Interactive Film Producer Altstory, a Rising Startup in a Rising Market

Altstory (互影) recently announced it has completed its Series A round of funding, worth nearly CNY 100 million (USD 14.3 million) and led by China Literature (阅文集团, 0772:HK), a dominant online literature and digital publishing platform. Suzhou Diezhi (叠纸游戏) – a leading mobile game developer in China – also took part in this fresh round of financing.

Matrix Partners China (经纬中国), ToutouShidao Fund (头头是道基金) and ZhenFund (真格基金) are among the list of its existing investors.

According to ITjuzi (IT桔子), the post-money valuation of Altstory is now at CNY 500 million (USD 71.7 million).

Founded in 2017, Altstory is a Chinese interactive video and television technology content company. Up to now, its productions have included works like ‘Mystery of Antiques’ (古董局中局之佛头起源) released on Tencent Video (腾讯视频) and ‘Who's the Murderer: Prime Suspect’ (明星大侦探之头号嫌疑人) – an interactive film spin-off of one of the most popular variety programs in China, released on Mango TV (芒果TV).

The company is currently operating both self-development and co-creative approaches, and has setup two business lines internally.

One is Altstory Culture (互影文化), which works similar to a film studio. It is responsible for preparing innovative content, shooting, production, and technical implementation.

The other is Altstory Technology (互影科技), which tends to act as a service provider combining an interactive display format and relevant technologies. The company mainly takes charge of the interactive design and technical implementation of the program, while the co-operator provides the script and content. At present, the team is working with a number of well-known filmmaking and television broadcasting companies on new interactive series, including ‘Who’s the Murderer: Prime Suspect 2,’ which is expected to be launched in 2Q 2020.

An interactive film, also known as an interactive movie or movie game, is a form of film or television program where the gameplay is presented in a cinematic, scripted manner, often through the use of full-motion video of either animated or live-action footage.

The year 2019 is considered the first year that interactive films were commercialized in China. Though the industry is still emerging in the country, it has already attracted the attention of the dominant players in entertainment, including iQiyi (爱奇艺, IQ: Nasdaq), Youku (优酷, taken over by Alibaba [BABA: NYSE] in 2015), Mango TV (芒果TV, a subsidiary of Mango Excellent Media [芒果超媒,300413: SH]), Tencent Video (腾讯视频, a subsidiary of Tencent [0700:HK]), and Bilibili (哔哩哔哩,Bili: Nasdaq).

However, interactive film is not a fresh concept though. The first example of an interactive movie could be traced backed to the Kinoautomats in 1967, which was a work of a Czech screenwriter and director RadúzČinčera. During showings the film is repeatedly stopped, and the audience asked to vote on the direction of the story.

This leads to the question of why China's mainstream Internet media companies started to turn to producing interactive programs. The answer for this mainly lies in the fact that they have to seek new growth opportunities due to the following scenario: 1. The ever-increasing profit margins brought by the past tenyears of continuously booming Internet traffic in China has now diminished, and 2. The long-video market is encountering development bottlenecks.

According to the China Internet Network Information Center (中国互联网信息中心), the number of online video users in China reached 759 million in June 2019. The number of long video users was 639 million, while the number of short video users was 648 million.

Meanwhile, in a recent report published by China Television Drama Production Industry Association (中国电视剧制作产业协会), we can see that the total user spending time of short videos surpassed that of long videos for the first time in 2019.

“At present, the Internet industry of China has entered an era when the preemptive attempt to expand the market share has come to an end, and the next stage would be to compete for average user spending time,” said Gong Yu (龚宇), Founder and CEO of iQiyi, during the iQiyi World Conference (爱奇艺世界大会). “Apart from top- and second- tier cities users, platforms need to customize for more vertical user classifications, and to tap their attention.”

In this case, interactive drama would be a new opportunity that could possibly stimulate growth. This is so due to the fact that it has already seen user accumulation, and its popularity has risen among young people, Generation Z – those born in the mid- to late-1990s – in particular.

According to Altstory, the audience for ‘Who’s the murderer: Prime Suspect’ – its interactive drama co-produced with Mango TV – is mainly the post-95 generation. “These young people grew up with the development in mobile apps, and tend to have intrinsic need for interaction,” said Liang Xiaodong (梁晓东), Co-CEO of China Literature.

Interactive films bring them the experience of self-determining the storyline, which is in line with the characteristics of Generation Z in China who are interested in crafting their own sense of self.

The number of Chinese interactive drama users in 2018 exceeded 40 million, and this number is expected to surpass 100 million by 2020, according to iiMedia Research (艾媒咨询).

Ideally, interactive programs tend to show good market prospects, whether it is to supplement the content on the video platform or as a new approach to marketing. As a new format in video, the question of how to optimize the content and keep continuous output are issues that may need serious consideration.

The production of interactive video is considerably more difficult than producing ordinary dramas. On the one hand, it requires a much higher level of expertise for the content as well as the cooperation between the screenwriter and the technology team.

On the other hand, based on these facts, producing an interactive movie with decent quality is typically to be relatively more expensive compared to that of ordinary ones. For example, it took Quantic Dream and Sony Interactive Entertainment almost USD 200 million to produce ‘Detroit: Become Human’.

The above suggests that interactive contents are – to some extent – more reliant on high Internet traffic and engagement levels among users compared to ordinary productions. However, for now, the market is still lacking in user penetration. According to iiMedia Research, in the first half of 2019, only 37.9% of the netizens surveyed said they knew about interactive dramas, and 93.0% of those knowledgeable had watched them.

China’s online interactive film market is still at is early stage, where the number of productions that has been launched is limited, and there is a lack of breakthrough works in real terms.

In fact, this current awkwardness has not been witnessed by the Chinese market alone. Even ‘Black Mirror: Bandersnatch’ – a Netflix-produced interactive film in the high-reputation series Black Mirror – was also criticized of being ‘stuck in the middle between games and drama’.

Apparently, for players in the field of interactive films, there is still work to do in terms of producing a blockbuster benchmark series in the field of interactive films – and also, in educating the users and increasing penetration levels in the general audience.