Text/Big Entertainer
Yesterday, iQIYI announced a new price adjustment plan, and in its external response, it once again mentioned the status quo of video platforms, and the phenomenon of low subscription prices has affected the healthy development of the industry.
It is a cliché that domestic video streaming platforms do not make money, and the recent optimization of iQiyi's personnel is just a knock-on effect of delaying profitability. However, there are only a few streaming media companies in the world that can really make a profit, content production and bandwidth traffic costs account for the majority of expenditure, and the fierce competitive environment keeps the unit price of customers at a low level for a long time.
Image source: Network
However, this situation is obviously impossible to achieve sustainability, especially after domestic video content consumers have already cultivated consumption habits and are eager for more high-quality content and services, as a platform for content production and distribution, it is bound to have a healthy and positive flow of funds to further improve services. This is also why Netflix has raised prices many times but has maintained sustained growth.
At the same time, as a domestic industry leader, iQIYI also needs to form a positive cycle of revenue and investment through price adjustment, and the ultimate goal is still to bring users more high-quality content and maintain a healthy business model.
The essence of price increases: membership payment is a service that is more directly oriented to consumer needs
With the explosive growth of streaming media around the world, the cost of production of content as its main commodity is actually rising as much as other consumer goods, especially when platforms need to constantly rely on new content to keep users subscribed.
In the past five years, international streaming giant Netflix has made a total of six price increases of varying degrees around the world and in some regions, and even Disney+, which has only been online for one year, has slightly increased its price after more than 100 million users around the world.
In fact, on last year's third-quarter earnings call, greg Peters, the current Netflix COO, didn't go around in circles about price: "Our job and responsibility is to take the money that users pay us every month, invest it as shrewdly as possible, and produce amazing stories and content." We produce more and more content categories... We sometimes go back and ask users for more subscription fees to keep this virtuous cycle of investment and value creation alive. ”
现Netflix COO Greg Peters
"The virtuous investment and value creation cycle continues to operate" is what every platform aspires to, of course, not every year that Netflix can rise on behalf of other platforms can be assured and bold to follow.
For the domestic video industry, whether it is the business model or the location, iQiyi is basically in the same stage as Netflix, which can continuously produce good content while still needing a large amount of external financing to solve the cash flow problem caused by the high cost of content. But as mentioned at the beginning, in terms of the overall unit price, it is almost difficult for any domestic streaming platform to match with other international streaming companies, even the cheapest Apple TV+ in foreign countries, which will charge $5.99 (equivalent to nearly 40 yuan) a month.
However, the loss of members that may be caused by price increases may be a concern for domestic platforms, but fortunately, reality proves that domestic consumers have great enthusiasm for content payment. In November last year, iQIYI announced a membership fee increase for the first time after the launch of its membership model. In terms of the number of members, in Q4, which announced price increases last year, the number of iQiyi members was 101.7 million. This year,iQIYI's third-quarter financial report data shows that the number of subscription members on the platform is 103.6 million, and the total number has risen slightly.
The growth of membership income is visible to the naked eye, and last Q4, iQIYI's membership service revenue was about 3.8 billion yuan. In Q3 this year, membership service revenue was 4.3 billion yuan. However, even so, iQiyi still needs to reduce operating costs by streamlining the scale of personnel, which still shows that in the case of high content costs, it is imperative to make member subscription revenue cover the cost of content as much as possible.
As a commercial company, the consideration of pricing of course requires comprehensive judgment, but no matter how weighed, there is one indicator that cannot be ignored, that is, the balance of payments.
Netflix has set a content budget of more than $25 billion for 2021. According to Bloomberg, Apple spent about $6 billion on content for their new Apple TV+ in its first year. In contrast, domestic video platforms are also willing to spend money on producing content. In the first three quarters of this year, iQiyi's content cost exceeded 20 billion yuan, and Tencent Video has said that it will invest 100 billion yuan in content production in three years, which is the result of the industry's difficult cost reduction efforts in the past few years.
Apple TV+ Original Series
Minimizing losses as much as possible has become one of the competitive goals of the industry, Tencent deliberately narrowed tencent video's losses when releasing its 2019 financial report, while iQiyi's loss rate is constantly narrowing, but it is still a breath away from the balance of revenue.
