600 million yuan Lawsuit Reveals the Hidden Struggles of Yuewen Group’s IPO



Recently, Yuewen Group’s should have had a smooth sailing with their IPO coming soon.



But they had “unpleasant incident” with Migu Reading.



Migu Reading launched a special promotion that allowed their members access to their entire site for just 9.9yuan.



In response, Yuewen Group unilaterally breached their contract as the content provider for Migu Reading and pulled some of their more popular novels from the site.



This greatly dissatisfied Migu Reading’s members and thus Migu Reading sued Yuewen Group for 600 million yuan.



This lawsuit may cause problems for the IPO and more importantly reveals some of the hidden problems that Yuewen Group has in terms of profitability, copyright issues and licensing qualifications, among others.



Content locking strategy Regresses the Industry



During the dispute between Yuewen Group and Migu Reading, Yuewen opted to lock their content down, and not allow Migu Reading’s platform to have updates.



This goes against the general trend of the Internet industry as online, the best and strongest companies insist on an open-content and win-win strategy.



Thus in this era, Yuewen Group’s insistence on locking down their content and their inability to find a win-win situation means they are unable to see the larger picture.



Intellectual Property (IP) should be a multi-platform, unrestrained, and self-growing creature. Yuewen Group’s decision to lock down their content is equivalent to caging the IP as authors become unable to spread their works to a greater audience. This goes against the development needs of IP.



Yuewen Group’s content locking strategy is contrary to good online development, is bad for readers/author relationship and also shows that they’re lacking confidence in their own IPO and are willing to do anything to protect their profits.(edited)

The Industry’s Profit Ceiling



Furthermore, Migu Reading’s 9.9 yuan promotion probably affected Yuewen Group’s income and user numbers.



The reason Yuewen stopped cooperating with Migu Reading was likely because Yuewen’s profits are low to begin with.



However, the impact of this contract breach is probably worse than the original income loss. The 600 million yuan lawsuit may affect both their profit performance for this fiscal period as well as delay their IPO.



Yuewen Group’s financial documents show they lack future growth. Their total revenue in 2016 was 2.6 billion but their net profit was only 30.4million. Their online reading revenue was 77.1% of their total revenue. This means most of their income still comes from their online reading fees. Their net profit is 1.2% of their revenue, which sucks for their investors.



Also, insiders reveal that their online revenue mostly depends on having a large number of high quality copyrighted IP. However, these high quality IP’s contracts will end in two years.



Recently, the value/price of the IP has increased so Yuewen Group will need to pay more if they want to keep them.



Thus, a profit ceiling is evident. Revenues will decline and user conversion rates will also decline when they lose the high quality IP.



A Company That Lacks Proper Licenses



Basically, a lot of subsidiary companies under Yuewen Group don’t have proper licenses and this is an operational problem. The regulation agencies might shut down some of their companies.​