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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW The information and statistics set out in this section and other sections of this Document were extracted from different official government publications, available sources from public market research and other sources from independent suppliers. In addition, we engaged Frost & Sullivan in preparing the Frost & Sullivan Report, an independent industry report in respect of the [REDACTED]. We believe that the sources of the information in this section and other sections of this Document are appropriate sources for such information, and we have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. The information from official and non-official sources has not been independently verified by us, the [REDACTED], Joint Sponsors, [REDACTED], [REDACTED], any of the [REDACTED], any of their respective directors and advisers, or any other persons or parties involved in the [REDACTED] (excluding Frost & Sullivan), and no representation is given as to its accuracy. Accordingly, the information from official and non-official sources contained herein may not be accurate and should not be unduly relied upon. Our Directors confirm that, after making reasonable enquiries, there is no adverse change in the market information since the date of the Frost & Sullivan Report that would qualify, contradict or have a material impact on the information in this section. SOURCES OF INDUSTRY INFORMATION We commissioned Frost & Sullivan, an independent market research consulting firm which is principally engaged in the provision of market research consultancy services, to conduct a detailed analysis of the PRC pop toy market. During the preparation of the Frost & Sullivan Report, Frost & Sullivan performed both primary and secondary research, and obtained knowledge, statistics, information and industry insights on the industry trends of the PRC pop toy market. Primary research involved discussing the status of the industry with leading industry participants and industry experts. Secondary research involved reviewing annual reports of companies, independent research reports and Frost & Sullivan’s proprietary database. The Frost & Sullivan Report was compiled based on the following assumptions: (1) China’s social, economic and political environment is likely to remain stable in the forecast period; and (2) the related industry key drivers are likely to drive the market in the forecast period. As part of the preparation of the Frost & Sullivan Report, we also commissioned Frost & Sullivan to conduct street interceptions and digital questionnaire and face to face interviews with 1,200 randomly selected participants in the PRC to better understand the product preferences and pop toy market from a consumer’s perspective (the “Survey”). Frost & Sullivan is an independent global consulting firm, which was founded in New York in 1961. It offers industry research and market strategies, and provides growth consulting and corporate training. We have contracted to pay a fee of RMB600,000 to Frost & Sullivan in connection with the preparation of the Frost & Sullivan Report. We have extracted certain information from the Frost & Sullivan Report in this section, as well as in the sections headed “Summary,” “Risk Factors,” “Business,” “Financial Information” and elsewhere in this document to provide our potential [REDACTED] with a more comprehensive presentation of the industry in which we operate. – 142 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW OVERVIEW AND OUTLOOK OF CHINA’S PAN-ENTERTAINMENT MARKET China’s pan-entertainment market currently comprises three sectors: (i) digital entertainment, (ii) physical merchandise, including, among others, pop toys (as defined below), and (iii) offline activity. According to the Frost & Sullivan Report, China’s pan-entertainment market has enjoyed rapid expansion in recent years. The market size of China’s pan-entertainment industry, as measured by retail value, grew from RMB527.7 billion in 2015 to RMB916.6 billion in 2019, representing a CAGR of 14.8%. Furthermore, China’s pan-entertainment market still has tremendous potential for further growth. Driven by the rising disposable income and consumption willingness, increasing high-quality pop content and growing demands for pan-entertainment products and services, the market size of China’s pan-entertainment industry is expected to further grow to RMB1,780.7 billion in 2024, representing a CAGR of 14.2% from 2019. Pop culture, which encompasses a wide variety of things that people can be fans of, has become increasingly important in everyday life. Physical merchandises endorsed by pop culture or content serve as an accessible way for fans to express their affection and affinity for such culture and content. The physical merchandise sector has been the fastest growing sector under China’s booming pan-entertainment industry, according to the Frost & Sullivan Report. The market size of the physical merchandise sector increased from RMB14.6 billion in 2015 to RMB32.5 billion in 2019, representing a CAGR of 22.1%, and is expected to further increase to RMB92.6 billion in 