Source: Visual China
Author 丨 Zhang Rui
Editor 丨 Kang Xiao
Produced by 丨Shenwang Tencent News Xiaoman Studio
iQiyi, which benchmarked Netflix, has not been able to run through the profit model for 12 years, which has forced baidu, a major shareholder, to re-examine the value of the long video track to itself. As emerging businesses such as intelligent cloud and intelligent driving occupy a place in Baidu's revenue, Baidu's attitude towards iQiyi has also undergone subtle changes.
Just after Gong Yu announced the small goal of "achieving breakeven at the non-GAAP operational level for the whole year of 2022 and achieving the breakeven at the operational level of the quarterly non-GAAP as soon as possible", iQiyi, which has tight cash flow, once again received an olive branch from Baidu, the major shareholder.
On March 4, baidu and Oasis Management Company Ltd. and other investment institutions purchased a total of 164,705,882 newly issued iQIYI Class B ordinary shares and 304,705,880 newly issued Class A common shares in private placements for a total purchase price of US$285 million (approximately RMB1.8 billion) in cash. Among them, Baidu subscribes for Class B common shares, and other investors subscribe for Class A common shares.
Baidu's subscription is equivalent to the "life-saving money" entered into iQiyi. In the context of the continuous decline in stock prices, financing such as iQiyi's fixed increase stocks has also become extremely difficult. As of March 14, 2021, EST, iQiyi's closing price was $2.11, with a total market capitalization of $1.665 billion, and iQiyi's market value has fallen by 92% compared to a year ago.
At the operational level, iQiyi has been in a state of loss, but after a quarter of "cost reduction and efficiency increase", its operating loss has narrowed significantly. iQIYI's operating loss in 2021 was RMB4.5 billion, a decrease of RMB1.5 billion from its OPERATING loss of RMB6 billion in 2020.
However, the narrowing of losses has not changed iQiyi's "pocket shyness" dilemma. At the end of 2021, iQIYI's cash and cash equivalents were only $2,997 million, while accounts payable, notes and short-term loans were $8,896 million and $4,118 million, respectively. At this time, iQIYI is faced with two choices: either continue to optimize employees, reduce copyright expenses, reduce operating costs, and abandon growth; or seek new capital injections.
Judging from the subsequent development, iQiyi and Baidu jointly chose the latter. However, combined with the two businesses, Baidu's capital injection has the meaning of "knowing that it cannot be done". Because Baidu and iQIYI, which have been immersed in the long video market for more than 10 years, understand that in the long video track where capital is the only barrier, it is not easy for iQIYI to turn losses into profits. However, iQiyi, which has narrowed its losses, is indeed a little closer to "making money".
A little closer to making money
iQiyi, which has been relying on burning money for growth, is finally going to see the dawn of "making money", but this hope is exchanged for layoffs, "cost reductions" and membership fee increases.
On March 1, iQIYI released its unaudited financial results for the fourth quarter and full year ended December 31, 2021. According to the report, iQIYI achieved revenue of 30.554 billion yuan and a net loss of 6.109 billion yuan in 2021.
iQIYI's revenue is mainly divided into four parts, membership service revenue, online advertising revenue, content distribution revenue and other revenue. Since 2018, membership service revenue has surpassed online advertising revenue to become the main force of iQIYI's revenue.
In 2021, iQIYI's membership service revenue was RMB16.7 billion, an increase of 1% over 2020; online advertising service revenue was RMB7.1 billion, up 4% from 2020; content distribution revenue was RMB2.9 billion, up 7% from 2020; and other revenue was RMB3.9 billion, up 5% from 2020.
In terms of profit, iQIYI's net loss in 2021 was 6.109 billion yuan, narrowing compared with the losses in 2020 (net loss of 7 billion yuan) and 2019 (net loss of 10.3 billion yuan).
However, in the eyes of some departing employees, the narrowing of iQiyi's losses has been exchanged for layoffs and "cost reduction".
