What are Chinese always reading on their mobile phones in the subway? Chances are it’s a user-generated e-book. Here’s your guide to this innovative and innovative market in China: from the model and existing giants, to newcomers and mobile reading.

Why do Chinese buy this model?

According to CNNIC, by the end of 2010, online literature readers in China reached 195 million, an increase of 32.38 million since 2009.

In the early days of China’s internet history, gaming and music service providers made fortunes by convincing low-end Chinese users to spend 1 Yuan for a mobile ringtone or 5 Yuan for an hour of gaming in an internet cafe. The ringtone business established by China Mobile helped service providers make money off digital music for the first time.

It is believed online literature is another thing Chinese users would be willing to pay for. And 2-3 Yuan for a book of 100 thousand characters resembles the gaming/digi-music story.

Even though users still can get a large amount of free, illegitimate digital books somewhere such as Baidu Wenku and download services, China’s e-book sites expect more and more readers to buy first-hand, original, online content from their platforms.

And paying for online content has never been as easy as it is today. Choices range from the very traditional wire transfer, mobile, and broadband recharge services to all possible online payment channels.

Investors also Drawn to User-Generated E-books

In September, Sequoia Capital China invested RMB 27 million in Kanshu (“read books” in Chinese), a literature website where registered contributors sell self-written novels directly to readers. Or, in industry-speak, a C2C digital self-publishing platform (similar to Lulu’s self-e-publishing service, if you need a Western example for reference).

Kanshu.com

Kanshu’s web service charges for premium content: 0.03 Yuan per thousand Chinese characters, with 0.02 going to authors and 0.01 to Kanshu. From mobile end authors earn less — and that’s half of total sales, as Kanshu partners with telecom operators who also take a revenue shares.

Kanshu reportedly has 3 million registered users and two thousand registered writers, making millions of RMB in monthly revenue.

Although founded all the way back in 2004, it didn’t gain much attention until its current managing team brought in financing and took it over in 2010. Headquartered in Chengdu, the capital city of Sichuan province in Southwestern China, it also has a team in Beijing.

A business model practiced since 2003

Kanshu wasn’t the first that came up with this model. Qiandian was. CMFU, an amateur writers union, launched qidian.com in June 2002 and started charging for premium content in October 2003. It charged up to 0.02 Yuan per thousand characters and writers kept 50%-70% of total revenues.

One year later, in October 2004, when Shanda acquired it, Qidian reportedly had 10 thousand contributors and 14 thousand literary works. In 2006, Qidian turned a profit.

Qidian.com

Gui Chui Deng (Ghosts blow out the light, published in 2006) and Xing Chen Bian (Legend Of Immortal, published in 2008) were two of Qidian’s most successful titles. After becoming wildly popular, both were put into print and licensed to film studios. Shanda Games even developed two MMORPGs based on the two novels.

Even though so many people read its novels through illegitimate free channels, in 2008, the year when Shanda Literature was established, Qidian reportedly gained RMB 60 million from paid users, with 40 million going to writers.

Cloudary leading the market

After Qidian, Shanda acquired another five online literature sites: hongxiu.com, readnovel.com, rongshuxia.com, xs8.com and xxsy.net, and two other sites: tingbook.com (audiobooks) and zubuent.com (magazine content). They all adopted the Qidian model after joining Shanda family, setting prices at 0.03 Yuan for average readers and 0.02 Yuan for members, sharing revenues with the authors half and half.

In July 2008, Shanda Literature, renamed Cloudary in 2011, was spun off as a new division under Shanda Interactive Entertainment (NASDAQ: SNDA). Sina’s former vice editor-in-chief Hou Xiaoqiang serves as CEO and Qidian’s founder as President. Earlier this year, Cloudary filed for IPO on the New York Stock Exchange to raise up to USD 200 million, although it has not succeeded in listing yet.

