How to get out of the predicament of iQiyi, a video leader who has been losing money for 11 consecutive years, increases prices, cuts off employees, and loses money for 11 years.
On December 29, 2021, at the roundtable dialogue of the opening forum of the 2021 China Golden Rooster and Hundred Flowers Film Festival, iQIYI CEO Gong Yu shouted loudly that "the ticket price of the network (movie) has to rise, 6 yuan, too low!" ”
At this time, less than two weeks have passed since iQiyi (IQ.US) raised its membership price in mid-December.
Throughout December 2021, iQIYI, the leading domestic video website company, frequently appeared in the public eye.
At the beginning of December 2021, iQiyi was on the news hot search for large-scale layoffs. On December 15, 2021, iQiyi announced that it would start to raise the price of its gold membership on the 16th, which once again triggered a heated discussion among netizens.
In the capital market, iQiyi's performance is also surprising.
On December 29, 2021, iQiyi's stock price fell by 6.5%. From a high of $28.97 in the first quarter of 2021, it fell all the way to $4.03, or 86%.
If calculated from the high point of $46.23 in the year of listing in 2018, iQiyi's cumulative decline has exceeded 90%, and its market value has shrunk by more than $30 billion.
Beneath the surface of all kinds of signs, iQiyi's dilemma also appears in the public's vision.
The industry dilemma of long video
From the incremental era to the stock era, it is difficult to burn money and drain the flow.
Due to the lack of early property rights protection in China, piracy is rampant, and users' willingness to pay to watch copyrighted films and television is not strong.
It is difficult for domestic video websites to directly charge users for content viewing in the early stage of entrepreneurship, and the plan to save the country is to expand the number of registered users by providing free content.
After that, by cultivating user payment habits, the conversion from free users to paying users is formed, and finally a sustainable business model is formed by covering the cost of paid subscription revenue.
Burning money has also become the collective choice of video websites in this period. According to media reports, domestic long-distance video platforms have burned 100 billion yuan in the past decade, of which iQiyi accounts for nearly half.
Since 2013, the introduction of blockbuster Korean dramas such as "You from the Stars" has greatly increased iQiyi's revenue, traffic, and membership volume. iQiyi has eaten Korean drama dividends through the purchase of copyrights. Through the "burning money" drainage, the user scale is quickly expanded.
In June 2017, iQIYI founder Gong Yu introduced in his speech that among all the apps in China's mobile Internet, iQIYI ranked third in the number of monthly coverage devices, and the first and second were WeChat and QQ.
With the peak of the industry scale, the user base is weak, and the number of active users tends to be stable. The marginal effect of burning money gradually disappears.
Since 2015, although the number of paid users has increased by nearly 9 times, iQiyi still has a cumulative loss of more than 40 billion yuan. The industry has entered the era of stock, and the loss-making iQIYI needs to convert more active users into paying users in order to achieve profitability.
However, the pressure on video sites doesn't just come from the industry's topping out. Explosive growth of short video platforms has also joined the battle, robbing users of fragmented time.
Short videos are characterized by fragmented content, which just meets the fast-paced lifestyle of urban office workers today. Tens of seconds to minutes of video content fill the fragmented time in the user's life, and daily commuting, meal time and even bathroom time may be used to brush short videos.
In terms of content on long video platforms, episodes as short as tens of minutes are too expensive for fast-paced life.
According to the "China Mobile Internet Autumn Report" released by QuestMobile, in September 2021, the overall monthly active user scale of short video APP reached 925 million, which has exceeded the 903 million online video APP.
In addition, Aurora big data shows that in the third quarter of 2021 this year, the average daily usage time of users of Douyin and Kuaishou is more than 130 minutes, far ahead of the average daily usage time of less than 80 minutes of traditional long video platforms. Long video sites suffer from double kills of user size and usage time.
The robbery of users' time by short videos has a huge impact on the operation of long video platforms. Video websites that are difficult to make money from paid content have also been squeezed by short videos on the advertising side.
According to the "2020 China Internet Advertising Data Report", the revenue growth rate of short video advertising in 2020 will reach 106%, far exceeding the 25% increase of long video advertising.
At the 9th China Online Audiovisual Conference held in June 2021, Sun Zhonghuai, CEO of Tencent Online Video, complained about the personalized distribution of short videos, "If you like pig food, what you see is all pig food." ”
Behind such fierce verbal criticism, the threat to the long video industry is evident.
The cost of copyright
After the layoffs and then the price increase, iQiyi open source throttling behind the continuous loss.
From 2018 to 2020, iQIYI's revenue grew from 24.99 billion to 29.71 billion. The data on the profit side is not eye-catching. In three years, iQiyi lost 9.110 billion, 10.320 billion and 7.038 billion respectively, with a total loss of more than 26.4 billion.
In the first three quarters of 2021, iQIYI's net loss reached RMB4.4 billion. Since 2015, iQIYI's performance has continued to suffer large losses, with cumulative losses of more than 40 billion yuan.
As a leader in the domestic streaming media industry, according to Questmobile data, iQIYI's monthly active users have reached 508 million, ranking first in the industry.
In the case of market share has peaked, the high cost of content (referring to the cost of copyright) is the main reason why iQiyi continues to lose money and increase revenue.
From 2015 to 2019, iQIYI's gross profit margin was negative for five consecutive years. Coupled with the huge operating expenses, a large loss of net profit is an inevitable result.
In 2020, iQIYI's overall gross margin finally turned positive to 6.14% due to the fact that iQIYI's revenue structure also includes businesses such as online advertising and content distribution.
In terms of the core business of the operation of long-term video websites alone, the long-term inversion of content costs and member subscription revenue has also made iQIYI unprofitable.