Since Last December, iQiyi has begun a large-scale personnel adjustment. According to the "Late Post" report, the layoffs involve the content business group, the new consumer business group, the strategy department, etc. Among them, almost all departments such as iQIYI Research Institute and iQIYI Game Center have been laid off.
For layoffs and optimization, iQiyi is also blunt. In its latest earnings report, iQiyi added the indicator of "non-recurring employee severance pay". The earnings report explains that this indicator is mainly related to the employee optimization plan that occurred in 2021.
According to the observation of "Deep Net", employee optimization mainly occurred in the fourth quarter of 2021, and the employee severance expenses involved were 179 million yuan.
The layoffs are only part of iQIYI's cost reduction and efficiency gains, and from the fourth quarter of 2021, iQIYI began to systematically reduce content costs and sales, administrative and general expenses.
iQIYI's operating costs are mainly divided into three parts, revenue costs, sales, administrative and general expenses and research and development expenses. Among them, the cost of revenue accounts for the majority. From 2015 to 2021, the proportion of iQIYI's revenue cost to total cost was 78%, 81%, 81%, 81%, 79%, 78%, and 79%, respectively.
Comparing the costs of these three parts in 2019 and 2020, it can be found that iQIYI's revenue costs, sales, administrative and general expenses are in a state of decline in 2021.
iQIYI's R&D expenses will increase in 2021. iQIYI's financial report explained that it was mainly caused by non-recurring employee severance pay brought about by iQIYI's organizational optimization in the fourth quarter.
Reducing operating costs and optimizing non-core businesses such as "games" and "new consumption", iQiyi is moving closer to the goal of breakeven. However, if iQIYI wants to achieve Gong Yu's small goals, it must first break through the ceiling of membership number and membership income growth.
In the fourth quarter of 2021, iQIYI's average total daily subscription membership was only 97 million, compared to 102.7 million in the same period of 2020 and 104.7 million in the third quarter of 2021.
For iQiyi, the number of subscription members of 100 million is a threshold. In the second quarter of 2019, iQIYI's subscription membership exceeded 100 million for the first time, and in the nine quarters since, iQIYI's subscription membership has hovered between 100 million and 120 million.
iQIYI's subscription membership fell below 100 million in the fourth quarter of 2021 or was related to the year-end increase in membership fees. In December last year, iQIYI raised its membership price across the board. Among them, the continuous monthly subscription is raised from 19 yuan to 22 yuan, the continuous season card is raised from 58 yuan to 63 yuan, the ordinary monthly card is raised from 25 yuan to 30 yuan, and the ordinary season card is raised from 68 yuan to 78 yuan, and the annual card membership fee remains unchanged.
Raising the price of members will inevitably face the risk of member loss. In order to achieve breakeven at the operational level, iQiyi is trying all possible "open source" means while "throttling".
From iQiyi's point of view, whether it can achieve breakeven in 2022 not only determines how far it can go in the track of long video, but also depends on its position in Baidu's heart.
In 2021, iQIYI's revenue will be 30.6 billion yuan, accounting for 25% of Baidu Group's total revenue. The increase in revenue share is only one side of the coin, and on the other hand, iQiyi, which has lost money for a long time, has become a constraint on Baidu's market value growth.
The cost of long-distance running
iQIYI was born in the "golden age" of video website development. In the early days of its establishment, Baidu had high hopes for iQiyi. At iQiyi's second anniversary celebration, Robin Li even saw it as "a practitioner of Baidu's landing page strategy."
Capital investment is a key measure of the importance of a company's business. Judging from Baidu's later financial "support" for iQiyi, the honeymoon period between the two lasted only 5 years. In the nearly 10 years since then, as iQiyi's losses have expanded, Baidu's attitude towards it has also undergone subtle changes.
From 2012 to 2014, iQiyi, which had high hopes, not only received financial support from Baidu, but also was arranged for every step of its development.
