Iqiyi content ecology development: Games, sports, balance, membership and advertising

Iqiyi content ecology development: Games, sports, balance, membership and advertising

Reporter Wu Yi from Beijing

After landing in the capital market, Aiqiyi is facing double pressures of maintaining high-speed growth of performance and controlling the expansion of loss.

In October 31st, Iqiyi (NASDAQ: IQ) announced its unaudited results in the third quarter of this year. According to the financial report, as of September 30, the total revenue of IQI in the third quarter was 6.9 billion yuan, an increase of 48% over the same period last year, and its membership reached 80.7 million, up 89% over the same period last year. In addition, the company's content distribution business and other income from vertical business lines maintained a high growth.

However, Iqiyi's increased investment in content ecology this year has also increased the cost burden. In the first three quarters, the total net loss of IQI was 5.633 billion yuan, reaching 3.1 billion yuan in the third quarter alone, compared with 3.737 billion yuan in 2017.

On the one hand, this is due to the increased cost of content copyright purchase and self-made content. In addition, during the reporting period, IQY acquired 2 billion yuan for mobile game development and operator Tianxiang Mutual Entertainment. However, the expansion of operating losses was also due to less than expected advertising revenue in the third quarter. In the period of growth and expansion, Akieyi declined in the hottest quarter of advertising business: online advertising revenue was 2.4 billion yuan, down 4% from the same period last year.

Executives at the performance analysis conference revealed that the decline in advertising revenue was mainly due to the termination of cooperation with enterprises without Internet advertising license in the third quarter, which was more affected by the investment of SMEs, but the impact of the matter was over in the third quarter.

"The macro economy will still have an impact on [advertising investment] next year, but the growth rate is smaller than expected, and the overall increase, because after all, we get more share from the traditional television industry." Gong Yu, founder, director and chief executive officer of Iqiyi, said.

Iqiyi's share price fell by 11.54% in November 1st as a result of the expanded news of losses. In response to the capital market, Ding Daoshi, a senior Internet industry analyst, told TIME in an interview that this was not without the impact of the downturn in the Internet industry and the weakness of the medium-sized stocks. Ichiyi has not yet found a balance between performance growth and loss control, but it is only a phased, paid subscription. Reading is the future of the video platform. This is reflected in the steady increase in the membership revenue of Iqiyi.

Be cautious about price adjustment

From the attempt of membership payment mode around 2012 to the construction of content payment system, IQIE is ahead of the video platform and even the Internet content industry.

According to the financial report, IQI's membership service revenue in the third quarter was 2.9 billion yuan, an increase of 78% over the same period last year. As of September 30, the total number of subscribers was 80.7 million, while the total number of members in the same period last year was 42.7 million, almost doubling. Data show that Iqiyi is sinking its subscriber market and expanding its audience.

The blockbuster TV series "Yanxi Strategy" is undoubtedly the "contributor" to the growth of members, and IQYI announced that the net increase of paid users in the third quarter was more than 13 million, while "Yanxi Strategy" ended at the end of August. Some users have withdrawn subscriptions after the end of broadcasting, that is to say, this number is not the largest in the third quarter. Peak value.

"The way to rapidly increase the number of users is still to produce good content. Header content plays a great role in stimulating the growth of new paid users." Gong Yu said. Iqiyi had hesitated before to increase membership fees. On October 18, at the iJOY Entertainment of IQI Art in 2018, Gong Yu once said that the monthly fee of Chinese Internet video packages was set at 20 yuan, initially to compete with pirated DVDs, but it remained unchanged from 2011 to 2018, apparently set a low price.

However, at this performance conference, Wang Xiaodong, Chief Financial Officer of Achieving Arts, revealed: "The company may depend on the steady growth of users. At present, the number of paying customers exceeds our expectations, and still keeps rapid growth. I believe our strategy is correct. In the coming quarters, we will be right about it." The price adjustment will remain cautious until the growth of paid users slows down.

Wang Xiaodong also said that the company would seek other ways to increase each user's contribution to revenue, such as continuing to extend the user's payment time, from an average of six months in the past to nine months in the present.

Despite the bright growth of IQI's business data, from the stock price performance, capital does not seem to pay. Ding Daoshi, a senior Internet industry analyst, believes that the number and income of IQI members have maintained a high growth, but the expansion of losses will make capital believe that the growth of members is based on losses. Video website should enhance the ability of self hematopoiesis, and let the capital see the confidence of profit.