2024, representing a CAGR of 23.3% from 2019. The following chart illustrates the historical and expected market size of China’s pan-entertainment industry as measured by retail value: Market Size of China’s Pan-entertainment Industry, by Retail Value, 2015-2024E Billion RMB Digital Entertainment Physical Merchandise Offline Activity 2015-2019 CAGR 2019-2024E CAGR 1,780.7 Total 14.8% 14.2% 1,584.6 Digital Entertainment 16.3% 15.0% Physical Merchandise 22.1% 23.3% 1,391.5 Offline Activity 10.3% 10.0% 1,204.8 1,320.0 916.6 964.8 1,183.1 799.8 1,050.3 716.5 919.3 615.4 527.7 655.6 795.0 569.4 503.8 423.3 92.6 358.5 77.3 62.9 32.5 49.7 17.3 20.8 24.9 368.1 14.6 35.1 278.3 324.2 154.6 174.8 191.9 205.5 228.5 235.8 134.7 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Notes: (1) Digital entertainment primarily includes digital games, online films, online animations and live streaming. (2) Physical merchandise primarily includes pop toys and leisure books. (3) Offline activity primarily includes movies, internet café and theme parks. Source: Frost & Sullivan, China Game Industry Governance Committee, Internet Access Service Association of China, China Film Administration – 143 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW POP TOY MARKET Overview Pop toys, an industry term according to the Frost & Sullivan Report, refer to toys infused with pop culture and trendy content, serving as a subtle blend of the both. Pop toys cover a wide variety of product categories, including, among others, blind boxes, action figures, garage kits and adult-oriented assembled toys. Pop toys are different from traditional toys in various aspects: (i) while traditional toys are designed based on common images, such as birds, cars and flowers, and for functional use like training coordination and sense stimulation, pop toys typically feature distinct designs and aesthetics, in many cases originating from licensed pop content, such as movie, animation, cartoon and game characters, making it good fit for display and collection beyond mere functional use, (ii) while traditional toys are primarily for children to play with, pop toys target young adults between 15 years old and 40 years old in general, who seek for emotional value from expressing personality and attitude and sharing a passion with others, and (iii) while traditional toys are mainly sold in mass volume with very limited or none collection value, pop toys are sometimes sold in limited editions, having certain collection value. Pop toys are usually designed based on cultural and entertainment IPs, which can bring an immersive experience to customers around the original content and artwork. Pop toy IPs can be created by talented artists, or licensed from movies, animations, games or other sources of content. Cross-over collaboration among multiple IPs also plays a significant role in pop toy IP development. The popularity of IPs and widely-appealing design embedded in pop toys attract both adults and children, thus bringing satisfaction to collect and sometimes high value to resell, particularly for limited editions. Artists are able to express their feelings and attitudes in their work of pop toy products and pass on to fans. As an embodiment of contents and artistic expression, pop toys often establish a positive emotional connection with fans. According to the Survey, 53.3% of existing and potential customers regard creative styling as the main reason to buy or consider buying pop toys. Global Pop Toy Retailing Market According to the Frost & Sullivan Report, driven by the increase of disposable income, rapid growth of the pop culture industry, particularly the successful incubation of more high-quality IPs in the market, the market size of pop toy retailing globally increased from US$8.7 billion in 2015 to US$19.8 billion in 2019 at a CAGR of 22.8%, and is expected to reach US$41.8 billion in 2024, representing a CAGR of 16.1% from 2019. The following chart illustrates the historical and expected market size of global pop toy market as measured by retail value: Market Size of Pop Toys by Retail Value (Globe), 2015-2024E USD Billion 2015-2019 2019-2024E 41.8 22.8% 16.1% 36.6 31.2 25.9 19.8 20.3 15.0 11.9 10.0 8.7 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Source: Frost & Sullivan, The Toy Association, Licensing International Merchandises Association – 144 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW China’s Pop Toy Retailing Market China’s pop toy retailing market is still at an early stage and has witnessed a rapid growth in the past few years, according to the Frost & Sullivan Report. The market size of pop toy retailing in China increased from RMB6.3 billion in 2015 to RMB20.7 billion in 2019, representing a CAGR of 34.6%. Driven by continuously increasing popularity of pop toys in China, the market size of pop toy retailing is expected to reach RMB76.3 billion in 2024, representing a CAGR of 29.8% from 2019. The market size of China’s pop toy retailing market in terms of retail value as a percentage of China’s pan-entertainment market increased from 1.2% in 2015 to 2.3% in 2019, and is expected to further increase to 4.3% in 2024, according to the Frost & Sullivan