In 2012, the combined Youku Tudou accounted for 40% of the long video market. In order to break the market pattern of Youku Tudou, Baidu spent $370 million to acquire PPS in 2013, pushing for its merger with iQiyi. In order to provide iQiyi with more "ammunition", a year later, Baidu introduced xiaomi investment for iQIYI and added an additional $300 million investment.
The turning point occurred in 2015. From this year on, the domestic long video market turned into a war between BAT. At that time, Tencent Video, Youku, iQiyi and other major companies such as Tencent, Alibaba and Baidu attacked the city in terms of film and television copyright and production companies. With the influx of major capital into the long video track, the price of high-quality content copyright has risen.
In July 2015, the self-made online drama "Notes from the Tomb Robber", which claimed to cost up to 5 million yuan per episode, was officially launched exclusively on iQiyi. Just after iQIYI announced that its members could watch the entire content of the first season of Tomb Raiders, iQIYI's VIP membership increased by 2.6 million in a matter of days. A month ago, iQIYI's membership exceeded 5 million.
An online self-made drama made subscription members soar by 50% in a few days, which made major video websites see the explosive power of high-quality content and copyright, and the model of video websites burning money to grab high-quality content was officially opened.
The most intuitive result of burning money is loss. Taking iQIYI as an example, iQIYI's revenue in 2015 was 5.319 billion yuan, and its investment in revenue costs in that year was as high as 6 billion yuan.
Consecutive years of losses have put a lot of pressure on the major shareholder Baidu.
In February 2016, Robin Li and Gong Yu planned to privatize iQIYI for US$2.8 billion and divest iQIYI from Baidu's assets, but this plan was ultimately dismissed due to opposition from Baidu's major shareholders.
The failure of privatization became a watershed moment in the changes in the relationship between Baidu and iQiyi. Two months later, Baidu announced that its Baidu video business was officially operating independently, which means that baidu video, which operates independently, will also become a competitor of iQiyi.
In 2016, iQIYI's cash and cash equivalents ending balance was only $964 million. Cash-strapped iQiyi issued US$1.53 billion in convertible bonds in February 2017, with Baidu as the main subscriber subscribing to US$300 million.
This subscription also became the last large "blood transfusion" from Baidu to iQiyi in the next 4 years. In the following 4 years, iQiyi, which has been losing money, has become Baidu's "Achilles heel".
On paper, iQIYI's contribution to Baidu's revenue has risen from 8% in 2015 to 25% in 2021, but iQIYI's consecutive annual losses have also dragged down Baidu's net profit margin. In 2020, Baidu Core's net profit margin was 34% and iQIYI's was -24%; in 2021, Baidu Core's net profit margin was 14% and iQIYI's was -20%, which directly caused Baidu Group's net profit margin to decline from 21% in 2020 to 8% in 2021.
In addition, iQIYI's turmoil in the capital market will directly affect Baidu's stock price. In April 2020, iQiyi was shorted by muddy water institutions and investigated by the US Securities and Exchange Commission, which dragged on, and Baidu's stock price once had a panic dive, falling by 7%.
Industry rumors have suggested that Baidu has repeatedly sought to sell iQiyi. According to "LatePost", in 2020, Baidu had negotiated with Alibaba and Tencent to sell iQiyi, and finally the parties did not negotiate because of the price dispute. At the beginning of this year, there was news that China Mobile was going to acquire iQiyi and merge it into Migu Video.
Although the news of iQiyi's repeated acquisitions has not been followed, it is also seen from the side that Baidu, which has grown a second growth engine, is difficult to "treat iQIYI as its own".
The "baggage" that can't be put down
"AI is an opportunity for Baidu, Baidu will be All-In AI," Lu Qi, former president and COO of Baidu Group (who left on May 18, 2018), said at the 2017 Baidu AI Developer Conference. Lu Qi's sentence was interpreted by the industry as Baidu betting on AI to create a new growth engine.
