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Tencent Pictures this week stepped out alongside fellow Tencent subsidiaries New Classics Media and China Literature (aka Yuewen Media) to present for the first time a joint, collaborative film and TV production strategy.

Tencent Pictures and Hong Kong-listed e-book platform China Literature were both established in 2015. Production firm New Classics Media was established in 2007 and was acquired by China Literature in 2018 for $2.25 billion. Up until now, Tencent had a tendency to pit the three against each other as competitors, and left them to undertake similar business endeavors independently without overarching coordination.

But in the wake of China Literature’s serious losses in the first half of the year, the company is shifting gears to think more about how they can work together more collaboratively.

Tencent Group VP and Tencent Pictures CEO Cheng Wu (aka Edward Cheng) took the stage at a press conference Monday in Shanghai to describe the triumvirate as now being a “troika.” He explained that they collectively lead content development for their sprawling parent company, currently one of the world’s most valuable conglomerates.

“In the past we were each fighting our own battles alone, but now, with coordination and different divisions of labor, we have become a troika,” Cheng said.

Last year, the three joined forces for the first time to adapt the popular internet novel “Qing Yu Nian” published on China Literature into a drama series, known in English as “Joy of Life” — with strong results. Its 46 45-minute episodes have collectively been streamed 8.5 billion times since they first premiered on Tencent Video and iQiyi last November, according to data from Maoyan.

Despite the hit, China Literature racked up $493 million (RMB3.296 billion) in losses in the first half of this year, in part because the company was slammed with more than $500 million in impairment losses related to its earlier acquisition of New Classics.

In April, Cheng and other veteran Tencent execs were parachuted in to replace China Literature’s founding management team as business started going south.

Cheng had to grovel in the August regulatory filing, saying: “The disappointing results made us realize that the lack of resilience of our underlying business model and our structural issues have piled up over the recent years. We are prepared to adopt a new culture and creative ideas from a more strategic and multi-dimensional perspective.”

He added: “It is never too late to change, and now is the time to make a change.”

Structural integrations have been underway. Four months ago, the Tencent animation and comics team was combined with a previously separate comics team working under China Literature, with the goal of getting them to work together on turning 100 online novels a year into comics, Cheng told Chinese media. Meanwhile, strategic working groups have been set up to standardize decision-making and share strategic information between the three subsidiaries

Monday’s event appeared to be the first attempt to present these changes to the public.

“As early as eight or nine years ago, we had such a plan [to collaborate], which is why we first proposed the concept of ‘pan-entertainment’ [in 2011]. But having that concept was just the first step; the next step was to develop solid capabilities in each field and reserves of IP,” Cheng said.

The search for those IP reserves prompted Tencent in 2012 to start an online comics division — which now has a catalogue of more than 30,000 titles, 1,500 of which have over 100 million hits — and China Literature, which now hosts 8.9 million users who have written some 13.4 million works.

“This foundation alone is not enough. What we want to do now is integrate these businesses together, with IP at the core,” Cheng explained.

The idea going forward is for Tencent Pictures to be the hub connecting the troika, with a focus on new project investment, casting and production of both films and TV works. New Classics Media will take a “boutique approach” and focus on TV series and the occasional movie. China Literature will focus on developing its large library of online content into film and TV IPs, including with external partners.

Tencent on Monday introduced a long list of 56 ongoing projects the three companies are involved in, spanning theatrical films, “internet films” headed straight to streaming, and TV projects. At least four are now joint works between the trio, including a second season of “Joy of Life.”

Cheng explained the reasoning behind Tencent’s “pan-entertainment model” in-depth.

The culture industry’s biggest challenge is that good culture requires innovation, but the failure rate of innovation is extremely high, he pontificated.

“There’s a saying in film world about ‘721’: Out of 10 films, seven will lose money, two will break even and one will turn a profit, but the number of films that actually become profitable in China is actually less than 10%,” plaguing the entire industry with “systemic risk” as consumers demand new content,” he said.

Hollywood tries to reduce this risk via “industrialization” – that is, by standardizing industry practices and predictive models. But this comes at the price of reducing the space for content innovation, a cost that major directors like Alfonso Cuaron have bemoaned, he noted.

The extent to which even major Hollywood studios have been battered by the coronavirus has exposed the vulnerability of only creating film and TV works without diversifying.

Each medium has its own advantages and disadvantages, Cheng said. Text content is the simplest to produce, but it’s hard to go viral. Comics are also easy to make and consume but have more niche appeal. Film and TV have mass appeal, but require high investment, long cycles and high risks. Games and live entertainment come with even higher risks but have long monetization cycles and strong consumer stickiness.

Tencent’s model is to generate IP via its literature and comics platforms, take the popular ones and turn them into film and TV projects, then take the breakout hits and make them into video games, thereby reducing risks at each step.

More broadly speaking, in his assessment, China has already basically finished building up the “new infrastructure” of its digital content industry — the various online streaming services and content platforms that consumers now flock to. He explained: ”China’s culture industry has basically achieved a modern industrial layout, and adopted a mindset [receptive to the idea of] IP-based cultural production.”

To continue producing competitive works, the next step is for China to shift from merely developing “good content to [developing] a good content industry, and then a content industry industrial chain.” In other words, the country needs better industry-wide systems, practices and standardizations to ensure that creators can consistently and continuously generate hits, rather than just one-off successes.

China’s content development to date has been plagued by investors’ need for quick returns.

Cheng admitted that many internally at Tencent were skeptical when the animation business started in 2012, questioning the benefits of getting involved in a business so difficult to monetize. But now, several of the company’s comics are close to bearing fruit, including “The Outcast,” which execs announced Monday will be adapted into a live-action feature film by director Wuershan (“Mojin: The Lost Legend”).

Though Cheng admits that doubters concerned that Tencent Pictures is “progressing too slowly” have brought “a lot of urgent expectations and pressure,” he said the cultivation of good IP can’t be rushed. After working for the first five years to establish that base, more tangible results will hopefully now start trickling in.

“It’s unrealistic to think about the film and TV industry via a one- or two-year cycle. It’s got to be at least five years. After the next five years, we’ll have more progress,” he told Chinese media. “At the moment, we need to be down-to-earth, objectively assess the difficulties we may face, and be prepared to face all possible challenges.”