Two ends of the scale: advertising and membership

Membership and advertising revenue are the main source of revenue for Iqiyi. The proportion of membership income is gradually increasing, even exceeding the advertising revenue. IQI has to balance the appeal to advertisers and users in order to explore a cooperative mode of purchasing film and television works and content suitable for the survival of the Internet.

In June last year, Aiqiyi announced the Dolphin Plan for the first time at the World Congress. It solicited high-quality online dramas by means of bidding, guaranteeing the bottom price and distributing the shares. That is to say, under the premise that guaranteeing the bottom price can satisfy the production and certain profit margin, the partners can get 50% of the revenue share through Issuance outside the Internet.

"There are many traditional TV Series in China, which are more suitable for advertising mode. But Internet video is very important for IQI. At this time, it is not the longer the TV series is better, but the higher the quality, which can attract users to pay, and the cost can be controlled." Gong Yu said in a conference call for performance analysis.

In addition, Gong Yu revealed that IQI will release professional production content of mobile Internet vertical screen viewing in November. "We want to innovate, shoot professional content with a vertical screen, that is, PGC content, and try to attract more users to pay or advertise. I think this is the trend of the whole market. "

In the third quarter of this year, in addition to cleaning up "unhealthy" advertising services, IQI also made a highly concerned move to close down the front-end broadcasting data of the whole station, saying that it was to curb the unfair competition of brush flow, refuse "only broadcasting quantity theory" and return to content. Insiders pointed out that Iqiyi's move is essentially a game of interest between producers and advertisers.

In the past, according to the agreement between video producers and video websites, video websites would buy films and TV works at a certain proportion of the full price, and then decide the remaining funds according to the heat of broadcasting. From this, grey industry chain of brush flow in Internet film and television industry has been derived, which damages the interests of video websites.

However, closing the playback data involves advertising and investment in video websites. In the future, IQI will replace the original playback display with the content heat of comprehensive user discussion, interaction and multi-dimensional playback indicators.

Content ecology expansion

The trend of China's entertainment industry is changing rapidly, and Iqiyi is constantly adjusting its strategic mode.

In the past two years, video websites have focused on creating explosions by self-making content or purchasing head movies and TV works, in order to stimulate the rapid growth of members and advertisements, and to "enclose the ground" by content. However, simple content operation is prone to polarization between off-season and hot-season, resulting in quarterly fluctuations in performance. In addition, members are active, but the degree of retention is not necessarily high.

Aiqiyi began to seek to extend beyond the self-made explosive content, trying to extend the industrial chain on the series IP of variety arts, online dramas and network big movies, such as "China has hip hop" for the tapping of rappers, the establishment of brokerage companies, and through off-line concerts to increase the steady revenue sources. Similarly, "Idol Practitioners" through the fan layer by layer voting to develop the model, create groups to appear offline performances, open up the idol industry chain.

However, this model is faced with uncertainties brought about by changes in policy environment and problems brought by immature industrial chain development, such as interest disputes with players'original brokerage companies, maintenance of programs and players' enthusiasm, etc.

In order to find a new profit growth point, IQI is continuing to expand the ecological layout, while integrating resources in related fields by means of capitalization. In July, IQIYI acquired mobile game developers and operators to entertain each other, marching into the game field and expanding film and tourism linkages. In August, IQYI jointly established a joint venture with sports marketing, sports culture dissemination and copyright distribution service provider New England Sports, which will operate IQYI Sports APP and other sports related businesses.

"Diversified development is what any enterprise will do when it reaches a certain scale. Games and sports are in line with the video ecology of IQIYI. In addition, sports and games are two key sectors contributing traffic and users." Senior Internet industry analyst Ding Dao Shi analyzed the times weekly reporter.

However, the expansion of content ecology has also increased its operating costs. According to the financial report, the cost of sales and management fees in the third quarter was 1.3 billion yuan, an increase of 66% over the same period in 2017, mainly the compensation fee for purchasing Tianxiang Mutual Entertainment.

In July, IQIYI announced a wholly-owned acquisition of Skymoons Inc., its overseas operator and Tianxiang Mutual Entertainment. According to the agreement, the total amount of the acquisition was 2 billion yuan, including 1.27 billion yuan in fixed payment, and 730 million yuan in additional payment based on 30 June cash value. Tianxiang Mutual needs to reach designated industries in the next two years. This extra payment is lost in the bag.

"Although we are facing some profit pressures this quarter due to the increase in content input, we think it is necessary, and it is within our expectations. We are going through a transition period, focusing on building and optimizing a healthier content ecosystem to prepare for our future. Wang Xiaodong, chief financial officer of Iqiyi, said.

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