Good evening, ladies and gentlemen. Welcome to China Literature's 2021 Interim Results Conference Call. A copy of the interim results announcement can be found and downloaded from its Investor Relations website, httpcolon/ir.uwin.com. At this time, all participants have been placed on listen only mode and the floor will be open for questions following today's presentation. I would now like to hand the conference over to your host today, Ms.
Maggie Zhou, Head of Capital Markets and Investor Relations at China Literature. Maggie, please go ahead.
Thank you, operator. Ladies and gentlemen, welcome to our 2021 interim results conference call. Joining us today on the call are Mr. Edward Chen, our CEO Mr. Monkey Hou, our President and Mr.
William Sun, our VP of Finance. For today's call, Edward will discuss the company's strategies, Monkey will review the company's business and William will go through the financials. We will then open the call for questions. Before we begin, I would also like to remind you that management's comments during the call will include forward looking statements that are based on our current expectations. All statements other than statements of historical facts during the conference call are forward looking statements, which are subject to a number of risks and uncertainties and may not be realized in the future for various reasons.
Information about the general market conditions is coming from a variety of sources outside of the company. This presentation also contains some unaudited non IFRS financial measures that should be considered in addition to, but not to substitute for measures of the company's financial performance prepared in accordance with IFRS. So please do take a minute to read the risk factors and non IFRS measures deduction in China Litigation's 2021 internal results earnings release. I'll now turn the call over to our Chief Executive Officer, Edward.
Ladies and gentlemen, thank you for joining our earnings call today. I'm pleased to share with you what we have learned in the past 6 months and more importantly, what we plan to do operationally and strategically to build the next phase of China literature. 6 months ago, during our 2020 annual results conference call, we focused our discussion on 2 topics. The first topic was how to tackle operational challenges at that time. And the answer was to focus relentlessly on 3 key areas: content, platform and ecosystem.
We believed that the overall enhancement of these 3 areas would deepen our leadership today. And the second topic was to ask ourselves, what was the value driver of future growth? The answer was IT development. With a growing universe of IT franchises that could deliver long lasting value over time and shape what China literature would become tomorrow. Based on this belief, we instituted a reorganization to support actions and decisions with real long term aims.
Another way of putting this was that we should look at our businesses through 2 lenses. One lens would focus on precise and efficient execution as a response to day to day challenges. The other would bring out the critical value of storytelling by looking deeply into the history and the future of an ever evolving social and cultural dynamics, with storytelling as a link between the deep values and physical connections from one generation to the next. This dual approach to value creation has guided us since the second half of last year, And we believe we are on the right track. Now, we are experiencing the payoff of unique strategic framework.
During the first half of twenty twenty one, our total revenues increased 33 percent to RMB4.3 billion year over year. Revenues from the segment of IP operations and others increased by 125 percent to RMB1.8 billion, accounting for 42 percent of total revenues. Our non IFRS net profit was RMB665 1,000,000, an increase of 30 times over RMB21.7 million in the corresponding period of last year. Together with this encouraging result, we found out our content and platform leadership continued to grow. As discussed, literary content and platforms are both critical importance.
Metrics in these two areas measure our ability to produce high quality reading content and to generate our user reach and engagement. Now let me share with you some details. During the first half of twenty twenty one, both the number and the quality of providers and the labor works continue to increase. As of June 30, 2021, China Literature had more than 9,400,000 writers on the platform, with a total of 14,500,000 labor works. Over 18,000,000 Chinese characters were added to our platform during the first half of this year.
According to the search engine, Baidu's search rankings, in June 2021, 17 out of the top 20 online labor works originated from our platform. The market share of our high quality works is higher than our market share in terms of the number of users, which reflects the excellent ability of our platform to incubate primary prime library works. The monthly active users, MAU, of our online business amounted to 233,000,000, dollars an increase of 3.7% from the previous 6 months and approximately the same year over year. The user traffic on our platform peaked during COVID-nineteen pandemic outbreak in early last year and experienced some pullback in the second half of twenty twenty, which was quite normal as overall online user traffic dropped. However, during the first half of twenty twenty one, our MAU reached the momentum and approached the peak level of last year.
