million yuan, 149.86 million yuan and 7.75 million yuan respectively, accounting for 70.6%, 25.5%, 21.2% and 9.3% of total revenue, respectively. The exclusive music contract with Luhan continued from 2015 to 2024, and it is not known whether the contract will be successfully renewed thereafter.

In addition to feelings, the market expects the superstar legend and Fenghua Qiushi to actually “pay a fee”, leaving aside the stereotype of Harvest fans.

However, Superstar Legend did not lay out the supply chain for Magic Ketone Coffee, but instead outsourced its production to a third party producer, Hangzhou Hengmei; it also did not invest in R&D, and also entrusted responsibility to a third party, which may be difficult to dispel the market's doubts about its “speculation concept.” Fenghua Qiu is actually facing changes in the music copyright market from the copyright party to the platform side, and does not have strong bargaining power within the industry. In the post-copyright era where Tencent Music relinquished exclusive copyright, the colorful feeling may no longer be “sexy.”

Although in the short term, the aura of Star IP is sufficient to guarantee the safe operation of Legend of Superstar and Fenghua Qiu Shi; however, Star IP does not mean that the slope is long and snowy. If we want to dispel doubts about sales feelings, Superstar Legends and Fenghuaqiu actually need to further strengthen the moat.

Star IP is a double-edged sword

The blessing of celebrity IPs may be a shortcut to becoming famous. After the IP operation improved, the fan base was transformed into consumers, which not only underpins the company's main business revenue, but also provided the possibility of more “slashes”, opening up more space for its business development.

However, the pros and cons coexist. To a large extent, the market recognizes star IPs, not the companies that operate star IPs themselves. Star IPs are difficult to be stably “owned” over a long period of time. Whether it's Superstar Legends or Fenghua Qiuqiu, the intermittent use of star IP as an important business risk. If you are only stuck in the operation of a star IP, it may become an unknown puzzle behind a huge number of star IPs.

For the company itself, what is important is that after leaving the star IP, it still has the ability to settle down. Otherwise, among many similar companies, you can always find the next alternative to take over the star IP.

Some references in this article:

1. “Deeply bound to Luhan! Can “Star-Making Factory” Fenghua Qiushi's second Hong Kong stock IPO be successful?》 , Investment Times

2. 《In-depth reading | Who can support the launch of Jay Chou's IP or “Bulletproof Coffee”?》 , Mainichi Keizai Shimbun

3. “Jay Chou Brings Goods, Legend of the Superstar Rush to Market”, Star Fortune