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hong kong-listed company trans media entertainment (01326.hk) issued a profit warning on september 19.

the company expects to record a net loss of approximately hk$340 million to hk$370 million for the year ending june 30, 2024, a significant increase from hk$187 million in the previous year.

chuanzhi entertainment stated that the performance loss was mainly due to the fact that the industry is still in the post-epidemic recovery stage, and the company's tv series production and the work arrangements of its artists have been postponed, resulting in a decline in revenue from tv series and variety show production and distribution during the period.

in addition, taking into account the current market environment, intensified competition and future uncertainties, the company recorded an impairment loss of approximately hk$230 million for goodwill during the reporting period.

chuanzhi entertainment is mainly engaged in the production and distribution of movies, tv series and variety shows, and the management of artists and celebrities. the company's "two labels" have always attracted much attention from the outside world.

first of all, the predecessor of chuanzhi entertainment was tianma films, a film and television company listed on the hong kong stock market. in 2017, zhang liang, the son of zhang li, the former co-chairman of r&f properties, bought tianma films from hong kong filmmaker wong pak-ming, and divested its film screening business, renaming it chuanzhi entertainment.

secondly, chuan di entertainment once became famous for acquiring the company of artist yang chaoyue. soon after zhang liang took over chuan di entertainment, the company started external acquisitions. on september 10, 2019, chuan di entertainment announced that its subsidiary guangzhou dade agreed to acquire the target company wenlan (shanghai) culture media co., ltd.

wenlan culture was established in 2016 and is mainly engaged in planning cultural and entertainment activities, acting as a performance agent and training music bands. the chuanzhi entertainment announcement mentioned that wenlan culture is the appointed manager of the music band ch2 girl group, of which yang chaoyue is a key member. in 2018, yang chaoyue debuted from tencent's girl group talent show "produce 101" and became a member of the girl group "rocket girls 101". what chuanzhi entertainment is interested in is the 6-year contract signed by yang chaoyue and wenlan culture.

the announcement shows that the overall valuation of wenlan culture is 164 million yuan, and chuanzhi entertainment acquired 60% of wenlan culture's equity for a total price of 96 million yuan. the parties to the transaction also signed a performance commitment agreement, promising that the total profit of wenlan culture during the performance guarantee period will not be less than 70 million yuan.

the announcement showed that in 2017 and 2018, wenlan culture's operating income was only several million yuan, and the company was in a loss-making state. chuanzhi entertainment said that this acquisition will expand the company's business territory from depth to horizontal, expanding to the idol trend group industry that is booming in china's film and television culture field, and obtaining the commercial performance license held by the target company will greatly enhance the company's commercial value and brand influence.

the acquisition was completed on march 12, 2020. the effect of this acquisition was immediate. according to a subsequent announcement by chuanzhi entertainment, for the year ended june 30, 2021, the company recorded a total revenue of approximately hk$190 million from artist management services and sales of its own retail brand merchandise, a significant year-on-year increase of approximately 920.2%, mainly due to the increase in agent and celebrity business.

but this momentum did not last. for the year ended june 30, 2022, transmedia entertainment recorded total revenue of approximately hk$141 million from artist management services and sales of its own retail brand merchandise, a year-on-year decrease of 25.1%.

chuanzhi entertainment stated at the time that wenlan culture's actual revenue and operating profit for that year did not meet expectations, mainly due to the impact of the covid-19 pandemic, which caused unexpected disruptions to the artist management industry. that year, chuanzhi entertainment recognized that wenlan culture's goodwill impairment loss reached hk$23.9 million.

in the 2022/23 fiscal year (july 1, 2022 to june 30, 2023), wenlan culture incurred a goodwill impairment loss of hk$17.1 million. in the 2023/24 interim report (july 1, 2023 to december 31, 2023) disclosed in march this year, chuanzhi entertainment mentioned that wenlan culture incurred an impairment loss of approximately hk$12.09 million in intangible assets during the period.

the company said that this was mainly due to the negative impact of the epidemic on the film and television industry, delaying the filming of films and tv series, and causing significant adverse effects on the original production plans and progress of films and television, as well as the work schedules of artists; in addition, the intensified market competition in the post-epidemic era will further reduce the revenue of film and television production companies and the service income of artist management companies.

in addition to yang chaoyue, chuanzhi entertainment has also cooperated with many artist management companies and many well-known artists. the company mentioned in 2019 that it had officially signed contracts with many artist management companies and two well-known screenwriters shu huan and su biao to build a full-range team of artists and screenwriters to strengthen the company's strength.

among them, several artist management companies together with their top artists including yang yang, song qian, wu zun, meng ziyi, li yitong, zhao lusi and others have joined the company; at the same time, the management companies of kan qingzi, zhao da, shi shi, zhang xiaoqian, wang yi, jiang mingliang and reyna will also sign contracts to join.

chuanzhi entertainment has mentioned li yitong, zhao lusi and other artists and their works many times in its subsequent financial reports. however, the current status of cooperation between these well-known artists and the company is unknown.