It benefited from emerging top notch content, enhanced community operations, increasing efficiency of our recommendation system and the growing popularity of our free to read business. In June 2021, daily active user DAU of our free to read business reached 30,000,000, dollars an increase of 30% compared to December 2020. During the first half of this year, China Literature and Tencent set up a joint project team to promote the free through read business and to facilitate cooperating within the Tencent ecosystem in a more efficient manner. Our free content creation platform also continue to produce high quality free novels and attract more and more writers. Leadership in both content and platform ensures that we can generate quality literary IPs continuously and our mechanics.
The next big question is, given the numerous high quality IPs we already own and will create in the future, how to build an ecosystem to increase the value of these IPs during their lifetimes? Specifically, when converting a literary IP into other media formats, the content needs to be reimagined. The new recreated content has to be disputed over different channels. And the money penetration model has to be redesigned to unleash the full power of the IP. Using analogy, we would call this process a metamorphosis of the original IP.
Statewide of the metamorphosis comes through the conversation of labor IP into media rich products, such as comics, animation, movies, TV dramas and games. The combination of the sound and the visual effects and the potentially digital interactions essentially expand the user base and really far the user experience for the SIM IP. Based on a common storyline, creative artists from each media segment can add their own touch to create unique audience connections and increase the impact of the original IP. From 2020 onwards, China Literature has been actively working with external teams, while also building its own capabilities in content conversion and has made significant progress. And just to give some examples, in the comic segment, China Literature Comic and Animation Department and Tencent Comics jointly announced a 3 year project to adapt at least 300 works of online fictions into comics.
Currently, more than 70 of our later works has already been adapted into comics and released on Tencent Comics platform. In addition, we will collaborate with Kuaikan Comics, another leading online comics platform to adapt 30 online label works into comics. In the animation segment, we continue to produce and launch animated series adapted from our IP. Among them, a semi annual animation work adapted from our popular title, Battle Through the Heavens, generated over 1,900,000,000 video views and again 7.8 points on Douban platform. We currently have more than 50 animation projects in part, including animated series adapted from top tier artists such as Daft Punk Guardian, 40 Millennium of Cultivation, The First Order and the World's Best Martial Artist.
In the film and TV drama segment, which draws everyone's attention, the drama series Mahe Roi's husband, actually Zhi Xu, jointly produced by New Classic Media Center Pictures and China Literature Pictures was one of the year's blockbusters. It ranked the number 1 on many TV series ranking charts and won praise from respected critics. Another drama series, Sou Lan, Sou Lo Dalu, topped instant video's how to reach list and TV series list during its broadcast period, enjoying very wild market popularity. The Rebel from Xin Li ranked number 1 on the playlist of the Enlightened TV series, number 1 on Google's hot list for TV series and was most watched program on primetime of CCTV8 for 20 consecutive days. The drama series was also widely acclaimed by viewers and gained 8.3 points on Douban platform.
As for films, New Glasgow Media participates in the production of the hot movie, Hai Ba, with box office sales of over RMB5 1,000,000,000, the 2nd highest ranking box office sales ever in the history of China Film Industry. Looking forward, China Literature, New Classic Media and Entertainment Pictures will continue to work together closely and focus on the CW development of premium IP franchises, including Joy of Life, Qing Yun Yang, Ma Hiyori, Husband, Zui Xu and Da Peng Guardian, Da Peng Da Gong Ren, as well as launching high quality contemporary themed TV series like A Lifelong Journey, Jun Shijin. We will also store opportunities through new areas such as online movies and short dramas. In the teen segments, lot of the mysterious, we meet a record of Marshall's journey to immortality, by Ren Xue Xianhua, my heroic husband and other high quality artist have been licensed already to the industry leading game developers and the games adapted from these RPs will be launched sequentially sometime in the coming several years. The second stage of IP metamorphosis is to evaluate the commercial value of IP.
