While short videos are what drive ByteDance’s revenues and give the Chinese startup international recognition, the firm is expanding into numerous new areas like other tech giants to fuel growth. It’s dabbled in enterprise software and online learning, and the news came this week that ByteDance will invest in one of China’s largest e-book readers and publishers, Zhangyue.
Zhangyue announced Wednesday evening that a ByteDance wholly-owned subsidiary plans to acquire about 11% of its shares for 1.1 billion yuan, or $170 million. The China-listed online literature company, with a current market cap of 12 billion yuan, operates an app where 170 million users read novels, magazines and anime and listen to audiobooks every month during H1.
For comparison, its immediate rival China Literature, a Tencent spinoff, claimed 217 million monthly users in the same duration.
The partners are targeting a booming online reading market driven by China’s smartphone penetration. In 2019, users spent nearly an hour a day on their e-reading apps, according to market insight provider iResearch. The sector is projected to generate 20.6 billion yuan in revenue, which includes subscription and licensing fees, by 2020; that’s up from 6.6 billion yuan in 2015. Meanwhile, e-book users in the country will reach 510 million this year, the researcher said.
The deal will form a close alliance between Zhangyue and China’s leading digital entertainment titan. Under the agreement, ByteDance gets to assign one board member to Zhangyue and will be able to license the publisher’s intellectual property.
In return, Zhangyue will get ByteDance support in areas like ad buying, monetization and other technologies. The success of Douyin, TikTok and newsreader Toutiao, which collectively claim users in the hundreds of millions, have turned ByteDance into a new darling for brands and advertisers.
In all, the collaboration will incur 470 million yuan worth of transactions between the partners in the following year, up from 270 million yuan a year before the equity acquisition.