SFC Markets and Finance | Will Guangdong be next World's IP Powerhouse?

南方财经全媒体记者 杨雨莱 实习生马千淳 广州报道

 "Ne Zha 2" has garnered worldwide attention with numerous discussions emerging across various platforms. Meanwhile, a variety of handicrafts, paintings, and creative merchandise based on the character Ne Zha are vividly brought to kids and collectors globally. Why is Ne Zha 2 so popular? By blending tradition with innovation, Ne Zha 2 has captured the hearts of audiences around the world and boosted the development of IP economy. More broadly, it’s about cultural economics.

Ne Zha 2's success is attributed to its innovative use of technology and storytelling. The film employs advanced visual effects and AI-driven production techniques, enhancing its visual appeal while maintaining a strong narrative core. This fusion of technology and creativity not only elevates the film's quality but also accelerates its related merchandise production. How can we view the role of digital technology in driving the IP economy? Especially with a hit IP like "Ne Zha 2", how has technology enabled the diversified development of the IP? Let's hear the perspective of Cao Rui, Senior Analyst at Tianfeng Securities.

Digital technology empowering the IP industry chain

Cao Rui: Digital technology has actually played a strong driving role throughout the entire IP industry chain, from upstream to downstream. First, at the production end, it can reduce costs and increase efficiency through industrialized production. After the IP image is created, technology can also drive the dissemination of the IP through various means, such as algorithms, making it a breakout product and capturing the attention of Generation Z.

To elaborate, let's first look at industrialized production. The empowerment of AI technology has played a significant role in the innovation of special effects and cost reduction, helping China's animation industry reach a new level.

Taking "Ne Zha 2" as an example, the film involved more than 1,900 special effects shots and over 10,000 special effects elements. Some scenes even took over a year and a half to produce. This includes iconic moments like the scene where Ne Zha tears apart his body to break the Curse. While this scene lasts only 10 seconds, each fragment of his body being torn apart was powered by cutting-edge technology. The core technology driving this is the self-developed dynamic ink wash rendering engine by Enlight Media, which perfectly combines the traditional Chinese ink painting technique of leaving blank space with the visual impact of modern 3D animation.

Technology reshaping the IP value chain

Cao Rui: The second point is technology. We believe that digital technology has actually reshaped the entire IP value chain. When we look at Ne Zha, we can see that the explosive success of the IP, to a large extent, is based on the extensive dissemination on self-media platforms. Even the box office expectations have continuously risen, from the initial forecast of 4 to 5 billion yuan, with daily increments in expectations, all the way up to around 15 billion yuan now. A large part of this surge comes from the spread of the IP via self-media platforms, which helped it become a breakout product.

Platforms like TikTok, Red Note, and other content platforms analyze Generation Z user data deeply and use algorithms to improve recommendation efficiency. This has enabled cross-tier penetration in the dissemination process.

From Emotional Resonance to Cross-Media Marketing, and finally Long-Term IP Building, The marketing strategy behind Ne Zha 2 also makes it successful. The film's themes of self-discovery and overcoming adversity struck a chord with audiences, driving repeat viewings and word-of-mouth promotion. And then it is marketing utilized multiple channels, including social media, traditional media, and experiential marketing, to create a comprehensive brand experience. And it builds on the foundation laid by its predecessor, demonstrating the importance of long-term IP development and audience engagement. In result, Ne Zha 2 is more than just a movie. It’s a cultural phenomenon and a rising global IP. Can Ne Zha be a role model of other Chinese IPs? On the back of Ne Zha's momentum, can China's IP economy accelerate its globalization? Wang Peng, Associate Researcher from the Beijing Academy of Social Sciences, shared his insights with us.

China's IP will occupy a more significant global position

Wang Peng: First, it demonstrates the enhancement of China's cultural confidence among the "Four Confidences". With the strengthening of China's economic power and cultural soft power, cultural confidence is continuously growing, and the global influence of Chinese IPs is gradually increasing.

Second, the development of new and digital technologies has provided more possibilities for the creation, dissemination, and commercialization of Chinese IPs. These advancements have lowered barriers, improved the efficiency of dissemination, and enhanced the quality of content.

Third, from a global perspective, the global market is experiencing steady growth, with an increasing demand for Chinese IPs and Chinese culture. Thus, the "Ne Zha phenomenon" reflects not only the improvement of China's industrial capabilities but also the gradual enhancement of China's overall cultural soft power, IP production, operation, and commercialization capabilities. It also indicates that China's IP economy is poised to occupy a more significant position on the international stage.

The overall trend is highly sustainable. When it comes to specific cultural potential, first, there is the integration of tradition and modernity. For example, "Ne Zha 2" combines traditional culture with modern products to create an excellent work. Second, the theme of technology. Over the past years, China's rapid development in virtual reality and artificial intelligence has been remarkable. I believe that IPs themed around future-oriented technologies are very promising. Third, IPs based on animation and gaming are already widely popular globally. If Chinese companies have the resources to tap into this area, I am confident that this field holds great potential.

Fourth, there are original literary IPs. Online literature is an important source of Chinese IPs, and the speed of its adaptation is accelerating. Therefore, in the future, for the IP economy to go global, Chinese original literary IPs will definitely be an important component.

Four ways to promote IP's internationalization

Wang Peng: First, it is necessary to understand the international target market, such as cultural consumption habits and market demands. Only through in-depth research and study can we provide a solid basis for local strategies. Second, cultural integration is essential.  While maintaining the foundation of Chinese cultural characteristics, it is important to incorporate cultural elements from the target market to make the IP more relatable to local audiences.