For Baidu's positioning, Baidu Chairman and CEO Robin Li once said when Baidu returned to Hong Kong to go public, Baidu focused on search engine development for the first ten years, and in the past decade, it has focused on cutting-edge technologies such as automatic driving, AI chips, and artificial intelligence, becoming an artificial intelligence company, and insisting on investing in technology even in the most difficult times.
The picture shows the analysis of Baidu's core business; source: Baidu financial report
Baidu's core business is mainly divided into three parts, mobile ecology, intelligent cloud, intelligent driving and other growth plans. Since 2018, although online marketing services are still the main revenue force of Baidu's core, from the perspective of revenue share changes, the position of intelligent cloud in Baidu is getting higher and higher, and the weight of online marketing services has decreased.
From 2018 to 2020, Baidu's online marketing service revenue was 72.645 billion yuan, 70.038 billion yuan and 66.263 billion yuan, respectively, accounting for 92.81%, 87.86% and 61.9% of The revenue in Baidu's core business was in a downward trend; Baidu's cloud service revenue was 3.005 billion yuan, 6.37 billion yuan and 9.173 billion yuan, accounting for 3.84%, 7.99% and 11.66% of Baidu's core business revenue, respectively, increasing year by year.
In 2021, Baidu did not announce the revenue figures of the intelligent cloud and intelligent driving business in the financial report, but only announced the latest progress of the business.
In terms of intelligent cloud, as of the end of 2021, according to the contract amount of more than 10 million yuan, 35 cities have implemented Baidu ACE intelligent transportation, an increase from 14 cities last year. By the end of 2021, paddlePaddle (Baidu deep learning platform) has increased its cumulative developers to 4.06 million, serving 157,000 enterprises.
In terms of smart driving, in the fourth quarter of 2021, the order for unmanned vehicles supplied by Radish Run nearly doubled from the previous quarter to about 213,000 orders. Baidu's unmanned car service Radish Run officially started charging operations in Beijing, Chongqing and Yangquan on November 25, 2021, February 18, 2022 and February 27, 2022. In addition, after co-founding Jidu Automobile with Geely, Baidu announced that it plans to invest 50 billion yuan in car manufacturing in the next five years.
There is no turning back from the bow. Baidu, which has invested heavily in intelligent AI and autonomous driving, will invest more money and resources on these emerging businesses in the future, which means that iQiyi can get less and less "support".
At present, iQiyi may only have one way to retreat, and continue to reduce costs and increase efficiency.
"Many of iQIYI's projects have been shelved and suspended, and many of those that can be implemented have been forced to be downgraded," said some industry insiders.
Because of financial problems, the iQIYI-led "Sword Immortal Man's Style" project has been shelved. "The "Wind Posture" project was originally scheduled to start on December 11, but just 2 days before the start-up, the project was stopped. Because the platform has no money, the producer can only advance funds and bear the default loss first, which is about 20 million yuan," Chen Yitao, director of "The Style of the Sword Immortal", revealed at the end of last year.
For long-form video sites, the biggest competitive threat comes from short video platforms. On the one hand, it is competing for user time, and on the other hand, it is the proliferation of various pirated content.
According to THE PROPERTY FINANCE, the Haidian District People's Court of Beijing Municipality recently rendered a judgment on iQiyi v. ByteDance for infringement of the information network dissemination right of Yanxi Raiders, finding that the latter's acts involved in the case constituted infringement and reimbursed the plaintiff for losses and litigation expenses totaling 2 million yuan.
The judgment shows that ByteDance did not authorize the iQIYI network to spread the short video uploaded by the user from the drama to the audience through the information flow recommendation technology of today's headline App after the launch of the iQIYI network exclusive drama "Yanxi Raiders". These edited fragments not only undermined the integrity of the work, but also infringed on the commercial interests of iQiyi, the online distributor.
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