China’s Fading Producer of ‘The Voice’ Files for Hong Kong IPO

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Key Jtake away food :

  • Variety show producer Star CM has filed for an IPO in Hong Kong, seeking funds to revive its flagging fortunes
  • Revenues from the company’s flagship product “Sing! China” fell from 1.14 billion yuan at its peak in 2015 to just 252 million yuan last year.

By Ken Lo

The company behind “Sing! China,” the hugely popular Chinese rendition of American reality TV show “The Voice,” takes its act to Hong Kong. But this time, Star CM Holdings Ltd. hopes to achieve success with investors rather than music fans with its proposed IPO.

This time around, Star CM is hoping for less controversy than the trade dispute that ultimately sparked its flagship show’s long-term decline. But he might struggle in that regard due to his own declining fortunes.

“Sing! China” became a huge hit shortly after its launch in 2012, originally as “The Voice of China,” earning celebrity status for its creator, Canxing Productions. changed its name and format after a high-profile dispute with the Dutch owner of the show’s format.But that’s a different story than Star CM Holdings, whose roots stem from a collaboration between the head of Canxing and the top media investor CMC Capital, hopes not to repeat itself with the latest IPO plan.

Star CM made its first filing for an IPO in Hong Kong last November, but again submitted its prospectus a week ago after the original request expired. The latest document reveals a rapidly fading business alongside the decline of “Sing! China.” The company over the hill seems hopeful that its former glory can help it find its own voice in the crowded world of Chinese production houses.

According to the prospectus, 61.68% of Star CM shares are held by Shanghai Xingtou Investment, which is controlled by CMC Capital and major shareholders like Star CM Chairman Tian Ming. Tian holds an additional 20.68% of the company’s shares through his wholly owned investment vehicle Harvest Sky.

Top of his game

Star CM’s predecessor, Canxing Culture & Media, was once valued at 20.8 billion yuan ($3.1 billion) as recently as 2018 in a stock transfer. But that shine quickly faded when “Sing! China” stumbled, and the company’s new shows failed to take off. Star CM has inherited this troubled legacy and is currently struggling in a vicious circle of insufficient funds, which makes it difficult to deliver new hits that can bring new funding. He hopes the IPO plan can jump-start this process.

The company applied for listing on China’s A-share market as early as 2018. But that plan hasn’t taken off, leading to its current pivot to Hong Kong. Observers suspect the move is partly driven by both a cash crunch and the company’s current investors’ eagerness to cash out. Whatever the reason, the latest sign-up plan does indeed seem a bit rushed with limited potential for excitement.

Show business can be extremely lucrative if all the stars align. To maximize their chances of success, variety show producers must constantly produce new shows, create proprietary intellectual property (IP), and stabilize their revenues by ensuring that new shows are always in the pipeline to replace aging ones. . This means companies without these proven pipelines could struggle to attract investors willing to bet on their future.

Star CM could definitely fall into the category of oscillating stars that lack such stability. The company’s revenue rose from 1.81 billion yuan in 2019 to 1.56 billion yuan in 2020, according to its prospectus. It fell into the red in 2020 with a net loss of 27.8 million yuan. The situation worsened last year when its revenue fell another 27.6% to 1.13 billion yuan and its net loss soared to 352 million yuan. This all seems to paint a picture of a company whose business is faltering – far from the type that can win over investors.

Star CM specializes in the development and operation of variety shows. It also licenses its broadcasts to others, which has been an important source of income since 2012. Last year, these activities brought in 880 million yuan and 116 million yuan in gross profit, a significant drop from 1 .09 billion yuan and 203 million yuan, respectively, in 2020. Still, this business is quite large, accounting for up to 78% of total revenue.

dying star

“Singing! China” has always been the company’s claim to fame, generating an impressive 1.14 billion yuan in revenue in 2015. But its contributions have plummeted since then, especially after the dispute with the Dutch designer Although still its biggest cash cow, the show’s revenue contribution has dropped from 490 million yuan in 2019 to just 250 million yuan last year. The show’s gross profit dropped from 230 million yuan to just 5.6 million yuan in 2021.

The company’s artist agency, Mengxiang Qiangyin Culture, was also a disappointment. Created in late 2012 to capitalize on the success of “Sing, China” – then still known as “Voice of China” – Star CM’s predecessor bought the company for a total of 2.08 billion yuan in March 2016 , generating $1.97 billion in goodwill in the process.

This part of the business now has over 150 artists under contract. It is listed in Star CM’s prospectus under the category of “other intellectual property-related activities”, which earned only 42.5 million yuan last year, down 62% from a year ago. two years. As this business failed, Star CM had to depreciate 387 million yuan and 381 million yuan of asset impairment in the past two years.

Star CM would become one of the few publicly listed variety show producers if it came to market. Yuehua Entertainment and Legend Star Plus have also filed IPO applications in Hong Kong recently, although none have hit the market yet. That said, a price/sales (P/S) comparison with Chinese literature (772.HK) and Tencent Music Entertainment TME could be the best criterion to estimate the potential value of Star CM. This pair has an average P/S of 2.4x, which would give Star CM a valuation of HK$3.14 billion ($400 million) based on its earnings last year – 80% less than its value in 2018. Again, it clearly isn’t any rising star.

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