China's short-drama boom is costing its pioneers dearly

Short-form hits, long-form losses

China’s rush into short-form scripted dramas has created a massive audience — and a cash drain. DataEye data show short dramas logged about 8.67 billion plays over the 2026 Lunar New Year period, and industry estimates put the 2025 combined output value of micro-dramas and “manhua” (AI-assisted comic) dramas above ¥100 billion. Yet the first wave of online literature companies that rushed to turn IP into bite-sized series are reporting sharply widening losses. Why are hits not translating into profits?

Case studies: Chinese Online, iReader, Dianzhong and China Literature

Chinese Online (中文在线) has reportedly filed for a dual A+H listing in Hong Kong even as it issued a 2025 profit warning — an expected net loss attributable to the parent of ¥580m–¥700m, versus a ¥243m loss the prior year. iReader (掌阅科技) recorded its first annual loss since listing, with non-recurring-item-adjusted losses exceeding ¥210m, and operating cash flow turning deeply negative. Dianzhong Technology (点众科技) and China Literature (阅文) show similar patterns: short dramas rapidly reshuffle revenue mixes and boost scale, but margins remain thin. It has been reported that social-media claims about project freezes — for example, a trending post saying Hongguo (红果) “stopped many live-action short-drama projects” — caused market jitters until Douyin (抖音) group executive Li Liang publicly said the outfit was merely adjusting production mechanisms.

Why the money evaporates

The culprit is not a lack of demand. It is the cost of buying attention. Companies are pouring cash into user acquisition and platform promotion — often on Douyin/ByteDance channels — rather than into royalties. Chinese Online’s overseas short-drama app FlareFlow reached millions of installs quickly but only by sustained, massive ad spend; the firm disclosed that overseas growth remains in an investment phase and cannot yet cover costs. Reported group-level sales and promotion expenses are now consuming 60–80% of revenues at peak moments, and short-drama net margins have been described internally as close to zero. In short: scaling globally is expensive, and many firms are still “burning money to buy eyeballs.”

What next — IPOs, time or a reckoning?

Some industry insiders view listings and cross-border expansion as a way to buy time and capital for the business model to mature. But geopolitics complicate that playbook: U.S.-China tensions and scrutiny of Chinese apps and data flows make Western growth riskier, even as firms push for Hong Kong listings to diversify funding sources. Can short dramas become the reliable “second curve” for China’s web-novel ecosystem? For now the answer is unclear. The format can amplify IP value rapidly, but profitability and a sustainable, platform-agnostic distribution model remain the biggest open questions.