Report. The following chart illustrates the historical and expected market size of China’s pop toy market as measured by retail value: Market Size of Pop Toys by Retail Value (China), 2015-2024E RMB Billion 2015-2019 2019-2024E 76.3 34.6% 29.8% 62.1 48.7 36.6 20.7 22.9 10.8 14.0 6.3 8.2 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Source: Frost & Sullivan, The Toy Association, Licensing International Merchandises Association According to the Frost & Sullivan Report, the market size of China’s pop toy retailing is expected to increase at a CAGR of 29.8% from 2019 to 2024 on the following basis: • Demographic character of target consumers: Pop toy’s target consumers, the young generation aged between 15 and 40 years old, accounting for over 35% of total population. They have shown a strong desire for self-expression and individuality, and are willing to spend more for emotional satisfaction. • Stepping up of lower-tier cities: Favorable demographic, rapid income growth, improved accessibility and low penetration are releasing pent-up demand in China’s lower-tier cities. Similar to the emerging sectors like live streaming, e-commerce and online games, the consumption upgrade in lower-tier cities would be a key driving force of the pop toy market in China. • Optimistic future plan and forecast by leading players: According to market interviews conducted by Frost & Sullivan, major leading pop toy market players are expecting to grow more than 40% over the next five years. These players were actively adopt IP content to establish pop toy lines, and have already witnessed an increasing portion of pop toys among their product lines in China. – 145 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW • Early industry stage: China’s pop toy market is still at an early stage and achieved a high growth of 34.6% CAGR from 2015 to 2019 by retail value. With growing demands for pop toys, it is expected that the momentum of pop toy market continues to grow. In addition, according to the Frost & Sullivan Report, from an industry cycle perspective, emerging markets typically have a continue growing momentum for over ten years. The value chain of pop toy retailing market in China includes IP sourcing, IP operation, production and consumer access. Pop toy companies seek to collaborate with artists and establish IP providers to source high-quality IPs. Leading pop toy companies generally have strong IP operation and product development capabilities to commercialize such IPs. Therefore, leading pop toy retailing players are more likely to obtain high-quality IPs from artists and IP providers to enhance exposure and maximize the commercial value of their IPs. Consumer access refers to the various sales and distribution channels, including both online and offline. As compared to third-party distribution channels, leading players strive to build self-operated channels to promote brand image, increase brand exposure, enhance control and improve operational efficiency. The following diagram illustrates the value chain of pop toy retailing market in China: Industry Value Chain IP Sourcing IP Operation Production Consumer Access Individual Product Design Industrial Design Offline Platforms Artist and Development • Retail Stores IP Modeling • Vending Machines Design Studio IP Licensing • Convention Manufacturing Online Platforms Established IP IP Creation • PC Retail Platform Provider Packaging • Mobile APP Artist Agency / IP Agency For successful and popular IPs that have been released in earlier years and recognized by the market, they have presented a long-life cycle of around 30 years. For example, Bearbrick (rendered Be@rbrick), designed and produced by the Japanese company MediCom Toy Incorporated, was firstly released in May 2001 and has succeed in releasing forty series until now. Another example, KAWS, made the first toy in 1999, Companion, a vinyl figure of Mickey Mouse with x-ed out eyes and has released many co-branded products with other fashion companies during the past 20 years. – 146 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW Pop Toy Fans in China A young, well-educated and culturally proficient generation between the ages of 15 and 40 are the main target customers of the pop toy industry. Amid the fast-evolving Chinese society, the young generation has much more exposure to diverse cultures, modern lifestyles and rich information. They have shown a strong desire for self-expression and individuality, and are willing to channel their spending power towards emotional satisfaction. Pop toy fans are also enthusiastic to share their feelings and preferences through social media, as part of the communities of people with the same interests. According to the Survey, more than 95% of pop toy consumers are between the ages of 15 and 40, 63% of whom hold bachelor degrees or above. Overtime, many pop toy customers evolve from occasional buyers to regular purchasers, who are recognized as enthusiasts or fans. They demonstrate loyalty to pop toys through repeated purchases and can accept higher retail prices. According to the Survey, 68.5% of pop toy customers made more than one purchase in 2019, 19.8% among whom purchased more than five