On the one hand, video platforms need to bear losses alone, and on the other hand, they need to provide domestic users with rich copyright content and self-made content of continuous improvement in quality. In this situation, video platforms have also tried to increase revenue by not directly increasing subscription fees, but using means such as "advanced on demand", but these methods are difficult to win the understanding and support of users.
Therefore, this year, under the leadership of iQiyi, long video platforms have cancelled the "advanced on demand" model.
Screenshot of Weibo
As the entire video streaming industry moves from a simple scramble for users to how to provide better service, it is more important as a platform to maintain a stable and healthy cash flow state.
More importantly, whether it is Netflix or iQiyi, as a service that truly faces the needs of consumers, the investment of subscribers will eventually be more high-quality film and television content.
In the D2C era of streaming, what kind of sustainable model should it be?
For the domestic streaming media industry, the leader of innovation has always been played by iQIYI, from taking the lead in opening paid subscriptions to boutique episodes and the trend of short episodes, to taking the lead in responding to user needs this year and canceling "advanced on-demand", which also proves that iQIYI is willing and has been doing the right thing.
Advanced on-demand services were once seen as "an important way to increase ARPU value." Today, the cancellation of this service means a loss of short-term benefits for long videos. Cloud Cinema PVOD (Premium Video on Demand) single-film pay-per-view has always been another innovative model that iQiyi has focused on promoting.
The content is directly on consumer-oriented single-chip on-demand, allowing the content party to directly bear the risk of user selection results and costs. The combination of advertising revenue + subscription revenue + single-chip payment model may become a sustainable model for the long-term development of video streaming.
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However, as an industry pioneer, while innovating, it is taking greater risks, and it is clear that the current returns are not proportional to such innovations and risks. So when all platforms are imitating iQiyi's pricing model, they can only rely on themselves to break this long-stagnant deadlock.
Compared with the early days, online video platforms still rely more on existing copyright content and content purchased from third parties to attract users, whether it is foreign Netflix, Disney+, HBO Max, Apple TV+, or domestic iQiyi, Tencent Video, Youku, Mango TV and even B station, are tilting the most resources to self-made content.
In other words, the platform has long been more than just a distribution function, and now any platform is actually a large entertainment film and television company.
But no entertainment company can boldly say that it has fully mastered the stereotype of creating popular content, and many times whether a movie or series can become a blockbuster has a huge accident. Just like this year's Netflix global hit "Squid Game", not too many people are optimistic before it is launched.
Stills from Squid Games
So when someone asks where Netflix or iQiyi spends tens of billions of dollars a year on content costs, a list that's too long to see at a glance is the answer.
Much of this content is converted from subscription fees that users pay regularly each month.
This is also what makes today's streaming platform different from the traditional studios of the past, the content platform is a vertical business model that relies on user paid subscriptions to directly produce content, and continues to attract users to pay, which is not an instant cash but more like a long-term investment. At the same time, it also means that the platform itself needs to form a positive cycle of revenue and investment.
At the same time, the more important and arguably crucial point of this model is how the platform spends every penny paid by the user with personality.
It is not difficult to find from iQIYI's launch of "Mist Theater" in 2020 that iQIYI has found its own tone on the road of exploring self-made content.
The recently launched "Wind Rises Luoyang" and "Who is the Murderer", the former once again proves that iQiyi can still maintain the high quality of content production in different types of works, and the latter gives this year's "Mist Theater" a new look.
Stills from Who's the Killer
More importantly, these works demonstrate the rare ability of domestic content production platforms to continuously produce high-quality content, as well as unique personalities and tastes, and looking at all consumer product markets, the latter two are the core elements that may eventually produce a high premium.
Even though the entire industry is facing many difficulties and is still under great pressure in terms of revenue and cost, iQiyi has released more than 200 film lists this year, and its content investment in overseas markets has continued to grow.
For users, entertainment content consumption has long been integrated into daily life, spending more money to support better content will eventually improve their spiritual life.
In any case, as a platform, you need to find a sustainable development path, as a user, you want to pay a good value for money, and the needs of both sides are actually in a dynamic balance. As long-form video streaming platforms can achieve a positive commercial cycle as soon as possible, the audience will eventually become the beneficiaries of this positive interaction.