Source: Southwest Securities
From 2015 to the first half of 2021, iQIYI's content costs have always exceeded member revenue. This means that the growing investment in content has not attracted more paying users.
In the context of the peaking of the industry scale and the weak growth of the number of users, how to reduce the cost of content while producing good word-of-mouth works to attract paid subscriptions is a problem that iQIYI must consider at present.
The dilemma of self-made content mode
Streaming giant Netflix, the world's largest paid video site. The success of Netflix may give iQiyi, which is still mired in losses, a path to refer to.
As a global streaming giant, Netflix's moat is its high-quality self-made dramas.
Through a large number of high-quality self-made content on the platform, on the one hand, Netflix has reduced the cost of content, and on the other hand, the exclusive word-of-mouth self-made dramas have attracted users to subscribe to Netflix members. Under the joint action of the two aspects, the profitability of Netflix has gradually increased.
From 2015 to 2020, the proportion of Netflix's self-made drama platform increased significantly from 1.4% to more than 40%. Gross margin increased from 32.27% to 38.89%.
In the first three quarters of 2021, Netflix's gross profit margin of sales reached a record high of 45%. In the past five years, Netflix's net profit has grown from $123 million to $2.761 billion, a 21-fold increase.
A large number of high-quality exclusive self-made dramas with lower investment costs not only increased the gross profit margin of Netflix, but also attracted more users to pay to watch, which pushed up the profitability of Netflix.
The explosive "out of the circle" episodes that appear in stages can bring incremental paid user subscriptions for Netflix.
In the second half of 2021, since the launch of the Korean self-made drama "Squid Game" produced by Netflix, it has quickly exploded into the "circle", and the number of on-demand has soared.
According to Netflix's estimates, the number of global viewership users in the 23 days since the broadcast of "Squid Games" has exceeded 132 million. In less than a month, Squid Games has become the most watched episode in the history of Netflix.
According to Netflix's estimates, Squid Games has generated about $891 million in "impact value." The show cost only $21.4 million to produce, or about $2.4 million per episode, which is much lower than Netflix's other big shows.
After the Squid Game fire, Netflix increased its membership fees in South Korea, and the benchmark fees for two people online and four people online were raised by 12.5% and 17.2%, respectively. The influencer effect of "Squid Game" has brought a huge return on investment to Netflix.
Netflix can often rely on blockbuster self-made episodes to go out of the circle, increase attractiveness, and increase subscribers.
Obviously, iQiyi also recognizes the profit potential of high-quality homemade content. The theater model is iQIYI's strategy to create a self-made content ecology.
iQiyi's Mist Theater officially "broke the circle" last summer.
The Misty Theater is a suspense-type theater launched by iQIYI in the second quarter of 2020, which contains a number of suspense-themed short dramas to enhance the user's viewing experience by benchmarking the high-quality content of American dramas and a new theater operation model.
The Mist Theater is also a new upgrade of the suspense genre theater by iQIYI after the launch of the suspense theater in 2018.
In the first year of its launch, the web dramas "The Hidden Corner" and "The Silent Truth" produced by the Mist Theater quickly became popular dramas, and won 8.8 points and 9.1 points in Douban respectively, which was considered by the market to be "the leader of domestic suspense short dramas".
On October 7, 2021, iQIYI won the "Best Streaming Media Original Drama Award" at the 3rd "Asian Content Awards" at the 2021 Busan International Film Festival with the original drama "The Silent Truth" of the Mist Theater, from Netflix's "Alice in the Land of the Dead", "Forbidden Girl 2", "I Am a Relic Finisher" and other high-scoring masterpieces.
This is also the second consecutive year that iQiyi has won this award after "The Hidden Corner" won the second "Asian Content Awards" last year.
Subsequently, iQIYI Mist Theater released a trailer for the return of the new drama and appeared on Weibo's hot search, quickly raising audience expectations for the new drama in 21 years.
However, after the start of the broadcast, the "Octagonal Pavilion Mystery Fog" in which the powerful actors Duan Yihong and Hao Lei sat in line with the "Fatal Wish" of the young actors Wen Qi and Fan Chengcheng, and the word-of-mouth heat both "overturned". The former Douban scored 5.7 points, and the latter Douban scored 4.2 points, far less than the works of the Mist Theater in the same period last year.
On December 5, 2021, iQiyi once again launched "Who is the Murderer". As the last drama of the Mist Theater this year, the drama currently has a Douban score of 7.0 points, which has a good reputation, and to a certain extent, it has also saved the reputation of the Mist Theater this year.
Netflix's self-made content model has given iQIYI a seemingly replicable development path, and iQIYI has begun to exert efforts on the self-made content side.
According to the financial report, the proportion of iQiyi's self-made content has increased rapidly to 66.7%, but self-made content still seems to be large but not strong.
Although the Mist Theater has a good reputation, as a self-made drama platform that has only been established for more than a year, the number of works has accumulated less, and the quality of the episodes is unstable.
iQiyi wants to profit from the cost of content, and it is difficult to rely on the Mist Theater alone.
The future of iQiyi
The successful development process of Netflix has given domestic video platforms a profit path that can be referred to. And iQiyi is catching up on this road.
As of 2020, iQiyi has increased the proportion of self-produced content to 66.7%. At the same time, iQIYI's gross profit margin also turned positive to 6.14% for the first time in 6 years. However, in terms of the breakeven between content costs and user subscription payments, iQiyi still has a lot of room for improvement.
Of course, the increase in gross margins is just the beginning. Achieving sustainable profitability also requires a long-term commitment to high-quality homemade content to attract users to pay for the content.
Obviously, the recent layoffs and member price increases of iQIYI can only alleviate iQIYI's short-term financial pressure. Adhering to long-termism on the content side is the future of iQIYI.
To break the dilemma of continuous losses, iQiyi still has a long way to go.