times; 68.9% of the pop toy customers made a purchase in the last six months preceding the Survey; and 27.6% of the pop toy customers are willing to pay more than RMB500 for a pop toy they like. Key Growth Drivers of China’s Pop Toy Retailing Market According to the Frost & Sullivan Report, the key growth drivers of China’s pop toy retailing market include: • Dedicated and Growing Fan Base. Pop toys are infused with pop culture content well-known among consumers. With stylish design and aesthetic value, pop toys can be owned for display, collection or exchange. Pop toys often offer a sense of joy and companionship that bring consumers relief and comfort, and fans can express their unique lifestyle and social standing by purchasing different pop toys. With an expanding and dedicated fan base, China’s pop toy retailing are experiencing rapid growth. • From Niche to the Mainstream. In the past, the pop toy market was featured as a niche market due to limited cultural acceptance, awareness and high price. In recent years, amid the backdrop of encouraging diversity and personality, people around the world become more open and passionate about various forms of previously-niche pop culture. In the meantime, social media facilitates such trend as people increasingly engage with the content and their social communities to show affinity for such content. In addition, product design, such as the “blind box,” and industry players’ expanding distribution networks make pop toys more desirable, affordable and accessible to fans, further bringing the pop toy market into the mainstream. • Increasing Release of Blockbuster IPs. In line with the development of China’s pan-entertainment market, increasing number of blockbuster IPs have been released and promoted, which in turn leads to higher demand for pop toys developed based on such blockbuster IPs. High-quality content and IPs also create opportunities for cross-over collaborations to attract more fans. – 147 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW • Growing Disposable Income and Consumption Power. The cumulative effect of decades of rising disposable income and living standards has resulted in seismic changes in general consumption patterns in China. Chinese consumers are pursuing a more sophisticated lifestyle and are increasingly focused on the quality of goods and the emotional satisfaction they bring, which increases purchases of pop toys. Competitive Landscape of China’s Pop Toy Retailing Market In 2019, there were hundreds of players in China’s pop toy retailing market, according to the Frost & Sullivan Report. In 2019, the top five market players had market shares of 8.5%, 7.7%, 3.3%, 1.7% and 1.6%, respectively, in China’s pop toy retailing market in terms of retail value. Players in the pop toy retailing industry include both traditional toy companies who have expanded their product coverage into pop toys, and emerging pop toy companies who have been focusing on pop toy product lines. Top pop toy retailing market players other than Pop Mart are primarily multinational toy production companies focusing on IP development and licensing. The following chart sets forth the top five pop toy retailing market players in China in terms of retail value in 2019: Competitive Landscape of Pop Toy Companies, by Retail Value (China) 2019 CAGR Ranking RMB Million (2017 to 2019) Background IPs Operated 1 Pop Mart 1,757 226.3% A pop toy company based in China with an integrated 93 IPs, including 12 proprietary platform covering the entire industry chain of pop toys, IPs, 25 exclusive licensed IPs and including artists development, IP operation, consumer 56 non-exclusive licensed IPs access and pop toy culture promotion. 2 Company A 1,602 47.6% A multinational toy production company based in Europe. Its approximately 28 licensed IPs featured toys consist mostly of interlocking plastic bricks. It also operates several amusement parks and numerous retail stores across the world. 3 Company B 675 33.1% A Hong Kong based multinational production house for approximately 80 licensed IPs designing, developing, and manufacturing highly detailed collectible toys or action figures to worldwide markets. 4 Company C 359 13.4% A leading listed entertainment company based in Japan with approximately 18 proprietary IPs significant present in toy development, production and sales. and one licensed IP It has many popular IPs from cartoons and video games. 