We hope our premium IP will work out connected screens and digital devices into every consumer's everyday life in various types of products and services. Currently, the influence of Chinese IP is still at an early stage, while the global IP licensing and merchandising industry is still leading is still all led by entertainment giants from the U. S. And from Japan. The top ranking Chinese active licensor in the global market is number 39 according to our top.
We believe in the long term mortality and the weak commercial products of Chinese IP. At the beginning of this year, China Literature established an IP power center to promote the visual characters created based on our premium IP content, starting with those that have already established a wide user base. We will build symbiotic relationship with our upstream and downstream partners to explore new opportunities such as arcade licensing in consumer products, fashion toys and offline business. We hope China Lake Future will become one of the top IP licenses globally in the future. The 3rd stage of IP metamorphosis is where IP and the characters from the IP not only connected to, but become an integrated part of the live experience of consumers.
At this stage, IP is ever useful and can be passed down from 1 generation to the next. And this is our target. We hope to create an IP that can go together with audience bearing a unique time stamp from its date of creation, but evolving over time. For example, the hands of marketing in the 50s was in China, while the marketing in the 80s was 7 show. Each character is distinct, but both are classic.
We hope that the relationship between China literature's IP and consumers is interactive, intimate, enduring and eventually inseparable, hence invaluable. A 2 stage of metamorphosis, the composition of IP into media rich formats and the increased monetization value of IP supported the stage 3 that is IP immortality. Our leadership in content and platform and our understanding of the magical faith potential of IP, forms a solid foundation for our mission. Which is to create good stories that will live a long time, maybe forever. The ultimate goal of the China Leadership IP ecosystem is to create compelling and inspirational stories.
The success of these goals relies on China Literature's online platform to discover and distribute premium literary IP. It also relies on our open and inclusive ecosystem within which creative talent and business partners collaborate seamlessly to promote IP, metamorphosis and unleash the full power and the commercial value of the best IP. To get there, in the near term, we will focus on 3 things. First, we will make the China literature an infrastructure of talents and the core talents. We will identify and nurture creative talents for the entire IT ecosystem from writers, animators to directors and playmakers.
Secondly, we will tell stories visually and create convincing characters out of our premium IP. The successful experience of China literature in animation, films and television have proven that the media rich format can amplify monetization of the IP. We will build up our in house production capabilities. We will also, at the same time, cooperate more openly with leading industry partners to enhance the impact of our IPs. Thirdly, look at IP development as a long term project.
For each premium IP, we should tailor made a development plan and pick up the most appropriate partners to work with over time. We will continue to upgrade and strengthen our organizational capability and enhance the long term operational potential of our IP through various mechanisms such as mid platform construction, external partner, joint decision making and a group led committees. China's future vision is to become a world leading platform for cultural creativity. Down the road, we will build unparalleled collection of art different franchises and characters that will unite the users across their daily lives. We will assemble a strong army of creative talent that delivers not only various formats of entertainment products and services, but also bring the IT and its characters to life.
Talent Literature from day 1 has been an organization built by creative talent. We will continue to maintain our support for the talent to bring out their maximum potential. Their ideas combined with our business network will be brought to consumers in the form of creative products that no one has ever seen before. In sum, we believe the success of our IPs and our creative talents will eventually make China Literature a top culture and an interesting group globally. That concludes my session.
Now, I would like to invite Monkey to continue our business presentation. Thank you.
Thanks, Edward. Edward has discussed our strategy and provided some key business updates. Let me add more details about our business development. First, let's look at our online business. In the first half of twenty twenty one, total MAU of online reading business was relatively stable year over year at 232,700,000.
