The follow-up development of iQiyi’s membership business is still inevitable. The loss will still be a theme that must be faced for a long time. It may take time to align with Netflix that has long been “profitable”.

Editor’s note: This article comes from the WeChat public account “Liu Kang” (ID: liukuang110), author Liu Kuang.

On May 19th, iQIYI (NASDAQ: IQ) released the unaudited financial report for the first quarter ended March 31, 2020. The report shows that all iQIYI financial indicators exceeded market expectations .

The financial report shows that the total revenue of iQiyi reached 7.6 billion yuan (about 1.1 billion US dollars) in the first quarter of 2020, an increase of 9% year-on-year. The net loss in the first quarter was 2.9 billion yuan, an increase year-on-year; the cost of content increased by 11% year-on-year to 5.9 billion yuan, which was lower than expected.

It is worth noting that iQiyi ’s membership business revenue in Q1 in 2020 reached 4.6 billion yuan, accounting for 60.5% of the total revenue. In a single quarter, membership increased by 12 million people, achieving a single quarter growth of over 1,000 Million.

It ’s not easy to do this. After all, judging by the number of growth in the past only a few million per quarter, this is a big breakthrough. It can be seen that the membership business of iQiyi took off under the epidemic, but does this mean that iQiyi has taken another step away from the “Chinese version” of Netflix? From all perspectives, this is not the case.

Member business reaches new heights

According to iQiyi ’s latest financial report, iQiyi ’s membership business in Q1 2020 accounted for 60.5% of its total revenue, which has already accounted for 60% of its revenue, and achieved a year-on-year growth of 35%. The highest growth rate in a year. Its online advertising revenue was 1.5 billion yuan (about 217 million US dollars), a year-on-year decrease of 27%; other revenue was 875.9 million yuan (about 123.7 million US dollars), a 9% year-on-year decrease.

In fact, it is precisely because of the surge in the revenue of iQiyi members that offset the negative impact of its advertising and other business declines on its revenue, laying the foundation for the stable growth of iQiyi in the quarter .

In terms of the number of paying members, iQiyi’s paid members increased from 96.8 million in 2019Q1 to 118.9 million today, setting a new historical record. In fact, iQiyi’s membership business has been approaching 50% of its revenue since 2019Q1.

According to past data, the membership revenue of iQiyi in 2019Q1 has already accounted for 49% of the total revenue, accounting for nearly half of the total revenue. Since the first quarter of 2019, it has remained at around 50%. To the first quarter of 2020, iQiyi ’s member revenue accounted for more than 60% for the first time, achieving more than half of its revenue for three consecutive quarters.

As you can see, the importance of membership business to iQiyi business. Of course, iQiyi’s membership business can maintain high-speed growth, of course, it cannot do without the explosive growth of online entertainment under the epidemic, and it cannot do without iQiyi’s long-term investment in content.

The high wall behind the content

Iqiyi has long spared no effort in purchasing copyrights and enriching content assets, which makes iQiyi’s high-quality explosive content fall out. During the epidemic, iQiyi used its massive and high-quality content to attract a large number of viewing users, and the number of paying members increased more than its peers.

The financial report shows that iQIYI members actually increased by 12 million people. According to previous data from Tencent Video, Tencent Video had 106 million paying members by the end of 2019, and according to its first quarter financial report data, Tencent Video members reached 112 million, an increase of 6 million, only iQiyi Half of the newly added number shows the appeal of iQiyi’s content.

In fact, iQiyiguang launched many high-quality dramas such as “Love Apartment 5”, “Chinatown Detective” and “Youth Have You 2” in the first quarter of 2020, driving the number of users and the length of consumption. rise. According to previous official data disclosed by iQiyi, as of the end of the membership, more than 74 million iQiyi members have watched “Love Apartment 5”.

In addition to continuing to launch explosive series, iQiyi is also seizing the “favorable” opportunity of the cinema’s shutdown, and actively guiding the release of high-quality movies on the Internet. For example, “Fat Dragon Crossing the River” and “We Will Never Abandon” starring Donnie Yen and Han Geng, respectively, will be premiered in iQiyi through a preview mode. These have long become iQiyi’s routine actions in constructing content assets.

The high-quality original drama series that Iqiyi personally participated or invested in 2019As many as stars. Dramas and variety shows such as “Dear, Love”, “Little Joy”, “China’s New Rap 2019”, “Wonderful Story 6” and “Trend Partners” have gained a good market in terms of heat, reputation and commercial The response further demonstrated iQiyi’s strong ability to create original content.

