Investment Rating - The report maintains an "Accumulate" rating for the media industry [1] Core Insights - The overseas short drama market is experiencing explosive growth, with in-app revenue expected to rise from less than $100 million in 2023 to $1.5 billion in 2024, and projected to reach $3.8 billion in 2025 [3][11] - Short dramas are not merely substitutes for long videos but represent a new content form that leverages internet algorithms and impulse payment logic, creating a unique content ecosystem [3][19] - The competitive landscape for overseas short dramas is more favorable than in the domestic market, with Chinese companies leading the charge [4][6] Summary by Sections 1. Market Size - The overseas short drama market is projected to exceed $24.2 billion in long-term potential, surpassing overseas movie box office revenues [11][12] - The market is expected to grow significantly, with quarterly growth rates of 20% anticipated for 2025 [12] 2. Demand Side Growth - Demand growth is driven by user expansion, market penetration, and the promotion of the IAA (In-App Advertising) model [30] - Platforms are exploring male-oriented content to tap into a previously underdeveloped market segment [31] 3. Supply Side Challenges - There is a significant imbalance between the vast market demand and the scarcity of effective production capacity [3][6] - The industry is addressing these challenges by recruiting talent from Hollywood and exploring cost-effective production models [3][6] 4. Competitive Landscape - The overseas short drama market is characterized by a more open and market-driven environment compared to the domestic market [4] - Key players include ReelShort and DramaBox, each adopting different strategies to capture market share [4] 5. Profitability Outlook - The business model is shifting from "burning money for growth" to achieving stable profit margins, with long-term net profit margins expected to stabilize between 15% and 20% [6][11] - The cost structure is dominated by user acquisition costs, which currently account for about 50% of revenue [6] 6. Investment Recommendations - The report recommends focusing on leading companies in the industry, such as Chinese Online, Kunlun Wanwei, and Red Child City Technology, which are well-positioned to capitalize on the growth of overseas short dramas [6][11]

Core Viewpoint - The paid mini-program short drama model is experiencing a rapid decline, with major platforms like Kuaishou shutting down related services, indicating a shift in the industry towards different business models [2][5]. Summary by Sections Paid Mini-Program Short Dramas - Kuaishou will shut down its short drama mini-program on June 17, 2024, confirming the information from industry insiders [2]. - The paid mini-program short drama, known as IAP (In-App Purchase), was a mainstream model in the early stages of short drama development, allowing users to watch dramas without downloading apps [2]. - This model involved significant investment in advertising to attract viewers, but it also led to regulatory issues due to the potential for unregulated content [2]. Shift in Business Models - Since 2024, the short drama market has seen a significant shift from the IAP model to the IAA (In-App Advertising) model, which allows users to watch dramas for free while generating revenue through advertisements [3]. - According to a report by the China Internet Audio-Visual Association, the market share of the IAA model rose from 11% in January 2024 to 50% by October 2024, surpassing the IAP model [3]. - ByteDance's Hongguo short drama, launched in April 2023, has become a major player in the IAA model, achieving 173 million monthly active users by March 2024, a 220.28% year-on-year increase [3]. Kuaishou's Strategic Shift - Kuaishou, initially successful with the IAP model, is now adjusting its strategy by moving away from mini-programs to focus on native accounts on platforms like Douyin and Kuaishou [4]. - Native accounts allow users to watch short dramas directly without redirection, facilitating better fan engagement and private domain operations [4]. Regulatory Environment - The short drama industry is entering a "strict regulation" era, with new policies from the National Radio and Television Administration aimed at promoting healthy development [6]. - Recent actions by Kuaishou include removing over 100 illegal short dramas and reporting serious violations to a blacklist, indicating a commitment to stricter content oversight [6].