VC/PE is an industry closely associated with the orientation of the state policy, whose change will have a direct impact on the development of the VC/PE industry. The industry mostly favored by the policy will also win the favor of VC/PE funds. Today, in the post-crisis era, the stimulus policies issued by the central government and the local governments in succession to revitalize relevant industries are attracting the attention of numerous VC/PE investors active in China market. The No. 1 Document published by the General Administration of Press and Publishing (GAPP) has brought China's publishing industry into the focus.
Frequent New Deals for Publishing amid Industrial Adjustment
To address the international financial crisis, China has adjusted its macroeconomic policy, and made it a top priority in the crisis response to "ensure growth, expand the domestic demand, adjust the structure, promote the reform and improve people's livelihood". In this context, publishing, as an important part of China's cultural industry, has also stepped into an important period of strategic opportunity. We have observed that the regulations and policies related to the reform of the publishing industry have come out at an obviously faster speed since the end of 2008, and the policy-related turning point in the publishing industry has emerged as a result of these regulations and policies. We believe more diversified and more powerful social capital will set foot in publishing industry as market rules are playing an increasing role in this industry. It can be expected that the investment risk factors arising out of state policies will evidently diminish step by step.
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Large Size and Swift Growth: A Sunrise Industry in the Eyes of VC/PE
As to the market volume of China's publishing industry, the latest statistical data of the GAPP shows that there are now 1,943 newspaper titles, 9,549 magazine titles, 580 book publishers, 378 AV product publishers and 195 Internet publishers. More than 120,000 distribution enterprises of different ownerships - state, private, foreign and joint venture, and over 180,000 printing and copying enterprises have been established in China. The book titles jumped from 15,000 in 1978 to 274,100 in 2008, and the newspaper and magazine titles also soared by nearly ten folds. China has already become a publishing power in the world. Its total distribution of books and newspapers and the number of electronic publication titles ranked first worldwide for consecutive five years, and the printing industry comes third globally.
Judging from the development stage of the publishing industry, China now remains at the transitional period featuring the combination, mutual overlap and mutual promotion between traditional publishing and digital publishing. While the traditional industry represented by the book, newspaper and magazine publishing is maintaining rapid growth, we have also found that the emerging industry represented by online games, digital publishing and mobile phone publishing is growing at an amazing speed, and even outgrowing the traditional industry. Digital publishing is a good example. The latest statistical data of the GAPP suggests that the aggregate output value of the digital publishing industry surged from RMB20B in 2006 to RMB36B in 2007, RMB53B in 2008 and estimated RMB75B in 2009, presenting an average growth rate of 56.2% in three years. The 2008 Blue Book on Cultures published by the Chinese Academy of Social Sciences forecasted that in the next five years, more than 30.0% of the mobile phone users will read electronic books and digital newspapers on mobile phones, therefore, the value of the electronic books and digital newspapers purchased by such institutional users as libraries will reach RMB1.00B, and the sales and advertising revenues from electronic books and digital newspapers driven by the Internet users and mobile phone users will hit RMB5.00B. China's publishing industry is an emerging industry for VC/PE investors, who always highlight the overall industry market size, the new business modes and the future development potential.
Interpret GAPP's 2010 No. 1 Document to Mine Huge VC/PE Investment Opportunities
The Guiding Opinions on Further Promoting the Development of the Press & Publication Industry issued by the GAPP in January 2010 is interpreted by the industry insiders to be an outline for the development of China's publishing industry, which has drawn a blueprint of the industry. The author has carefully read the No. 1 Document and identified huge investment opportunities for VC/PE investors behind the document. As shown in Chart 1, the areas of investment to be created by the document for VC/PE institutions mainly include the following.
In reality, the VC/PE institutions, which are always forward-looking, have already started sowing seeds in China's publishing industry. The data from Zero2IPO Research indicated in 2009, five VC institutions, including Fortune VC and Hunan Xiangtou Holdings Group, have made a joint investment of RMB455.00M in the just established Central South Publishing & Media Group Co., Ltd. (tentatively named), and Hony Capital has injected capital into Jiangsu Phoenix Publishing & Media Group Co., Ltd., among other investment cases.
Seen from another dimension, the RMB-denominated funds will own cutting edges in this industry, after foreign capital is excluded out of this industry by the latest edition of the Catalogue for the Guidance of Foreign Investment Industries (revised in 2007). The author believes that in this year and in the coming years, more and more foreign VC/PE institutions will accelerate the pace to establish RMB funds so as to cut a slice of the pie created by the reorganization and restructuring of China's publishing industry.