Average DAU for our free reading content was up 30% from last December to 13,000,000 in June 2021. As we continued to expand our free reading business and attracted more users to free content, Average MTU for our paid reading content decreased 12% year over year to 9,300,000. However, our monthly ARPU increased 7% year over year to RMB36.4 as we further improved our content operations, enriched community features and improved recommendation system for paid reading products. And our paying users showed greater interest to pay for high quality content. While strengthening our reading community and user engagement, we also improved the content and the quality of work on our platform.
We will continue to expand our online reading business through both paid and free business models. Turning to the IP operation business. During the first half of this year, we licensed around 190 IPY for adaptation to partners. Besides our top ranking film and drama series, as Edward just mentioned, we released a number of adapted animated series, including new seasons of full time master, and the battle through the tavern, We received positive feedback from large audience. This concludes my session.
Now I will hand over to William for the financial performance. Thank you.
Thanks, Manzi. Hello, everyone. The first half of 2021 saw a strong reduction of top line and bottom line growth compared to the same period in 2020. Our total revenues increased by 33.2% year over year to RMB4.3 billion. Our online business revenues were RMB2.5 billion, up 3.4% year over year, accounting for 58.5 percent of total revenues.
The revenue growth was attributed to an increase in advertising revenues as we expanded our free to read business. Additionally, we experienced an increase in revenues from third party platforms as certain existing platform partners performed well and new distribution channels were added. These increases were partially offset by a decrease of 5.5% in revenues from our cell phone products. Since the first half revenue, revenue base was higher last year due to a rise in online traffic during the COVID-nineteen pandemic period. Turning to the IT operations and other business.
In the first half of twenty twenty one, our IT operations and other revenues increased 124.5 percent year over year to RMB1.8 billion, primarily due to the growth in revenues generated from our TV and web series, film, IP licensing and self operated online game business during the first half of twenty twenty one. Now let's look at cost and expenses. In the first half of twenty twenty one, our total cost of goods sold amounted to RMB2.1 billion, an increase of 34.4% year over year. The main three components of the increases were: 1, higher content cost as we expanded our IP Licensing and the free to read business 2, higher production cost for TV series, web series and films that went along with revenue increase and 3, higher amortization of intangible assets of content copyright. In the first half of twenty twenty one, our gross profit increased by 32.2% year over year to RMB2.3 billion, representing a gross margin of 52.7 percent compared to 53.1% in the first half of twenty twenty.
We recorded net other gain of RMB901 1,000,000 for the first half of twenty twenty one compared with net other losses of RMB3.5 billion in the first half of twenty twenty. The net other gain for the first half of twenty twenty one consists of: 1, a gain of RMB1.1 billion related to the sale of our equity interest in Lazy Audio 2, gains of RMB134 1,000,000 on disposal of certain intangible assets and 3, fair value gain of RMB55 1,000,000 resulting from increased valuation of BMSP Companies. These gains were partially offset by a fair value loss of RMB383.2 million due to a change in fair value of consideration liabilities related to the acquisition of NIO Classics Media. In terms of operating expenses, our selling and marketing expenses were RMB1.3 billion in the first half of twenty twenty one, up 6.1% year over year, driven by greater promotion and advertising expenses for our films and drama period during the first half of twenty twenty one. Selling and marketing expenses as a percentage of revenues decreased to 31% in the first half of twenty twenty one from 39% in the first half of twenty twenty.
Our G and A expenses increased 81.1% year over year to RMB635 1,000,000 in the first half of 2021, primarily due to a reversal of compensation costs of RMB170 1,000,000 related to the service expense of certain employees and former owners of new classics media in the prior period of last year and increases in expenses for employee benefit with search and development and office, travel and entertainment. As a percentage of revenues, our G and A expenses were 14.6% in the first half of twenty twenty one, up from 10.8% in the first half of twenty twenty. As a result of the factors mentioned above, our operating profit was RMB1.3 billion compared to an operating loss of RMB3.6 billion in the first half of twenty twenty. NFFR's operating profit, which excludes share based compensation, M and A related impacts such as net gains from invested companies and amortization of intangible assets was RMB641 1,000,000 with a non IFRS operating margin of 14.8%. Our net profit was RMB1.1 billion and our non IFRS net profit attributed as equitable to equity holders of the company was RMB665 1,000,000 with a non IFRS net merger of 15.3%.
