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Tencent sells loss-making animation and comic business to subsidiary China Literature in latest consolidation move

Tencent Holdings, China's largest social media and video gaming company, has offloaded its loss-making animation and comics business to a subsidiary as China's most valuable tech giant continues to slash noncore operations.

China Literature, the country's largest online publishing and e-book company that is 56 per cent owned by Tencent, said on Tuesday it struck a deal to buy Tencent's animation and comics business for 600 million yuan (US$83.6 million).

China Literature's Hong Kong-listed shares surged more than 10 per cent following the announcement.

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It will pay cash for Tencent Animation and Comics, including the app, associated intellectual property rights, and animation, film and television series.

According to a corporate filing by China Literature, the 600 million yuan price is a 36 per cent premium compared to the assets' book value of 442 million yuan. Tencent Animation and Comics made a loss of 111 million yuan in 2022, narrowing from 190 million yuan in 2021.

Chinese Literature CEO Hou Xiaonan said the deal will "enrich China Literature's reservoir of blockbuster intellectual properties" and "further expand our production capacity for animation".

"We expect this alliance to become a key driver of China Literature's future growth, and through robust synergies, we believe the combined entity will create more value than either party could achieve individually," Hou said in a statement.

Tencent has been shedding loss-making business units and consolidating its sprawling operations in recent years as its extensive portfolio has become an easy target for regulatory scrutiny. In the most recent case, Tencent said it would close its seven-year-old live-streaming service Now on December 26 due to "business adjustments".

Tencent Animation and Comics was created in 2012 when young Chinese internet users were embracing Japanese-style online comics and Chinese animation video site Bilibili was winning over a huge number of fans.

A welcome screen for the QQ Reading application operated by China Literature, Oct. 25, 2017. Photo: Bloomberg alt=A welcome screen for the QQ Reading application operated by China Literature, Oct. 25, 2017. Photo: Bloomberg>

Tencent tried to get a slice of the market with its own animation and comics website ac.qq.com, and by launching 200 Japanese light novels and 500 Japanese comics in one single event in 2015. However, Beijing's rigid control of internet content and the rise of short videos meant that novel and comics creation remained a niche market in China.

Of the top 30 bestsellers on the Tencent Animation and Comics website, about half were contributed by China Literature.

Meanwhile, China's online literature industry is seeing a boom in overseas sales, thanks to the rapid development of artificial intelligence (AI) technology that enables Chinese web novels to be quickly translated for foreign consumption, according to a report issued by China Literature last week. In 2022, the industry raked in 4.06 billion yuan in overseas sales, representing a nearly 40 per cent year-on-year jump, the report said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.