Third, content innovation is crucial. It is not feasible to simply copy and paste. Innovation and adjustment of IP content are necessary to enhance its appeal and competitiveness.

Fourth, after fully understanding the local market, it is important to utilize local forms that are special or well-received, such as social media, e-commerce, and offline events, for comprehensive promotion to increase international visibility.

Lastly, choosing a local partner is also very important. If a good partner can be found and a strong relationship is established, it can effectively promote the localization and globalization of Chinese IPs, achieving twice the result with half the effort.

From art toy to animation and gaming, Guangdong's industrial chain advantages have been especially prominent in the Ne Zha phenomenon. Guangdong's support for "Ne Zha 2" was multifaceted, encompassing technical expertise, manufacturing capabilities, and policy backing. The province's robust industrial ecosystem and innovative approach to cultural IP development have been instrumental in the film's success. As international interest in Chinese culture grows, how can Guangdong play a bigger role in the IP economy and continue being an important part of the global cultural and creative industries？Here's what Zhang Liwei, SFC Chief Commentator, has to say.

Three advantages of developing IP economy in Guangdong

Zhang Liwei: Guangdong's advantages in the IP economy industry are as follows: Firstly, Guangdong recognized the economic value of IPs in the market. It has retroactively shaped its own IPs across various industries and engaged in large-scale economic development. Guangdong's children's animation holds an leading role in the Chinese market, and this extends to its gaming industry, which occupies at least 60%-70% of the Chinese market share. Now, the gaming industry also serves as an important foundation for the 2D culture economy. This is in terms of creativity.

Secondly, in terms of manufacturing, Guangdong has a global advantage. Guangdong's toy manufacturing accounts for a significant proportion of the global market and is one of the most efficient and technologically advanced industrial bases, capable of mutually empowering the IP economy.

Thirdly, the IP consciousness of Guangdong entrepreneurs is growing stronger. For example, companies like Miniso and KKV initially focused on retailing everyday goods. They emphasized design but also leveraged Guangdong's low-cost production advantages. However, even with these strengths, they could not increase the premium on their products. Eventually, they realized that only IPs could evoke consumers' emotional needs. Therefore, they have comprehensively created more of their own IPs from a market and commercial perspective or have ventured into the film and television industry to shape new IPs. Thus, Guangdong's advantage lies in its strong IP consciousness. It currently lacks the ability to shape high-end IPs but has a global advantage in commercial operations, development, and manufacturing.

Why Guangdong promotes China's IP globalization development?

Zhang Liwei: Guangdong is one of the earliest regions in China to recognize the economic potential of IP. From the perspectives of manufacturing and market dynamics, its enterprises identified IP's enduring capacity to generate commercial value. Following the reform and opening up, Guangdong, as a pioneer in reform, attracted substantial investments from Taiwanese and Hong Kong businesses engaged in toy OEM (original equipment manufacturer) operations. Subsequently, multinational corporations started globalized toy production bases in the region. During manufacturing processes, local entrepreneurs recognized that toys carrying IP assets commanded significant market premiums. This awareness drove strategic efforts to cultivate proprietary IPs. Balala the Fairies, Super Wings, and Pleasant Goat and Big Big Wolf came from Alpha Group, a Guangzhou-based company originating from a OEM factory in Chenghai District, Shantou. Through toy manufacturing, Alpha Group uncovered IP's value-creation power, prompting its expansion into children's animation. In the past year from toy sales alone, Alpha Group generated CNY 1.2 billion in revenue .  

Today, Guangdong boasts numerous influential animation IPs like GG Bond and Boonie Bears, operating across full industrial chains, which encompass theme park development, theatrical film production, and diversified licensing models.

Guangdong currently lacks a solid foundation in the adult film industry. The talent and enterprises in this sector are primarily concentrated in first-tier cities such as Beijing and Shanghai. However, neither of these cities has established a comprehensive set of IP commercial management experiences. Their focus mainly lies in the stage of film creation, Their business models rely on box office revenues, copyright sales, or pre-roll advertising for profit. They have yet to realize or lack the capability to create IPs with long-term sustainability, such as global IPs like Star Wars, James Bond, and Transformers.

The IP economy is an industry that maximizes the economic value of IPs. However, transforming a creative IP into an IP economy requires a complete set of commercial operations and industrial system support, including continuous content creation, IP licensing and derivative product development and manufacturing, and the establishment of various themed parks. Guangdong has very mature commercial operation experience and international promotion experience in this regard. For example, Guangdong's children's animation, games, and theme parks have all been launched globally. If the next step is to strengthen adult-oriented IP creation and leverage Guangdong's own commercialization and internationalization capabilities, it may be possible to build Guangdong into a global hub for the cultural and creative industries. It is precisely because Guangdong has this capability that the operation and development of China's film and television industry IPs, including adult IPs, should enter the Guangdong region and leverage the region's advantages to better serve China's cultural industry and its "going global", thereby enhancing the prosperity of China's cultural industry.

Chief Producer: Yu Xiaona

Supervising Producer: Shi Shi

Editor: Li Yinong

Reporter: Li Yinong, Yang Yulai, Intern Ma Qianchun

Video Editor: Li Qun, Cai Yutian 

Photographer: Hu Kaiwen 

New Media Coordination: Ding Qingyun, Zeng Tingfang, Lai Xi, Huang Daxun

Overseas Operations Supervising Producer: Huang Yanshu

Overseas Content Coordinator: Huang Zihao

Overseas Operations Editors: Zhuang Huan, Wu Wanjie, Long Lihua, Zhang Weitao

Produced by: Southern Finance Omnimedia Group