5 Company D 338 -12.6% A listed multinational toy and board game company based in approximately 90 proprietary IPs the United States. It has many famous brands of toy and and nine licensed IPs other products based on IPs from movies and comics. Source: Frost & Sullivan Pop Mart is the largest pop toy brand in China in terms of retail value in 2019 with a market share of 8.5%, and has experienced rapid growth with a CAGR of 226.3% from 2017 to 2019, outpacing all other major players. The reasons for the growth rate of Pop Mart outpacing other major players include: (i) the retail value of Pop Mart in 2017 is much lower than that of other major players which have longer operating history and larger scale in 2017, and the retail value of Pop Mart and the other four major players in 2017 amounted to RMB165 million, RMB736 million, RMB381 million, RMB279 million and RMB442 million respectively, according to the Frost & Sullivan Report, (ii) blind boxes are the major product category of Pop Mart, which have a much higher growth rate, which had a CAGR of 143.2% from 2015 to 2019, than other pop toy product types, which had a CAGR of 29.7% during the same periods, due to its interactive purchase experience and increasing popularity, (iii) the fast-growing – 148 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW popularity of the IPs operated by Pop Mart, and (iv) its enhanced brand awareness through hosting pop toy conventions and other pop toy events. During Tmall’s 2019 Singles Day shopping festival, Pop Mart ranked first among flagship stores of toy brands on Tmall in terms of retail value. Among the top players in China’s pop toy industry, Pop Mart is the only one with an integrated platform covering the industry chain, including IP operation, OEM production, consumer access and pop toy culture promotion. Notably, in 2017, 2018 and 2019 and the six months ended June 30, 2020, an increasing portion of Pop Mart’s revenue is generated from sales of products developed based on IPs under its non-exclusive licensed agreements with IP providers. According to the Frost & Sullivan Report, established IP providers may license their famous IPs to various market players on non-exclusive basis to potentially maximize return and mitigate risk. This leads to the situation of relatively low entry barrier for market players to obtain the licensing rights of IPs and design and sell products developed based on the same non-exclusive licensed IPs, resulting in more competition in China’s pop toy retailing market. Entry Barriers of China’s Pop Toy Retailing Market According to the Frost & Sullivan Report, the entry barriers of China’s pop toy retailing market include: • Leading Pop Content Resources. Pop toy companies need to regularly launch new and distinct products to capture ever-evolving consumer demand. Therefore, the ability to capture high-quality pop content, which is often limited, is crucial to success. Leveraging extensive industry connections, established distribution channels and strong IP development and operation capabilities, leading market players are better positioned to secure best-in-class pop content and enjoy stronger bargaining power in the process. • Strong IP Development and Operating Capabilities. A successful pop toy company shall serve as the nexus between content providers and retail consumers. On the one hand, it is able to identify or incubate outstanding artists and high-quality pop content, for which a solid database and fan base would be a prerequisite. On the other hand, it needs to accurately understand and anticipate consumers’ preference, and is capable of tailoring the original IPs coupled with optimal pricing and marketing strategy for commercialization. • Omni-channel Network with Operation Excellence. As sales channels become increasingly fragmented, pop toy companies need to establish omni-channel sales and distribution network at scale and ensure efficient supply chain management, while taking full consideration of product features, consumer needs and coordination with business partners to deliver a consistent, smooth and joyful shopping experience. • Highly Recognized Brand Name. Reputable brand image is critical in attracting consumers and business partners. Establishing a brand name and executing effective promotion require solid track record, consumer insights and marketing investments. – 149 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW Competitive Landscape of Pop Toy Retailing Markets in Japan, Singapore and Korea Japan, Korea and Singapore are the main pop toy retailing markets in Asia other than China. The animation culture in Japan, K-pop culture in Korea and the multi-cultural circumstances in Singapore accelerate the sweeping of the pop toy into these markets, considering popular IPs are mostly animation characters, movie characters or K-pop derivative products. The primary fan group of pop toys are people between the ages of 16 to 40. Pop toys featured unique, limited and fashionable lifestyles are appealing to them. Therefore, according to the Frost & Sullivan Report, there are tremendous growth potentials in the pop toy retailing markets of these countries. Japan The pop toy retailing marketing in Japan is relatively developed, with more than 2,500 players by the end of 2019, according to the Frost & Sullivan Report. According to the Frost & Sullivan Report, the market size of pop toy retailing in Japan in terms of retail value was US$1.5 billion in 2019, and is expected to reach US$3.5 billion in 2024, representing a CAGR of 18.5%. The following charts set forth the major players in the pop toy retailing market in Japan, which are selected based on their market shares in terms of retail value in 2019: Market Company share Background IPs Operated Company C 25.5% A leading listed entertainment company approximately based in Japan with significant 18 proprietary present in toy development, IPs and one production and sales. It has many licensed