IP: PAST, PRESENT & FUTURE

2016/7/26

WHAT IS IP? Strictly speaking, it is an acronym for Intellectual Property. According to the dictionary definition, it refers to “property that results from original creative thought, as patents, copyright material, and trademark; an individual product of original creative thought.” In present day China, the context has evolved to mean much more. In this week’s Lookout we examine how IP can now be a person, a movie, a game, a novel, or even a public account…

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BREAKING FREE
In an age where the meaning and format of IP is constantly expanding, actors, singers, and even online celebrities are all varied facets of the IP kaleidoscope. For the Chinese marketing community, IP has taken on a new definition: “content that can break free of the limitations of a single platform to gain traffic and distribution on multiple platforms based solely on its own merit.”

It is also a phenomenal marketing concept with recent articles on the popular site, Sina linking the vision of the "China Dream" to the era of IP.

THE SUDDEN EXPLOSION OF IP
The skyrocketing growth of IP in the last couple of years is related to two fundamental changes and developments.

The first is increased levels of consumer consumption driven by rising wages and living standards. More money + more time = more demand for entertainment. This rising demand is well catered for by the growing Chinese entertainment industry, which is turn is popular with investors attracted by the high and quick levels of return.

The second change is the increasingly fierce fight for consumer attention in a fragmented media ecosystem. High traffic and engaging portals are scarce resources. IPs can act as strong connectors and valuable influencers across different platforms. They provide value to advertisers through this scale and access to an attentive audience. This again fuels investor interest as they seek to own copyright for popular IPs.

Additionally, both these factors have been supported by the rapid development of the internet. Higher download speeds have facilitated the consumption and distribution of high quality content. And as we’ve explored in previous Lookouts, there has been a positive change to recognizing product and intellectual property rights and an acceptance of paying for content.

THE ATTRACTIVENESS OF IP: BRAND STORYTELLING
IP’s rich characters and story background can provide a brand with substance or a story to tell. When IP is no longer a mere stunt but a participant in the brand story, it will successfully create emotional ties between consumers and the brand. IP characters can powerfully interact with the brand to create new stories and generate brand premium inside the story.

SUPER HERO
A brilliant example of IP cooperation is Lego’s incorporation with multiple “Super IPs” for example, Lord of the Rings, Star Wars, Harry Potter or Ninja Turtles. In both its Lego pieces as well as its feature film production, Lego was not only able to leverage the IP’s existing fan base and fantastical background to add interesting context to the story and their products, but has also successfully promoted its own designs (many IP-related sets are collectors’ item for movie fans). This infused the brand and the characters with further imaginative, contextual layers. Often ignored, this is a compelling demonstration of the real value of IPs in brand communication.

A MOST ATTRACTIVE INVESTMENT
With a large number of articles across the marketing industry in China claiming 2015 as “IP Year One” and China Entrepreneur Magazine (中国企业家杂志) claiming the “Key word for 2015 as “IP-lized” (2015年度关键词 =“IP化”) this is a trend that looks set to flourish.

By the end of 2015, the total box office for 30 IP adapted films was 0.8 Billion RMB, almost 1/5 of the annual total. Among the top 20 box office hits, 14 were IP adapted, accounting for almost 70%.

We can see a similar pattern on TV. Among the top 20 TV series, six were adapted from IP (for example a preexisting franchise, book or character) accounting for nearly 1/3 of total.

The trend is even more obvious in OTV productions where 7/10 shows with over one billion hits online were IP adaptations. To investors, the unprecedented success of IP makes it an investment with low risk but high return.

Consequently, we see with more capital entering the IP market, and in 2016 YTD, there are nearly 20 IP TV series that have secured over 100 million RMB in investment.

NOT AS EASY AS IT LOOKS…
Some IP-specific phenomena have begun to appear in the market amidst the current frenzy:

RISING COST OF IP: Besides upgraded productions and investments, the fight for continually diminishing quality IP resources has resulted in the skyrocketing prices of IP adaptation rights. It’s not uncommon for well-known IPs to ask for a price of more than 10 million RMB.

NOT ALL ADAPTED IPS ARE SUCCESSFUL: Multiple famous IPs have unable to complete a successful transformation across platforms. Love Yunge from the Desert, The Legend of Qin and The Sound of Desert were all expected to perform well having received huge investments and professional production, but when launched didn’t meet market expectations and connect with fans.

DEPTH & STRENGTH OF CONNECTION: Unlike the IP markets outside China, the local IP market is locked up in capital led low-risk-high-return mode, it has become a kind of FMCG, a good choice of investment. In contrast to China’s “Fast” developing mode is the more mature IP operation by Europe and the Americas.

SUPER IP
“Super IP” is an IP that has stood the test of time and is able to cross over to other fields to generate more profit and maximize its value. If we look at Disney’s Mickey Mouse, or Marvel’s comic series, they are highly successful cases where their image appears not only in movies, but also theme parks, clothing, food and beverages, and even cosmetics. Both Disney and Marvel are enjoying continuous returns and long-term rewards from franchise licensing; its franchised products’ profit actually far exceeds that of the themed movie series.

A successful example closer to home is Taiwan 7-11’s cartoon mascot Open Chan. Created by Dentsu, the fictional character started life on packages and in store point of sale ads. The cute character was a hit with Taiwanese consumers and the assets were developed to include franchised products including a hotel, a flagship store, and even becoming the mascot for Taiwan’s Olympic team.

FUTURE OUTLOOK: WHERE WILL THIS RISING WAVE OF IP TAKE US?

FROM CHANNEL DRIVEN TO CONTENT DRIVEN
Previously dominant distribution channels, such as TV channels and press will become less important, while good content will become more a sought-after communication resource.

FROM IMPORTED CONTENT TO ORIGINAL CONTENT
In the past, most of the high quality and popular IP were imported from foreign countries. With the government’s support and development of the market, original IPs will receive more recognition to have greater success. The value of Chinese original IP will increase gradually and there is a long way to reach the kind of global IP operations we see in the West.

FROM UNIFORM TO DIVERSITY
The ongoing changes led by the development of the internet and move to a digital economy will reform traditional industry structures and limitations to bring in new formats and changes. It will push the entire industry towards diversity, and the production and showcasing of content will benefit as a result.

THE NEW NORMAL
Like the cost of property in tier one cities, the rising price of IP is a result of high demand and limited supply. Although current investment levels have been driven by a surge of VC’s looking for a quick return, long term growth for the market will be sustained through the evolution of quality content that resonates emotionally and wins fans at scale.

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