In conclusion, our business yielded strong performance in the first half of twenty twenty one, benefiting from effective execution and our growth strategy. That concludes the financial related part. Let's move to our Q and A session.
This Q and A session is not intended for the media. Media representatives will be able to participate in listen only mode. For the benefit of all participants on today's call, Your first question comes from the line of Thomas Chong of Jefferies. Please ask your question.
Thanks management for taking my questions and congratulations on a very strong set of results. I have three questions. The first question is about our free reading initiative. Given that we have seen a 30% growth in terms of the DAU to 13,000,000 in the first half, can management comment about the future user growth driver as well as the advertising potential? And my second question is about NCM.
Given the strong performance in the first half, how should we think about the second half outlook as well as 2022 drivers in terms of revenue and profitability? And then my final question is about our online reading business. Can management comment about the user growth trend, revenue and profitability drivers in second half and twenty twenty two? Thank you.
Okay. So thank you for the question. And I will take your questions as to the free reading business and the growth driver. And as to the question, so first of all, as you can see, the DAU for our free reading business in June this year reached RMB30 1,000,000. So currently our focus of free reading business is on user coverage expansion and we expect to see a continuous user growth.
On one hand, we have established a joint project team to promote the free to read business and to facilitate channel of cooperation within the Tencent ecosystem in a more efficient manner. On the other hand, our free content creation platform also continues to produce high quality free novels attractive to users. I think you might also be very interested in our monetization level. At this moment, the app load is relatively limited and monetization is still restrained. Our current restrained.
Our current business focus is on user base expansion, user retention in complement and high quality free content incubation and selection, which are very important foundation to monetization. So in the future, when we think of the user coverage, user stickiness and content delivery as mature, we will gradually increase the ad load and increase the monetization level and at the same time balance it with user experience. So as to your question about the growth engine in the future, I will discuss in 2 parts. First of all, in terms of the reading business, the focus of our online reading business is on cultivating good writers and quality content to set a solid foundation in users and content in IT operations. This is also our core competitive advantage.
As to the page read business, we will continue to conduct in-depth operations in content innovation, genre diversification and incubation of generation theme writers. We will further enhance community operations by launching more community features to strengthen the interactive elements in our community, increase user engagement and stickiness. In addition, we'll improve user satisfaction through the continuous improvement in our recommendation engine. While solidifying our paid reading business, we will actively explore opportunities in free reading business as well. As free reading model could bring us more users, which we believe is also very important.
So this free to read business is also a potential for our business. As to the free to read business, our current focus is still on user base expansion, user retention enhancement and high quality content utilization. So next, let me talk about our IT business outlook. So our strategy is to openly collaborate with business partners across the entertainment industry to build up an embodied ecosystem. Our online literature business will be the cornerstone that provides a large library of prime IT and our key development business will be the growth accelerator.
We believe that in the long run, IT business will contribute new revenue growth and account for a deeper portion in our total revenues with quicker growth rate than the online business. In the short term, drama series, films and IP licensing will be the major revenue contributors and anime is strategically important for its ability to quickly visualize in literary IP for market validation in spite of relatively small revenue size. In the mid to long term, we expect the game revenue to increase and bring us more room for growth. From an even longer term perspective, we also expect the IT merchandises and offline consumption to contribute to larger revenues. Okay.
Let me introduce the growth driver for NCM in the second half of this year and into the next year. So we expect a total of 4 to 5 drama series to be released in the second half of this year, including the Dummy Gop and semi dadong Tianlong Babu, which is now being well broadcasted on CCTV8 and Tencent Video. Apart from that, we expect other projects to be released, including We expect to release a total of approximately 6 to 8 drama series in 2022, including A Lifelong Journey and Xu Jian, a apprentice lawyer, The Wind Blows from The Wind Blows from Longxi, War of Rose, May Bridge, Battle of Good Heaven, Season 2. Don't go to the infiltrator, Tianfu Zhe. So in addition, we will also have 1 to 2 movies in 2022 pipeline.
