A：China Literature has made strategic moves by starting with live action short dramas, keeping up with technology trends, and incubating a new content format, AI animated drama, by integrating AI deeply into the creative process.

A：The key achievements of the short drama business in the first half of 2026 include the release of a steady stream of hit titles with a blockbuster rate four times the market average, maintaining a balanced portfolio of male and female-oriented content, and building a scalable approach to developing blockchain into serialized short dramas.

A：AI has made content creation more scalable and faster, but it reinforces the value of premium content. It has become easier to produce visual content, but only stories with cross-generational appeal and genuine emotional resonance will remain foundational for sustainable monetization.

A：The online reading ecosystem serves as a super reservoir of premium content for China Literature, attracting new writers, generating a large number of online literature works, and adding billions of characters to secure a strong source of content supply.

A：NoPing, YanXiao, and Lady Liberty break new ground across genres such as urban and crime dramas, winning both critical acclaim and strong audience traction.

A：Since the start of the year, 8 out of the top 10 animation series are cumulative news across all platforms and were adapted from China Literature's IPs, further demonstrating the company's market influence in animation content.

A：China Literature launched over 90 short dramas, many of which became hits, achieving a popularity index exceeding 100 million and total views across all platforms surpassing 5 billion. They also achieved a strong performance with the top-tier title '3000 shares, San Tian Bihu', driving the original novel into the top 10 of the bestseller ranking on CN. Additionally, they launched CDX and other platforms in China and overseas, showcasing opportunities for developing a premium AI animated drama platform.

A：The company strengthened its self-operated online sales network with programs, live streaming rooms, and flagship e-commerce stores. It also optimized its offline store network and deepened collaboration with channel partners.

A：The overseas expansion and the opening of the first global collectible toy concept store in Singapore were significant in strengthening the brand's reach and presence internationally, and in boosting the appeal of the company's IP.

A：AI is contributing to content creation by enabling scalable production of premium AI animated dramas, assessing title value within minutes, and providing AI-assisted writing support along with copyright protection and anti-plagiarism services. Its integration into the creative process is seen as a key strategic priority for future growth, amplifying IP values and fostering original creativity.

A：The company remains firmly convinced of the transformative power of IT and AI. Over the past two decades, the internet has lowered barriers to literary creation and supported China literature's growth. The company believes that over the next few decades, AI will substantially enhance the value of the content ecosystem and continue to support original creators, balancing technological empowerment with human creativity.

A：Financial highlights include a 10.7% year-over-year increase in total revenues to 3.53 billion RMB, with online business revenue of 1.84 billion RMB. The company experienced a shift in content distribution leading to a drop in MAUs and MPOs but saw revenue growth across multiple business lines. Costs and expenses increased, leading to a gross profit of 1.79 billion RMB and operating profit of 271 million RMB. Non-GAAP operating profit was 367.2 million RMB.

A：AI-generated content impacted the company's revenue by reducing stock profit by 300 million RMB in the short term.

A：The company's plans for AI animated drama business include a project called SparkCraft, which aims to invest over 100 million RMB in building up the industry ecosystem across four dimensions, including IT cooperation, platforms, training, and funding. The company's in-house developed AI-generated drama body has supported over 200 studios.

A：The company's strategy in response to the changing dynamics of the short-form content market includes leveraging its rich IT reserve to embrace the entire ecosystem, proactively strengthening capabilities in IP development and user acquisition and commercialization, while outsourcing visual production to external studios.

A：The competitive dynamic between manga dramas and short dramas in terms of distribution channels involves a full set of industry channels, including leading platforms and self-owned media programs and apps. The company does not rely on any single channel and decides on title distribution and whether to adopt a paid or free model based on each title's content, features, and marketing timing.

A：The company plans to expand its overseas business by launching an overseas premium AI animated drama platform and aiming to release over 1000 titles within the year. It is also exploring the development of AI animated dramas based on overseas original IP. The rationale behind this strategy includes the global market for short dramas and AI animation dramas being vast, China's expertise in short-form content production being readily exportable, and the inherently strong cross-cultural appeal of AI-generated content. Additionally, AI has made large-scale overseas expansion economically viable.

