GF Securities: The supply of short dramas is gradually moving from Chiang Mai to boutique, overseas, and new content

The Zhitong Finance App learned that GF Securities released a research report saying that live action skits and AI skits show resilience on the consumer side. After distribution is cancelled and supply is relatively clear, traffic will focus more on top quality content, increase LTV, and return to the “consumption for good content” content logic. Domestic content and distribution companies began to intensively shift to overseas racing tracks. Localization of content and vertical operation capabilities were important reasons why Netshort later took the lead. At the same time, the industry is still exploring more distribution carriers, and AI interactive dramas may have potential.

The main views of GF Securities are as follows:

The turmoil in the AI skit and reality skit industry over the past 26 years stemmed from business model adjustments for content products at different stages of development under the dominance of a single core platform

Since February '26, a single system has gradually become the absolute core of production and consumption. Byte not only holds the most important traffic entry (Douyin, Hongguo) for watching skits, but also has high bargaining power over streaming and content parties with its content distribution channel capabilities, while also controlling the pricing rights for important upstream production materials (Seedance models, creative tools such as Dream AI, and tomato IP copyright). (1) After nearly 5 years of development, live-action skits have already gone through the process of “the platform gradually taking back distribution rights”, declining distribution on Douyin, and shrinking upstream, while the Hongguo platform's “win by volume” horse-racing land model also became the leading boutique model after the 26-year inclusive guarantee was gradually abolished. (2) The streaming “hot money” model of AI short dramas gradually returned to rationality after model price increases, platform sharing adjustments, and stricter regulations in the middle of the year. Supply-side excess and homogenization led to a decline in streaming win rates, and the increase in broadcast watching stabilized. This is not a “cold winter” for the content itself, but rather the upstream “false fire” that was maintained by a single system with strong funding and channel distribution preferences in the early days. However, reality skits and AI skits still show resilience on the consumer side. After distribution is cancelled and supply is relatively clear, traffic will focus more on top quality content, increase LTV, and return to the “consumption for good content” content logic.

Domestic content players and distributors have begun to intensively switch to overseas racetracks, and latecomer platforms such as Netshort have shown content potential

The growth rate of IAP in the overseas short drama market slowed. In May, the number of apps being invested reached 1,170, and competition intensified. In the current situation of deep competition, more vendors are starting to deploy regions that have not been developed in depth and are relatively unwilling to pay, using the IAA model to expand traffic value. Platforms such as Netshort showed latecomer advantage: Starting in March, Netshort's internal purchase revenue began to rise markedly, remained in third place in the industry, and continued to grow. Malt Media behind it has the dual ability of production+distribution, and has performed well in terms of marketing efficiency. The localization of content and the ability to operate vertically were important reasons why Netshort later took the lead.

The industry is still exploring more distribution carriers, and AI interactive dramas may have potential

The bank sorted out several major stages in the development of interactive video games at home and abroad. Currently, there is a big difference between AI interactive dramas and traditional interactive video games (such as “Shengshi World”) on platforms such as Tomato Novel. AI interactive dramas basically follow the linear narrative of novels and series, and the audience is closer to the consumer groups of online articles and skits, and has been successfully distributed overseas. AI interactive dramas have high ad loading efficiency, and they also require more consumption of models on the production side. A number of leading domestic manufacturers have deployed tool products for AI event content and launched corresponding content incentive plans. The bank believes that this is still an expansion experiment for traffic platforms and model manufacturers based on their own business strategies. From an overall perspective, the penetration of AI interactive dramas on the consumer side is still early.

Risk Alerts

The effectiveness of the AI model falls short of expectations; commercialization falls short of expectations; platform policy adjustments; uncertainty about going overseas; and stricter content regulations.