The revenue and the profit growth comes from NCN's abundant and high quality pipeline. NCN will persistently execute on the strategy of producing high quality, diversified and serialized content and ensure product quality while pursuing better financial performance. The profit target set in the earn out mechanism revised last year could be a reference to its profitability in the next few years. Thank you.
Thank you.
Your next question comes from the line of Shook Jing Jang of CICC. Please ask your
You just mentioned the 3 stage of IP metamothesis and the second stage is related to IP licensing in consumer products, fashion toys and offline business. And considering we have live action role playing game platform, could you please give us more color on details? Thank you. Okay. So the foundation of channel literature's business is our online reading platform, which can continuously increase a high quality story.
And among these stories, the top tier content can be called IT. And as prepared in my remarks, we have 3 stages of the metamorphosis of the IP, which is actually a process of the continuous appreciation of the IP value other than just monetization. So when we talk about the 1st stage of IP metamorphosis, we talk about the conversion of the literature IP into a variety of entertainment formats, including comics, animation, drama series, films and games. And this will convert the literature IP into visualized images and this visualization will give the IP more power and influence. The visualization of the literature IP through these different entertainment formats creates the visual characters and adaptation into various types of offline products and services.
And this is the 2nd stage of IT metamorphosis. Okay. So far, we have made positive and significant progress in the first stage of IT metamorphosis based on our accumulation in the past. And in order to reach the 2nd stage at the beginning of the year, our China Literature Center of the IT Power Center focusing on automated infrastructure capabilities covering IT Planning, IT Graphics Library Establishment, IT Merchandise design and other capabilities at this moment to lay a solid foundation for long term development. We believe this stage will provide us with some more room for growth in the future.
Going forward, we will build a symbiotic relationship leveraging China relationships advantages in IP reserve and IP visualization capabilities with our upstream and downstream partners to explore new opportunities such as IT licensing in consumer product, fashion toys and offline business to drive the growth of our IT merchandise business and to bring broader room for growth for Chenology's IT business Okay. So with the social developments and the technology developments, now there are more connections between IP and the offline life of users, which actually has brought us with more probability in our business. So live action role playing game, Qubansha, is gaining higher popularity among users as an emerging interactive entertainment activity. China Literature's high quality IP can contribute to the production of premium scripts that are able to attract users to play with. We hope to further expand the influence of our IPs while getting involved in the trendy and rising sector.
So, our judgment is made based on the trend of the user entertainment industry. Our exploration in the consumer products, fashion toys and offline business is to serve the 2nd stage of IT metamorphosis, which is to enable our premium RTs to work out of connected screens and digital devices into everyday consumers' everyday life in the form of various types of products and services to enhance IP monetization in offline merchandises and the consumption. We believe in long term vitality and great commercial prospects of Chinese IP and we hope China Literature will become one of the top 5 licenses globally in the future based on our exploration in domestic China and in the overseas market as well. So our ultimate target is the 3rd stage of IP metamorphosis, along with our IP ecosystem, which is to create IPs that are immortal. We hope to bring users with high quality products, high quality content and high quality experience.
We hope to become a world leading platform for culture, creativity through creating good stories that can become an integral part of the life experience of consumers and can be passed on from 1 generation to the next. But as you know, things can't change overnight and the drone city wasn't built overnight as well. So we need to take a path, including our content incubation and our visualization and the development of our offline IP merchandise. So by establishing and continuing to explore in this systematic IP adaptation ecosystem, we hope that China literature will finally become a world leading platform for culture of creativity to creating good stories that live forever and can be passed down from on generation to the next.
