Source: Caihua News Agency

TVB, a Hong Kong-listed company$TVB (00511.HK)$The newly launched Taiwanese drama “The Queen of the News” has a very good reputation. Instead of the recent Hong Kong drama, the thunder and rain has been reduced, and the dilemma of not appearing, Douban's ratings have risen from 7.8 points when it was first launched to 8.2 points now, and it has remained in the top ten most popular Chinese-language dramas in the week.

However, the heroine Wen Huixin, no matter how strong her core and aura are, she is still unable to resolve TVB's crisis.

Recently, TVB announced the restructuring of its television broadcasting and e-commerce business:

1) Reorganization of television broadcasting business

Merge the original five terrestrial free-to-air television channels into four: the J2 channel for young viewers and the Financial Sports Information Station, which provides financial, sports and information programs, into the new channel “TVB+”; and the redistribution of the financial content of the Financial Sports Information Station to the Feicui Station, which has the largest audience, and the newly opened TVB+ channel.

The reason for this change is to reallocate production resources, invest heavily in prime-time production, and at the same time cut production budgets for marginal time content and even stop broadcasting programs that do not meet audience expectations or commercial influence. It is estimated that it may save HK$100 million in content costs in 2024, while also cutting more than 200 employees in this business unit. The plan is yet to be approved by the Communications Authority, and it is expected that the application results will be known by the first quarter of 2024.

2) Restructure e-commerce business.

This includes merging TVB's online e-commerce platforms “Shiduo” and “Neighbor Buy” in Hong Kong to improve capital efficiency. It is expected to be completed before the end of this year, which can reduce annual fixed costs and operating expenses by about HK$50 million to HK$60 million, and cut about 100 employees.

At the same time, it will increase the number of categories sold on e-commerce platforms, and will closely integrate Hong Kong's e-commerce platforms with the e-commerce platforms of its mainland subsidiaries to promote Hong Kong products and services to mainland consumers through live e-commerce programs in the Mainland.

Why did TVB end up here?

The background of this restructuring is the decline of the television industry.

In the past, in an era where “doll boxes” carried the joy of the whole family, television was the top level of family entertainment. As a company with local free terrestrial television channels, TVB enjoys an innate advantage of reaching the widest range of viewers in the region, and even extending to the Guangdong-Hong Kong-Macao Greater Bay Area, which is why it is very popular with advertisers.

At that time, TVB only needed to produce series or provide outsourced content for everyone to entertain and sell advertising periods, which was enough to “lie back and make money,” thus becoming celebrities such as Andy Lau and Leung Chaowei who are popular all over the world today.

However, this advantage has also become an obstacle to its development. At a time when the entertainment content performance model is gradually changing, TVB is limited by its license and restrictions, and is unable or unwilling to change its operating model and vested advantages.

As shown in the chart below, advertising revenue has always been TVB's main source of revenue, accounting for more than half of TVB's total revenue, but since 2014, its overall revenue scale has shrunk along with advertising revenue, and by the 2019 incident and the last three years of the pandemic, it has shrunk to only half of the past. It can be seen how fragile its single business form, which relies on advertising revenue, is.

However, the more fundamental reason is that with the rise of social media; the rapid acceleration brought about by the rapid development of the technology network industry has driven rapid changes in entertainment content expression, TV programs have become less attractive because audiences can watch more diverse content from other channels, and there are more diverse options that divert TV viewing time, such as the game industry, short video social platforms, streaming platforms, and the rise of e-commerce platforms, etc.

Compared to this diverse range of content, TV content has become unbearable.

Take streaming media Netflix as an example. Beginning in January 2007, Netflix, the largest online movie rental service provider in the US at the time, realized that the DVD business was unsustainable, so it launched a new feature that allowed users to instantly watch various movies and TV series on their computers. This was also the beginning of streaming services. Since then, Netflix has been launched along the way, directly affecting traditional content producers and distributors, and Netflix has completed its layout in the Asia-Pacific region since 2015.

As shown in the chart below, where TVB began to weaken in 2014, Netflix completed its global layout, business revenue and profit have been soaring since 2015. This is in stark contrast to TVB, which “lies flat” in a quiet corner.