A：The weakness in the first half of the business was primarily due to adjustments made for channels with lower user stickiness. Factors that are likely to be temporary include the shifts in content distribution from text to visuals such as short dramas and AI animated dramas. However, the long-term outlook for the online reading business suggests a shift in user attention towards visual content, which, if integrated into the ecosystem, could provide incremental value.

A：The long-term outlook for the online reading business is positive, with a solid foundation underpinned by a vibrant ecosystem of premium content creators and contract renewal rates reaching 100% for the top-tier riders. The business is seeing rapid growth in new writers and their debut works, and there has been a year-over-year increase in the submission volume of scripts from quality writers previously active on other platforms. The company's robust and stable creator ecosystem, along with leading IT incubation capabilities, lays the groundwork for downstream businesses such as short dramas, AI animated dramas, TV series, films, and merchandise. These core assets and the company's strategic focus on content format upgrades, expanding content supply, and advancing overseas expansion are key drivers for future growth.

A：To further its growth strategy, the company plans to solidify the premium content ecosystem, accelerate the content format upgrade from text to visuals, and generate value within the reading business. The company will also work on expanding the content supply and maintaining a healthy and vibrant creator ecosystem. Additionally, it aims to firmly advance its overseas expansion strategy to unlock monetization opportunities in overseas markets. These measures are expected to create synergies, steadily incubate quality content, and drive growth by transforming text-based content into multimedia formats.

A：The company believes that the launch of several major IP-based games, which are licensed by China literature and set to launch in the second half, will make meaningful incremental contributions to the company's growth. These titles are expected to further bolster the company's position and provide a significant contribution to the overall growth narrative.

A：As the industry adjusts, the company is responding by leveraging its leadership position and the rapid development of AI video generation models. It aims to capitalize on the opportunities presented by these developments, focusing on content creation and leveraging its deep creative ecosystem to deliver high-quality content. Going forward, the company is committed to continuing its strategy of solidifying the premium content ecosystem and exploring new formats while also seeking to enhance content supply and creator ecosystem health. The strategic focus on AI integration and global expansion is expected to provide a solid foundation for future growth.

A：In the second half of the year, the sub brand of year goods will focus on product iteration, channel expansion, and operational efficiency improvement. The objective is to enhance profit conversion efficiency and achieve higher quality and sustainable growth.

A：The overseas business is in a growth phase with a strategic road map, using the domestic online leading business as a content foundation for international expansion. AI-powered translation is accelerating global reach, and original local content creation is underway. Local writers' original works are being adapted into various formats, and collaboration on additional titles is planned for the second half of the year. The company has launched a premium AI animated drama platform and opened a first global collectible toy concept store in Singapore, which are expected to contribute to future business growth.

A：Several key projects are slated for launch in the second half of the year, including an animal game adapted from 'Battle Through the Heaven', a management simulation mobile game adapted from 'My Hello Kitty', and a flagship game adapted from 'Lost Odyssey' scheduled for open beta testing on August 23, 2026. Pre-registration for the flagship game is now fully open.

A：The company believes the industry downturn reflects platforms tightening content budgets and the increasing popularity of short dramas. However, consumer willingness to pay for high-quality content remains strong. This adjustment cycle will accelerate market consolidation, eliminate mediocre offerings, and further value premium content.

A：The company believes in focusing on the fundamentals of content creation to produce premium series with superior quality and depth. High IP value and emotional connections are essential in a premium drama, which is a core competitive advantage for the company.

A：AI models are fundamentally reshaping production workflows, cost structures, and delivery of television projects, but cannot replace the core value of storytelling, performance, and aesthetics. The company is exploring the application of AI video technologies into its production process while ensuring the aesthetic judgment and creative instincts of professional talent drive the creative process.

A：China Literature entered into a partnership with Shanghai Pudong area to co-establish the AI cultural and creative industry base, which has attracted cultural creators and launched a series of AI industrial facilities. The initiative aims to establish a robust framework for high-quality AI-powered cultural and creative content, with a focus on film and television production and media involvement.