Fading Producer of China's 'The Voice' Files for Hong Kong IPO

Key Takeaways: 

• Variety show producer Star CM has filed for a Hong Kong IPO, seeking funds to revive its fading fortunes
• Revenue from the company’s flagship “Sing! China” dropped from 1.14 billion yuan during its heyday in 2015 to just 252 million yuan last year.

By Ken Lo

The company behind “Sing! China,” the hugely popular Chinese rendition of the U.S. reality show “The Voice,” is taking its act to Hong Kong. But this time, Star CM Holdings Ltd. is hoping to score a hit with investors rather than music fans with its plan for an IPO.

This time around Star CM is hoping for less controversy than the business dispute that ultimately touched off the long-term decline of its signature show. But it could have difficulty in that regard due to its own fading fortunes.

“Sing! China” became a huge success shortly after its launch in 2012, originally as “The Voice of China,” earning celebrity status for its creator, Canxing Productions. The show changed its name and format after a high-profile dispute with the Dutch owner of the show format. But that’s another story that Star CM Holdings, whose roots come from a collaboration between Canxing’s chief and top-tier media investor CMC Capital, hopes won’t be repeated with the latest IPO plan.

Star CM made its first filing for a Hong Kong IPO last November, but resubmitted  its prospectus a week ago after the original application lapsed. The latest document reveals a company rapidly fading in tandem with the decline of “Sing! China.” The over-the-hill company appears to hope its former glory can help it find its own voice once again in the crowded world of Chinese production houses.

According to the prospectus, 61.68% of Star CM’s shares are owned by Shanghai Xingtou Investment, which is controlled by CMC Capital and major shareholders like Star CM’s Chairman Tian Ming. Tian holds another 20.68% of the company’s shares through his fully owned investment vehicle Harvest Sky.

Top of its game

Star CM’s predecessor, Canxing Culture & Media, was once valued as high as 20.8 billion yuan ($3.1 billion) as recently as 2018 during an equity transfer. But that luster quickly faded as “Sing! China” stumbled and the company’s new shows failed to take off. Star CM has inherited that troubled legacy, and is currently struggling in a vicious cycle of insufficient funds, which in turn make it hard to deliver up new hits that can bring in new funding. It hopes the IPO plan can jumpstart that process.

The company filed to list on China’s A-share market as early as 2018. But that plan didn’t take off, leading to its current pivot to Hong Kong. Observers speculate the move is being partly driven by both a cash crunch and eagerness by the company’s current investors to cash out. Whatever the reason, the latest listing plan indeed feels a bit rushed with limited potential for excitement.

Show business can be immensely lucrative if all the stars align. To maximize their chances of success, variety-show producers need to constantly churn out new shows, creating proprietary intellectual property (IP) and stabilizing their revenue by ensuring new shows are always in the pipeline to replace aging ones. That means companies without such proven pipelines could find it difficult to attract investors willing to bet on their future.

Star CM could certainly fall into the category of oscillating stars that lack such stability. The company’s revenue declined from 1.81 billion yuan in 2019 to 1.56 billion yuan in 2020, according to its prospectus. It fell into the red in 2020 with a net loss of 27.8 million yuan. The situation worsened last year when its revenue fell a further 27.6% to 1.13 billion yuan and its net loss ballooned to 352 million yuan. All that seems to portray a company whose business is flagging – hardly the type that can win over investors.

Star CM specializes in developing and operating variety shows. It also licenses its shows to others, which has been an important revenue source since 2012. Last year such activities raked in 880 million yuan and 116 million yuan in gross profits, a major decline from 1.09 billion yuan and 203 million yuan, respectively, in 2020. Still, that business is quite important, accounting for as much as 78% of total revenue.

Dying star

“Sing! China” has always been the company’s claim to fame, generating an eye-popping 1.14 billion yuan in revenue in 2015. But its contributions have fallen since then, especially after the dispute with the show’s original Dutch creator. Despite still being its biggest cash cow, the show’s revenue contribution fell from 490 million yuan in 2019 to just 250 million yuan last year. The show’s gross profit fell over that time from 230 million yuan to just 5.6 million yuan in 2021.

The company’s artist agency business, Mengxiang Qiangyin Culture, has also been a disappointment. Established at the end of 2012 to cash in on the success of “Sing, China” – then still known as “Voice of China” – the predecessor of Star CM bought out the venture for a total of 2.08 billion yuan in March 2016, generating 1.97 billion worth of goodwill in the process.

That part of the business now has more than 150 artists under contract. It is listed in Star CM’s prospectus in the “other IP-related business” category, which earned just 42.5 million yuan last year, down by 62% from two years ago. As that business has floundered, Star CM had to write down 387 million yuan and 381 million yuan in asset depreciation over the last two years.

Star CM would become one of only a handful of publicly traded variety-show producers if it makes it to market. Yuehua Entertainment and Star Plus Legend have also filed for Hong Kong IPOs recently, though neither has made it to market yet. That said, a price-to-sales (P/S) comparison with China Literature (772.HK) and Tencent Music Entertainment TME might be the best yardstick for estimating Star CM’s potential value. That pair have an average P/S of 2.4 times, which would give Star CM a valuation of HK$3.14 billion ($400 million) based on its revenue last year – 80% less than its worth in 2018. Then again, this clearly isn’t any rising star.