There have been many products with low marginal costs, especially in the E-entertainment field. These products, especially those with high qualities, have huge lump sum costs for their research and development sectors. These companies could be considered to have higher risks as well as higher returns to compensate the high risks, they cannot efficiently reduce costs by reducing production when they find sales do not perform well and they are also able to boost their profits as they do not need to spend a lot on increasing their productions.
However, this is not necessarily true. Although it may not require many resources for further production, it does not mean there is no extra expenditure after the product is innovated and produced. For example, its spending on the advertisement could be correlated with its sales, Tencent has spent billions on advertising its most popular game, League of Legend, in order to gain the current popularity. Moreover, there is another field that companies need to spend: anti-pirate. Because of the low costs of production, it is easy to be copied and private versions could flood the market and take profits from the companies. Therefore, the companies have to put many resources into anti-pirate actions. In addition, they also need to product add-on products in order to attract more consumers.
Overall, those companies, whose products tend to have extremely low or even no marginal costs of production, are bearing high risk; therefore, I do not see them as good investment opportunities, unless they can effectively avoid pirates and dominate their own markets.
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