Your next question comes from the line of Eddie Leung of Bank of America. Please ask your question. For the line of Eddie Leung, your line is now open.
So I have two questions. The first one is probably a bit related to long term vision. Wondering conceptually how important of the 3rd party production and distribution partners, AOOSAI, New Classic and Tencent would be for China literature in the long term? And then secondly, just a quick question on cost structure. Would like management share the competitive landscape for content creators?
And how should we think about the cost structure going forward? Thank you.
Okay. So the basic and core asset on our platform is the high quality stories, the high quality IPs that we incubated our on our reading platform. And we have incubated a lot of excellent writers providing continuously providing high quality stories to our platform. But compared with the number of high quality literary works on our platform, due to the scarcity of the downstream entertainment producers in the entire IP value chain in China, I think the supply of the high quality media productions including drama series, films, animation, comics and games is far less than the demand from the market. So in order to solve this issue, we actually are devoted to 3 paths to 2 paths.
The first path is to build up our internal production capability to convert our literature web into media rich content formats, including our acquisition of any profits media. So we will continue to build up our capacity and capability in the content format adaptation. We will collaborate more intensively with Tencent Ecosystem. But by only collaborating with Tencent Ecosystem, it's not enough. So we will also take the second path, which is to openly collaborate with a number of So we will also take the 2nd path, which is to openly collaborate with a number of 3rd party IP entertainment product producers in the industry.
So in terms of comics, we not only collaborate with Tencent Comics on comics production and distribution, we also collaborate with 3rd party comics producers like Bilibili. And in terms of animation, we cooperate with both Tencent Video and also availability at 3rd party distributors for our animation. In terms of TV series and films, we collaborate with Tencent Video, iQIYI and other online streaming platforms in China. In terms of games, we collaborate intensively with the Tencent Games, the Tencent Games research and development team as well as the distribution team. Also in addition to that, we also openly collaborate with 3rd party game players in the industry, including the Shenqi game, the Sanchi Interactive and the Perfect World and a lot of other top quality game producers in the market.
So I think we will continue to utilize both our internal production capabilities and the third party resources to adapt a great number of our literary IPs into more downstream entertainment format. And the 2 parts that I mentioned, actually they do not compete with each other. They actually are supplementary to each other. So by leveraging these capabilities and the resources from these two paths, we will be able to convert more our IP into more diversified entertainment format. Thank you.
Okay. So as to your second question, we think it is just normal for Internet industry, including the online reading business to be intensely competitive. We keep an open mind on the monetization model for our reading content. We believe the strategic value of our online business, right, in cultivating good writers and quality content and providing good quality services and the writing experience for writers to set a solid foundation in users and content for IT operations, which is also one of our competitive edges. So previously, we were the original channel literature, but now we have operated our strategy to become a channel literature plus.
So the IP operations services that we can provide to the riders are also very attractive. So we normally we have very strong competitive advantage in terms of K2V business. But as I mentioned previously, we have set up a joint project team with the Tencent Ecosystem to facilitate channel expansion, channel cooperation within the Tencent Ecosystem. So while solidifying our pay to read business, in the future we will actively explore the opportunities in free reading business as well, combining channel literature's advantage in high quality content and Tencent's advantage in user traffic. So I think the returns that can be provided to the riders not only include the financial returns from the digital redeem, but at the same time, the financial returns from the IP operations services is also very huge.
So that's why we always emphasize the establishment of an IP ecosystem and IP value chain. So in the future, we will further integrate our resources, IT, on content and on our business network. And we think the most important thing is not the cost, but the most important thing is about our ability to provide the best quality services to our riders and to incubate the best quality riding platform for the riders. Thank you. I would now like
to hand the conference back to the management for the closing remarks.
Thank you, operator. This is time constraint. We will now conclude today's call. On behalf of the entire China's digital management team, I would like to thank you for your participation on today's earnings call. If you have further questions about the company, please feel free to contact us.
Thank you and goodbye.
Thank you. Thank you. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.