(Yicai) Oct. 23 -- Stocks of Chinese firms in the artificial intelligence short drama market have surged this month amid growing investor interest, but while some report solid profits from the business, others say it has yet to generate revenue and contributes only a small part to overall performance.

Shares of television program producer Ciwen Media Group [SHE: 002343] and film and television drama distributor H&R Century Union [SHE: 000892] have surged by their daily trading limit for several consecutive days, with the former ending up 10 percent at CNY10.89 (USD11.63) in Shenzhen today, while the latter fell 0.2 percent to CNY4.40 (66 US cents). Several other companies have also seen abnormal stock trading fluctuations after reporting on ongoing AI short drama businesses.

Despite plunging 8.6 percent to HKD1.02 (13 US cents) a share as of 3.20 p.m. in Hong Kong, Duiba Group’s stock [HKG: 1753] remains up 625 percent since Aug. 21. On Oct. 14, the Hangzhou-based company said it expects its AI short drama business to have been profitable in July, August, and September.

Shares of Decai Decoration [SHA: 605287] ended 1.6 percent higher at CNY42.30 apiece in Shanghai, bringing the monthly gain to 19.4 percent. On Oct. 12, the firm cited reports that its holding subsidiary is involved in AI comic drama production, but said the business is still in its early stages, with relatively low revenue and ongoing losses.

However, different segments in the AI short drama market are increasingly diverging, with pricing power centered on those that control traffic distribution channels, high-quality intellectual property reserves, and the underlying AI computing infrastructure, Guo Tao, an angel investor and AI expert, told Yicai. Platform operators control traffic-bidding rules and revenue-sharing settlement systems, making them the core party dictating profit allocation, Guo said.

In addition, industry price wars are disrupting the profitability of compute and AI tool providers, Guo stressed. By contrast, traditional production teams operate on a project basis, with their revenue and profits heavily depending on the performance of individual short dramas, making their bargaining power relatively weak and leading to risks related to computing power, traffic acquisition, and script development, which results in highly volatile profitability, Guo pointed out.

The number of AI short drama users in China surpassed 600 million in the first half of this year, while the market is expected to surge 138 percent to over CNY40 billion (USD6 billion) this year from the previous year, according to a report by DataEye. Users also show strong willingness to pay for AI short dramas, with more than half of 1,000 survey respondents saying they had previously paid for such content.

User demand and commercial potential have grown, but supply is expanding even faster. In the first half of the year, ByteDance’s short-video platform Douyin added about 221,900 AI short and comic dramas. However, only 1,055 surpassed 100 million views, with more than 90 percent running at a loss using 50 million views as the break-even level.

“The winner-takes-most effect in the AI short drama market will continue to intensify,” Guo said. On the supply side, the benefits of AI in significantly lowering production barriers are being offset by the rapid expansion of content supply, while traffic-bidding costs continue to rise, Guo noted.

This is also why service providers like Duiba, which focus on short drama distribution matchmaking and paid monetization, are more likely to deliver short-term profits, Guo pointed out, adding that for ordinary production teams, the challenge of how to diversify the risk of failure for individual projects and capture more value across the supply chain is becoming increasingly severe.

Editor: Martin Kadiev