IP popular IPs from cartoons and video games. Company E 17.3% A toy manufacturer based in Japan and approximately also one of the biggest toy companies 23 proprietary in the world. IPs and four licensed IPs Company A 5.2% A multinational toy production company approximately based in Europe. Its featured toys 28 licensed consist mostly of interlocking plastic IPs bricks. It also operates several amusement parks and numerous retail stores across the world. Source: Frost & Sullivan – 150 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW Korea The pop toy retailing marketing in Korea is relatively developed, with more than 3,500 players by the end of 2019, according to the Frost & Sullivan Report. According to the Frost & Sullivan Report, the market size of pop toy retailing in Korea in terms of retail value was US$0.5 billion in 2019, and is expected to reach US$1.3 billion in 2024, representing a CAGR of 21.1%. The following charts set forth the major players in the pop toy retailing market in Korea, which are selected based on their market shares in terms of retail value in 2019: Market Company share Background IPs Operated Company F 8.9% The first toy company in Korea to approximately develop its own native toys and 19 proprietary animation. IPs and three licensed IPs Company A 7.6% A multinational toy production company approximately based in Europe. Its featured toys 28 licensed consist mostly of interlocking plastic IPs bricks. It also operates several amusement parks and numerous retail stores across the world. Company D 4.4% A listed multinational toy and board approximately game company based in the United 90 proprietary States. It has many famous brands of IPs and nine toy and other products based on IPs licensed IPs from movies and comics. Source: Frost & Sullivan – 151 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW Singapore The pop toy retailing marketing in Singapore is relatively developed, with more than 3,800 players by the end of 2019, according to the Frost & Sullivan Report. According to the Frost & Sullivan Report, the market size of pop toy retailing in Singapore in terms of retail value was US$0.07 billion in 2019, and is expected to reach US$0.17 billion in 2024, representing a CAGR of 19.4%. The following charts set forth the major players in the pop toy retailing market in Singapore, which are selected based on their market shares in terms of retail value in 2019: Market Company share Background IPs Operated Company A 20.4% A multinational toy production company approximately based in Europe. Its featured toys 28 licensed consist mostly of interlocking plastic IPs bricks. It also operates several amusement parks and numerous retail stores across the world. Company D 11.4% A listed multinational toy and board approximately game company based in the United 90 proprietary States. It has many famous brands of IPs and nine toy and other products based on IPs licensed IPs from movies and comics. Company G 4.1% A leading global toy manufacturing approximately company headquartered in California, 218 famous for its series dolls. proprietary IPs and 16 licensed IPs Source: Frost & Sullivan MONETIZATION OPPORTUNITIES OF POP TOY IP Pop toy retailing currently is the primary way of monetization for pop toy IPs. As leading pop toy IPs gain significant popularity among fans, licensing and adaptation provides additional monetization opportunities to extend the value of pop toy IPs into a wide range of fields, such as licensed merchandise (other than toys), advertisements, video games, movies, comic books, etc. Successful IPs have significant commercial value extended well beyond their original formats. The market value of the top three IPs globally, as measured by cumulative business value, was US$95.0 billion, US$86.0 billion and US$76.0 billion, respectively, in 2019, according to the Frost & Sullivan Report. These IPs were originated from cartoons or video games and were initially launched in 1996, 1974 and 1924, respectively. – 152 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW IP Licensing IP licensing primarily consists of two categories, merchandise licensing and space licensing. Merchandise licensing refers to the arrangements where IP owners allow licensees to develop and sell branded products based on popular IPs, usually for a specific period of time. Space licensing refers to using IP and related concepts to conduct themed events or space decoration, such as conventions, exhibitions, themed stores and theme parks, with the purpose of providing immersive experiences as well as to sell IP-related products. According to the Frost & Sullivan Report, IP licensing industry has huge growth opportunities in China. Driven by a continuous growing demands, the market size of China’s IP licensing industry is expected to reach RMB156.1 billion by 2024, representing a CAGR of 13.1% from 2019. The following chart illustrates the historical and expected market size of China’s IP licensing market as measured by retail value: Market Size of IP licensing industry, by Retail Value (China), 2015-2024E RMB Billion 2015-2019 2019-2024E 14.9% 13.1% 156.1 135.7 115.7 96.4 84.4 73.2 77.3 65.6 48.5 55.5 