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Failure to retain Dong Yuhui not only lost a core pillar, but also may have prompted a correction in its positioning and value distribution. Dong Yuhui, who chose to leave, became a "lone ranger", and his relationship with Dongfeng Selection went from being a side-by-side competitor to being in direct competition.

Text/Daily Financial Report Zhongyu

The rumors became true as they spread, and Dong Yuhui and his companions officially left Oriental Selection.

Yu Minhong and Dong Yuhui each issued an open letter, in which they expressed their recognition and gratitude to each other. The storm caused by the "small essay" and the huge wave of Internet public opinion ended with a breakup. The peaceful breakup between Dong Yuhui and Dongfang Zhenxuan can also be regarded as a breath of fresh air.

Dongfang Zhenxuan, which failed to retain Dong Yuhui, not only lost a core pillar, but also may prompt a correction in its positioning and value distribution; Dong Yuhui, who chose to leave, became a "lone ranger", and the relationship with Dongfeng Zhenxuan changed from a side-by-side relationship to a direct competitor. Where will Dong Yuhui go in the future? It is worth discussing.

Why break up?

After encountering the sudden "double reduction" policy in July 2021, New Oriental suffered a huge blow and quickly transformed: by establishing Oriental Selection and combining the theme of revitalizing the countryside, it carried out live e-commerce business with self-operated agricultural products as the core. At a time when content platforms, such as Douyin, are impacting traditional e-commerce platforms, the huge imagination space of new stories has allowed the stock price of Oriental Selection to increase by more than 26 times from the end of June 2022 to the beginning of 2023.

Although since its establishment, Yu Minhong has repeatedly emphasized in public that Oriental Selection is not an MCN company, perhaps in order to be different and form differentiated competition with its peers, but in fact, Oriental Selection's business model is destined to have the blood of MCN flowing in its bones: by placing content on short video platforms (mainly TikTok) to attract traffic, thereby achieving advertising revenue in a broad sense, its structure is no different from that of MCN companies as a bridge between content platforms, C-end users and B-end merchants.

The most important point that distinguishes Oriental Selection from other MCN organizations is its profit distribution mechanism. Because it does not recognize the underlying operating logic of MCN from the "source", there is no performance appraisal mechanism for Oriental Selection's anchors, and sales are not linked to their salaries.

At the time of the initial transformation, Dongfang Zhenxuan needed to invest a lot of resources to support business operations, and its "teachers" did not have the Internet celebrity effect in the early stage, so the company was in a strong position in the IP incubation stage. However, by chance, Dong Yuhui attracted widespread attention for his unique "bilingual sales" in the Dongfang Zhenxuan live broadcast room. The rapidly increasing number of fans made him quickly become one of the top streamers in the live broadcast industry, which increased the value of Dong Yuhui's IP and changed his position in the industry chain.

Although Oriental Selection created Yuhuixingxing as an independently operated platform in 2023, its value distribution is still carried out in a "non-MCN" manner, and its operations are also constrained by Oriental Selection; and Dong Yuhui, who is not restricted by the non-compete agreement, has transformed into a "cash cow" in the sedimentation of traffic. In the MCN track where there are more monks and less porridge (many institutions and few top streamers), he has mastered the highest bargaining power, and the distribution mechanism of Oriental Selection is obviously unable to retain Dong Yuhui, who wants to achieve autonomy.

Contradictory pattern

According to Oriental Selection's announcement on the Hong Kong Stock Exchange and an open letter released by Yu Minhong, Oriental Selection transferred 100% of the equity and interests of "Walking with Hui" to Dong Yuhui at the original value of net assets of RMB 76.5855 million, and the payment for the transaction was paid to Dong Yuhui by what Yu Minhong called "a method that complies with the rules of listed companies and the company's articles of association"; not only that, Yu Minhong also lobbied the board of directors and the remuneration committee to give Dong Yuhui the RMB 141 million in net profit achieved by "Walking with Hui" in more than half a year since its establishment as a reward, and promised to support the subsequent operating system of "Walking with Hui" for free.

According to the summary of public data, "With Hui Xing Tong" recorded a GMV of over 3.1 billion yuan from January to May 2014, accounting for nearly 30% of Oriental Selection's total GMV in fiscal year 2023. It generously "discounted" the company's core assets at a "bargain-friendly price". Small and medium shareholders can only admire Yu Minhong's broad vision?

The open letter was full of Yu Minhong's self-help about the separation from "Walking with Hui", but regardless of the fact that Dong Yuhui was appointed as the director and CEO and fully authorized, Yu Minhong's role as the mediator between "Walking with Hui" and the board of directors, and his personal promise that Dong Yuhui could take half of the profits, in fact, the real decentralization of power and the direct distribution of benefits could be solved through the equity structure, but it was never mentioned.

Looking further, the impact of losing the super IP Dong Yuhui on Oriental Selection goes far beyond the loss of its core pillar, because it means that if the mechanism does not change, there will be countless "Dong Yuhui" in the future, and the change of the mechanism requires Yu Minhong to acknowledge that Oriental Selection is an MCN agency.

The future of the Lone Ranger

From Traveling with Hui to Traveling with Yuhui, it has a huge impact on the short-term operations and long-term layout of Oriental Selection. For Dong Yuhui, choosing a solo journey also means re-choosing his future.

For Dong Yuhui, who holds the reins (has a huge number of fans), he already possesses core commercial value in the era of content economy. With full autonomy, he has also opened up his own business imagination space.

On the one hand, after fully autonomous operation, it can become an MCN organization with a core traffic pool of its own, expand its business territory through operations such as incubation or slicing to achieve higher commercial value, and even give IP attributes to the brand by extending to the upstream industrial chain. The ceiling of this path is quite high; on the other hand, in the current environment of full competition among MCN organizations, with its influence, it can at least act as a sales influencer with bargaining power, which is a decent "job" compared to the former.

But no matter which method is used, it is still unknown whether maintaining an exclusive tone can maintain the existing fan base and even expand the influence. It is also unknown whether it can continue to create excellent sales results in the economic downturn. Moreover, with such a "discount", it won the "Walk with Hui" award and took away more than 70 million yuan in cash. The various reasons are still waiting to be cleared.

Conclusion

Yu Minhong, who was labeled a "stingy person" by Luo Yonghao, was very generous in this divestiture. Perhaps after Yu Hui Xingxing becomes Yu Hui Travel, there will be another Yu Hui Xingxing... This operation is even worse than when Jack Ma split up Alipay. However, under the storm of public opinion, the "Lone Ranger" will still have to go through some tests.

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