According to its F-1, filed with the SEC on September 27, Cloudary’s six sites totaled 1.4 million contributors and 5.4 million titles as of June 30, 2011. “In the first half of 2011, an average of 58 million Chinese characters were uploaded daily to this library,” with “approximately 69 million monthly unique visitors” . [See full breakdown of Cloudary's revenues].

Cloudary Corp.

The company claims, citing a report by iResearch, in 2010, that Qidian was the largest “original Chinese literature website” in terms of revenues and its content, including e-books licensed from publishing companies, accounting for “over 71.5% of China’s online literature market in terms of revenues and 60.6% of the market in terms of user time spent”.

However, revenues generated by online literary content account for just around 30% of Cloudary’s total income. The company saw big revenue increases in related offline businesses it began no earlier than 2008, such as print books and content licensing. That includes licensing popular books like Naked Marriages, the hottest TV drama of the year.

A breakdown of Cloudary's revenues

Newcomers

Sequoia Capital China is not alone eyeing this market. Recently two more participants joined in. By the end of October, Netease launched an Original Literature System. No more than half a month later, Douban launched a Reading Program.

The two are recognized as reasonable participants, as they each have a community of a large number of and “high quality” residents who have been actively either writing or reading online, or both.

Both of them have set up a system for everyone to apply for a “writer” and made clear that they‘d charge readers. Douban set a “trial” price at 1.99 Yuan for each work, suggesting writers create small works with 30-50 thousand characters each. Netease hasn’t announced pricing yet, but has offered to pay writers who regularly submit writings 300-500 Yuan every month.

Douban began as a site for users to discover, share, and review books. A majority of Chinese book readers, some of who are writers and professional translators themselves, became Douban users in the past six years. To this day, those people are still Douban’s most valuable properties; some of them have been writing relentlessly with Douban Journal. Not long ago, Douban started offering translators/writers Xiaozhan, a designed personal theme webpage, where they could publish multimedia content, including writings.

Douban Reading Program

When it comes to ad revenues, Netease’s portal business cannot compete with Sina, Tencent or Sohu. But it is well-respected for its creativity and professionalism. Netease’s readers are famous for their creative comments on news and articles.

Mobile Reading

As reported by Eguan, in Q2 2011, 269 million Chinese users read on mobile phones. Not a single digital book supplier would dare skip the mobile marketplace.

Partnering with a manufacturer, Cloudary released Bambook, an e-reader, in October 2010. Apart from this device, it has made its content widely accessible through Android or iOS devices, and WAP (still widely adopted in China, especially for mobile reading), and is planning to cover as many platforms as possible. It also invested in a reading app, Byread.

Kanshu has so far only partnered with the three state-owned telecom operators, each of whom also has a mobile reading service. In May 2010, China Mobile launched CMRead whose content initially was from four publishing companies. From then on, more than 100 content suppliers, including Cloudary and Kanshu, signed up. So far it doesn’t allow individual writers to join in, which means Qidian’s C2C model cannot be applied there.

Following China Mobile, China Unicom and China Telecom launched their own versions of “CMRead” later in the same year.

CMRead takes 60% of total sales — which is why Kanshu shares less with writers for mobile phone sales. And content suppliers are not allowed to set prices. The big three are still the gatekeepers–or toll booths–that control access to the mobile market.

Around 2005, almost every Chinese netizen set up a blog and blogging revolution was expected to change the world of Chinese words. Unsurprisingly, not too long after, a majority of them stopped blogging. This time, ambitious internet tycoons, venture capitalists, and niche services are creating a new game to entice more people to write and to find ways to have readers to pay, aiming to eventually profit. By bringing in a revenue sharing mechanism, will everyone be better off?

  • Blogger123

    excellent article, but I’ve been googling for hours to find something on “self-publishing in China”. You might want to add the tag!

  • http://www.facebook.com/maria.nikolaeva.7737 Maria Nikolaeva

    Thanks a lot – very useful :)