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Source: Frost & Sullivan, research reports published by AECOM and Mintel Group IP Adaptation into Entertainment Content Pop toy IP operators may authorize other companies to adapt their IPs to be commercially used in digital games, films, drama series and television shows, and animations. In terms of revenue, the IP-adapted entertainment market in China has increased by a CAGR of 21.8% from 2015 to 2019, reaching RMB308.0 billion in 2019, and is expected to reach RMB586.7 billion by 2024, representing a CAGR of 13.8% – 153 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW from 2019. The following chart illustrates the historical and expected market size of China’s IP-adapted entertainment market as measured by revenue: IP-adapted Entertainment Market Size by Revenue (China), 2015-2024E RMB Billion 2015- 2019- Digital Game 586.7 CAGR 2019 2024E Film 524.3 Drama Series & TV Show Digital 19.1% 11.2% Animation 463.4 Game 256.1 403.9 233.8 Film 22.6% 16.1% 330.4 211.4 308.0 190.4 Drama 263.9 90.0 Series & 25.0% 17.2% 226.1 183.4 79.1 TV Show 150.5 68.6 178.5 131.6 56.0 140.0 117.6 162.8 Animation 26.6% 13.5% 94.5 42.7 12.6 141.4 74.9 35.7 102.9 121.1 30.1 86.8 21.7 61.6 73.5 18.9 50.4 Total 21.8% 13.8% 30.1 40.6 62.3 70.0 77.8 28.0 35.0 41.3 47.6 54.6 16.1 21.7 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Source: Frost & Sullivan, China Audio-video and Digital Publishing Association SURVEY In December 2019, we commissioned Frost & Sullivan to conduct street interceptions and digital questionnaire and face to face interviews with 1,200 randomly selected participants in the PRC to better understand the product preferences and pop toy market from a consumer’s perspective. Set forth below are the details of the survey conducted by Frost & Sullivan. 1 • Consumer base. More than 95% of pop toy consumers are between the ages of 15 and 40, 63% of whom hold bachelor degrees or above. 1 The survey contains a total of 33 questions. Questions directly relate to each survey result are set out as follows: • Consumer base. What is your age, highest educational background? • Purchasing power. (i) How much do you spend on pop toys each year? (ii) What is your frequency of buying pop toys every year for the past three years? • Fan community. (i) Have you ever joined an pop toy community? (ii) What features attract you to join a pop toy community? • Factors influencing buying decision. What are the major factors you consider when purchasing pop toys? • Retail channels. Where do you usually purchase pop toys? • Blind box. How many times would you repeatedly purchase a series of “blind box” toys for a specific toy design? • Brand recognition and store popularity. (i) Which pop toy store brand have you heard of? (ii) Which pop toys store brand did you shop most frequently? • Product popularity. What pop toys have you bought? – 154 –
THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW • Purchasing power. Over 45% of pop toy consumers spend over RMB500 on pop toys per year, 19.8% of whom purchased pop toys more than five times in 2019. • Fan community. Almost half of the pop toy consumers are members of pop toy communities. Members events and promotional activities are the main reasons for the members to join the community. • Factors influencing buying decision. Creative design is the most important factor the consumers consider when purchasing pop toys. • Retail channels. E-commerce, offline stores and vending machines are the top three channels for purchasing pop toys. • Blind box. Around 70% of pop toy consumers would purchase blind box toys three times or more for a specific toy design they want. • Brand recognition and store popularity. Pop Mart is one of the most well-known pop toy brands and one of the most popular pop toy stores among pop toy consumers in China. • Product popularity. Molly is one of the most popular products among wide range of pop toy IPs on the market. In the Survey, questions are designed to effectively filter in participants who have (i) bought or plan to buy pop toys in the near future, or (ii) have heard of pop toys, which are believed to be representative customers of pop toys, according to the Frost & Sullivan Report. The Survey is conducted through multiple channels including street interviews and online questionnaire with randomly selected participants to ensure a fair and wide coverage. Such progress is closely monitored to ensure the collection of sufficient effective samples. All of the 1,200 participants are effective samples, which are sufficient for the purpose to better understand the product preferences and pop toy market from a consumer’s perspective, and are comparable with similar surveys in other retail industries, according to the Frost & Sullivan Report. DIRECTORS’ CONFIRMATION As of the Latest Practicable Date, after taking reasonable care, our Directors confirm that to the best of their knowledge, there was no adverse change in the market information since the respective dates of the various data contained herein, which may qualify, contradict or have an impact on the information in this section. – 155 –
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