Iqiyi can have endless bursts of content, which is inseparable from its intensive work on the content. In order to create high-quality original content, iQiyi set up its own film and television media studio to carry out corporate operations, continue to work hard on the content, and enrich the original content library. At present, its content resources have covered many fields such as comics, education, movies, television, network variety.

Continuously create explosive high-quality content, which has become the “strongest moat” built by iQiyi. However, the high cost paid for the content also led to continued losses for iQiyi. In order to make up for the loss, iQiyi is always looking for a new commercialization path.

Commercialization of paid members

Betting on good content is a basic policy of iQiyi. For a long time, iQiyi’s content cost has always accounted for about 80% of its total revenue. For example, in 2020, the content cost of iQiyi reached 5.9 billion yuan, accounting for 77.6% of total revenue.

The financial report shows that iQiyi’s revenue reached 29 billion in 2019, and its total content cost reached 22.2 billion, accounting for 76.5% of the total revenue. According to Gong Yu, founder of iQiyi, it is expected that this year will continue to invest 20 billion in content production.

Good content does bring a lot of new users to iQiyi, but the commercialization progress is not smooth, and it has caused high investment and high losses to go hand in hand, which has brought huge losses to it, and has become the commercialization of paid members. .

In terms of commercialization, iQiyi has adopted different commercialization strategies for different users. Pushing advertisements for free users and charging fees for members have caused iQiyi’s revenue to increase, and iQiyi’s advertising business has been declining. Iqiyi’s revenue has become more and more dependent on the paid membership model.

However, the revenue created by traditional members is not enough to cover the losses caused by the high content costs, so iQiyi has created a “new member attempt” featuring paid on-demand. However, this kind of membership model was accused by netizens as a “mother-in-law fee”, which caused a lot of public opinion and caused the attention of the official media.

However, the paid on-demand model with “Ying Yu Nian” as the starting point has opened iQiyi’s innovation in the paid mode, and iQiyi began to test the water frequently in the paid on-demand mode. It will use the on-demand mode of watching in advance in the first quarter of 2020, “Love Apartment 5”, “The temple is not Begonia red”, “Two Worlds”, “Republic of China” and other headlines, the effect is remarkable.

Quarterly data disclosed in the financial reportAccording to the calculation, the ARPU value of iQiyi members in the first quarter of 2020 is 38.69 yuan, which is already higher than the highest value in 2019. Gong Yu said at the analyst meeting that the ARPU value of subscription members continued to increase in the first quarter, mainly due to the reduction of promotions and the advanced on-demand model.

Despite the outstanding effect of the paid on-demand model, it cannot be ignored that so far, iQiyi has suffered a lot of losses. In addition, it is still unknown whether the maximum membership fee for new members can cover losses. At present, the epidemic situation is encountered again, and the variables are even greater.

New and old problems in the post-epidemic era

Under the epidemic, the film and television industry as the upstream of the content industry chain was the first to be hit. After the epidemic, because the film and television industry has the characteristics of crowds starting and belongs to the non-essential people’s livelihood industry, it is still in a state of shutdown or “semi-shutdown” so far. Countless crews have been unable to resume work, and many crews have delayed the start of construction until the third or fourth quarter.

The start of film and television dramas has been delayed. Films and television dramas scheduled a few years ago have been unable to start shooting. This will inevitably affect the subsequent broadcast of iQiyi, which in turn will affect the healthy development of its subsequent membership business. In order to compete for users, the platform will inevitably increase the purchase of existing high-quality copyrights, thereby paying more content copyright fees and expanding losses.

In addition, taking advantage of the ups and downs of traditional film and television dramas, some external players took aim at the “outlet” of the long video.

In the first quarter of this year, Toutiao’s sky-high price won the cinematic movie “囧 妈” to become a spoiler in the video industry, and the B station that started from the second yuan and the subculture circle is also accelerating out of the circle and actively deploying long videos. , Use long video as a powerful weapon to “break through” the dimension wall, and start to fight for the cake of long video across the border.

Although at present, these two do not pose a substantial threat to the “Big Three” of long video represented by “Youai Teng”, but their entry will inevitably distract the attention of platform users and affect the users’ presence on the platform. The duration of use.

In general, iQiyi ’s membership business is developing rapidly, and the unit price of individual paying members is also increasing. However, limited by internal and external conditions, the follow-up development of iQiyi’s membership business is still inevitable, and loss will still be a theme that must be faced for a long time. I want to align with Netflix, which has long been “profitable”. I am afraid it will take time.