TVB's Struggles and Trials

Moreover, regardless of some of TVB's internal problems over the years, such as losses due to default investment in bonds such as Xingmei and China Storage Energy, the company has indeed done its best for its future.

In 2018, TVB began operating the e-commerce platform Big Big Shop under major e-commerce companies; in August 2021, TVB and its major shareholder Shaw Brothers subsidiaries acquired 75% of Hong Kong's local e-commerce platform “Shiduo” for HK$200 million, further expanding e-commerce business.

Caihua News Agency noticed that TVB had quietly entered Douyin to bring goods in 2022, but the most solemn announcement was that it would enter Taobao at the beginning of this year.

On March 1, 2023, TVB announced that through its subsidiary Shanghai Feicui Oriental Communications Co., Ltd. (“Feicui Oriental”), it has reached a cooperation agreement with Taobao, a digital retail platform owned by Alibaba. The two sides will jointly develop more than 48 e-commerce live broadcasts during the year. At the time, TVB anticipated that this cooperation could bring them profits in the amount of 10 million Hong Kong dollars. The e-commerce account “TVB Knowledge” under Feicui Oriental entered the Taobao live broadcast room, creating a “Hong Kong drama-style live broadcast.”

According to the business operation data disclosed by TVB for the period ending September 30, 2023, in the six months since the establishment of e-commerce live streaming cooperation with Taobao in March 2023, TVB's total commodity transaction value (GMV) was about 250 million yuan.

Although Taobao did not disclose GMV data, Kuaishou-W's data may give a glimpse of the current e-commerce platform's revenue scale. Kuaishou's GMV for the 2nd and 3rd quarters of 2023 reached 265.46 billion yuan and 290.24 billion yuan respectively. Furthermore, it is rumored that Li Jiaqi's sales on the first day of Double 11 this year are 9.5 billion yuan. TVB's GMV is really nothing.

As shown in the chart below, TVB's gross margin also continued to decline with revenue. The main reason is that before joining the e-commerce business, its operating costs were mainly content sales costs, including the cost of home-produced and outsourced program and video copyright. After acquiring Shiduo Group in 2021, its sales costs also included the cost of goods sold. The gross margin of this business was much lower, thus reducing its overall gross profit margin.

The current gross profit margin of only around 26% is clearly impossible to completely offset sales and distribution and general administration expenses, which account for 21% and 28% of revenue, respectively. The e-commerce business needs volume to increase overall profit. Therefore, at a time when TV content is no longer attractive, TVB must increase its efforts to consolidate goods — open source, and optimize the business structure — throttling, or be able to turn losses into profits. Therefore, it is necessary to restructure it.

summed

The appeal of television is declining rapidly. TVB has accumulated a good reputation and content for nearly half a century. This intangible value still has monetization value. For example, TVB has monetized its huge content library through its OTT streaming business. At the same time, TVB is also expanding new businesses to meet the changes in new consumption models. Bringing goods through its popular e-commerce platforms in mainland China is a great experiment.

Judging from its latest financial situation, TVB held only HK$887 million in cash and deposits on June 30, 2023, but interest-bearing loans reached HK$2,288 million, of which HK$705 million was for interest-bearing loans to be paid within one year. The financial situation was a bit tight. However, on August 13, 2023, after the performance reporting period, TVB entered into a loan financing agreement with Chinese Culture and major shareholders involving HK$700 million. Then, on August 16, it signed a HK$156 million convertible bond agreement with a company controlled by independent third party investor Wu Jiwei to obtain A large amount of additional resources and working capital can meet its future operation and development needs, or to some extent solve its urgent needs and complete the restructuring.

In March of this year, TVB proposed measures to adjust the volume of content production and reduce costs, which are expected to save HK$260 million per year. In addition to the savings measures brought about by the recently proposed restructuring plan, it may be possible to improve cost efficiency through business streamlining.

At the same time, TVB signed a supply agreement worth 700 million yuan with Youku at the beginning of this year to co-produce series with Youku within the next two years; in August, it also signed a cooperation framework agreement with Tencent's “Penguin Film” to conduct in-depth co-production and licensing of film and television series, and will provide Tencent Video with 2,000 classic stock series, all of which will help it reach a wider audience, increase brand influence, and bring greater star effect to the delivery of goods.

Editor/Corrine