Low-budget Chinese productions are shifting entertainment economics

Surging artificial-intelligence capabilities and declining attention spans have Chinese producers flooding the zone with short-drama films to see which ones take off.

Vertical-title producers gauge audience interest before committing heavily to distribution and audience acquisition. Compared with traditional entertainment models, which commit much more capital to production, short-drama firms can test demand with less money at risk.

“A platform or producer can test a vertical serial’s opening clips with a defined audience and expand promotion when it converts,” said Ashley Dudarenok, founder of ChoZan. That allows companies to put more money behind titles that drive engagement and quickly pivot away from those that do not — a fail-fast approach.

Generative AI has accelerated this high-volume production strategy by reducing the time and cost required to make new titles. About 128,000 short-dramas were released in China in the first quarter of 2026, over 95% of which were AI, according to estimates published by China’s Netcasting Services Association. CNSA estimated China’s microdrama and manju market at about 100 billion yuan (US$15 billion) in 2025. The format overtook long-form video in average daily use, ranking second among audiovisual categories.

Vertical titles can generate strong advertising revenue, with opt-in video ads earning about 11 times Mintegral’s Android benchmark in the first half of the year, according to the report.

However, heavy distribution and audience-acquisition spending can erode some of the margins created by cheap production.

While making a short drama may cost only a few hundred thousand yuan, “making the right audience see it can cost far more,” Dudarenok said. She estimated that the cost of buying 1,000 promotional ad impressions rose from 50–80 yuan in 2023 to around 150–200 yuan in 2025, sometimes exceeding 300 yuan during competitive periods.

High volume and low production costs do not necessarily translate to commercial success.

While a few stellar hits can generate substantial revenue, most still fail to produce meaningful returns on investment, Dudarenok said.

Competition for viewers is also intensifying, with short drama campaigns paying an average 2.3 times Mintegral’s Android benchmark per app install, while the number of active advertisers and advertising creatives more than doubled, according to the report.

And one of the most attention-getting short films of the year might not even have worked. According to official China Film Box Office figures, “Niu Lai” grossed 45.5 million yuan (US$6.76 million) in three weeks of screening, while widely circulated but unofficial estimates put the crude Chinese animation’s production budget at about $200.

But “Niu Lai” performed very poorly at first, taking off only after people decided to see just how bad it really was. It may not have survived long enough to succeed with the fail-fast approach.

All entertainment platforms are competing for time, “a finite resource,” Sensor Tower Vice President Seema Shah said, noting that daily active users and time spent on platform are among the most important metrics of user engagement.

Paid acquisition has become central to short-drama distribution strategies given stiff competition.

“Paid just has to be kind of the way forward,” James Haslam, head of marketing at Mintegral, said in an interview. Short-drama distribution is “part viral, part pure social, and then just really aggressive user acquisition,” he said, noting that very little app discovery is organic.

Industry experts are split over whether short-drama specialists or traditional incumbents possess the stronger distribution moat.

Specialist short-drama companies may have an edge in agility, performance marketing and familiarity with new acquisition channels over traditional entertainment firms, Haslam said. Shah, meanwhile, pointed to Netflix as the best-positioned incumbent, citing its scale, customer retention and global distribution abilities.

Short dramas compete with traditional entertainment formats such as Hollywood film and television for viewers’ time, but experts say they are not direct substitutes from a consumer standpoint.

Short dramas are unlikely to push out incumbent entertainment formats, according to Sensor Tower’s Shah. Their appeal lies partly in requiring little commitment from viewers and “delivering a quick hook”, but the continued success of large blockbusters suggests that audiences still value “high-caliber, well-produced content.”

Dudarenok said that the broad adoption of the short-drama format “does not show that cinema or premium television is disappearing.” Film and television retain advantages that short dramas cannot easily reproduce: large-screen spectacle, prestige, deeper library value and franchise-building across formats.

— CNBC’s Evelyn Cheng contributed to the story.