GF SEC: The animation/cartoon and artificial intelligence animation industry is entering a period of intense competition. The future market ceiling may be even more optimistic than currently imagined.

GF SEC released a research report stating that manhua (Chinese comics) and AI-manhua have rapidly gained popularity this year, and the industry has entered a period of intense competition. With the future support of IP copyrights, advancements in AI technology, and multiple platforms and policies, AI-manhua is expected to continue to improve in quality on the basis of its increased popularity, leading to further expansion of its audience and increased value of traffic. The industry has observed that major internet companies have quickly and actively entered the manhua race, providing traffic and policy support, which is more proactive compared to the previous round of short dramas. Considering the use of AI in production, the threshold for AI-manhua is lower than that for live-action dramas, leading to quicker popularity and potentially a more optimistic ceiling for the manhua market in the future. GF SEC's main points are as follows: The core driver of growth in the manhua market is the redistribution of traffic value under the expansion and transformation of the short drama market. Over the past 25 years, the micro-short drama market has continued to grow. Free short drama applications are the most thriving sector, with Red Apple Short Drama having 245 million MAU in October 2025, second only to Tencent Video, iQiyi, and Mango TV in the online video sector, with traffic showing no signs of slowing down. The expansion of manhua content is part of the strategy to expand the short drama category. On the other hand, the shrinking of pay-to-play investment in live-action short dramas, the cannibalization of the market by Tomato platform, and the transition of investment content from online literature to short dramas have led to the transformation of the manhua field. With increased players and successful investments, the peak of investment flow in manhua occurred during the summer. The traffic attribute of manhua inherits that of short dramas, with female readers potentially becoming the focus of future audience expansion. Like online literature and short dramas, manhua uses "plot hooks" to keep users engaged, leading to longer user engagement and retention, which ultimately translates into traffic value. The traffic attributes have led to the "short video" operation mode in manhua, while the monetization model also follows the traditional IAAP model of live-action short dramas. Currently, manhua content is predominantly male-oriented, leading to a higher male user base, similar to early live-action dramas. However, the overall ratio of male to female users in the short drama market is relatively balanced. After adaptation rights have been opened up on various novel platforms, content for female readers is expected to become a focus for future content supply and investment, potentially increasing traffic value further. Core competitive advantages of manhua: Productivity iteration has led to lower costs and increased efficiency on the supply side, with AI bringing a more sophisticated content and traffic ecosystem. With UGC/PUGC production models leaning towards platforms increasing subsidies this year, manhua has seen lower initial costs and improved ROI, eventually leading to profitability. AI-powered production methods bring more industrialized processes, and with better modeling effects, increasing production capacity, and talent development on the supply side, the cost of AI-manhua is expected to decrease further. Companies like ByteDance and Kuaishou are actively promoting AI-manhua, creating a closed loop of AI content and downstream platform traffic ecosystem, leading multi-modal models from being "interest" tools to more rigid production and monetization tools. Risk warnings: Further tightening of censorship policies for short dramas and manhua; Uncertainty in revenue from short drama projects; Slow progress in AI-related technology.