iQIYI has been overshadowed by Tencent too much

Author | Huang Yu

Editor | Liu Baodan

At the beginning of last year, just after the "miracle year", iQIYI, which had just produced the phenomenal hit "Skate into Love", was labeled by its founder and CEO Gong Yu as the "hit-making camp". However, this year, iQIYI failed to live up to this reputation, with only one hit drama, "The Long Ballad", in the first half of the year.

Against the backdrop of Tencent Video's continuous hit dramas, iQIYI's lack of hit dramas and insufficient user stickiness inevitably led to a decline in performance.

On August 22, iQIYI announced its performance, showing a revenue of 7.4 billion yuan in the second quarter of 2024, a year-on-year decrease of 5% and a quarter-on-quarter decrease of about 6.3%. Among them, membership service revenue was 4.5 billion yuan, a year-on-year decrease of about 8.2% and a quarter-on-quarter decrease of 6.3%; online advertising service revenue was 1.5 billion yuan, and content distribution revenue was 700 million yuan.

Guangfa Securities pointed out that iQIYI's revenue was weaker than expected, mainly due to some content performing below expectations in the second quarter, and excellent performance of content on other platforms, leading to pressure on membership and advertising revenue growth.

Against the backdrop of declining revenue, iQIYI's profitability is also not ideal. In the second quarter of this year, iQIYI's Non-GAAP net profit attributable to the parent was about 250 million yuan, a year-on-year decrease of 57.6%; Non-GAAP operating profit was 500 million yuan, a decrease of 36% year-on-year, with an operating profit margin of 7%, a decrease of 3 percentage points year-on-year.

However, it is worth mentioning that for the past decade, almost all long video platforms have been in a "burning money" state. In 2022, iQIYI reached a turning point, achieving full-year operational profitability for the first time, and has achieved positive operating cash flow for nine consecutive quarters as of the second quarter of this year.

High-quality content is the foundation of long video platforms. 2022 and 2023 were relatively successful years for iQIYI. In 2022, iQIYI had a total of 5 drama series with a heat value exceeding 10,000. It is worth noting that before this, iQIYI had only two drama series with a heat value exceeding 10,000. By the end of 2023, the number of drama series with a heat value exceeding 10,000 on iQIYI had reached twelve.

However, this year, iQIYI has shown a lack of momentum in producing hit dramas. The only drama series with a heat value exceeding 10,000 in the first half of the year, "The Long Ballad", aired in the first quarter and concluded in the early second quarter; while "My Aletai", which received good reviews, did not make it to the list of dramas with a heat value exceeding 10,000 on iQIYI.

iQIYI, which has not yet reached the mature industrialized production level of Netflix, is currently unable to firmly hold the title of "hit-making camp".

As the saying goes, fortunes change. After two years of decline, iQIYI's biggest competitor Tencent Video experienced a major outbreak in the first half of this year, with four consecutive hit TV dramas, "The Blooms at Ruyi Pavilion", "The Legend of Xiao Chuo", "Joy of Life 2", and "The Story of the Rose", securing a top position.

iQIYI has also made efforts, but the emergency release of "Fox Spirit Matchmaker" to compete with "Joy of Life 2" went unnoticed According to data from Yunhe, in the first half of this year, iQIYI's share of the top 20 TV series has dropped to 20%, lower than Tencent Video and Youku.

Affected by the lack of explosive hit series, iQIYI's membership service revenue has naturally been affected, with the number of members being the first to suffer. However, following the footsteps of the overseas streaming giant Netflix, iQIYI stopped disclosing its number of members starting from the first quarter of this year.

Historical data shows that iQIYI's daily average subscription membership has decreased from 129 million in the first quarter of last year to 100.3 million in the fourth quarter.

Tencent Video, on the other hand, continues to disclose this data. In the second quarter of this year, the number of paid members increased by 13% year-on-year to 117 million, with a 0.8% increase from the previous quarter.

Regarding the decision to no longer disclose the number of members, iQIYI's management explained that the number of members at a specific time period alone cannot objectively reflect the progress of the membership business, and the future core goal is to maximize long-term membership revenue.

However, based on the decline in iQIYI's membership service revenue in the second quarter, but the situation where the monthly average revenue per member (ARM) achieved year-on-year growth, it is speculated that the number of paid members in the second quarter of this year should have decreased compared to the previous year's second quarter, where the number was approximately 111 million.

During the second quarter earnings call, iQIYI's Senior Vice President Duan Youqiao stated that in the future, iQIYI will focus on developing the scale of its members, with the overall goal still being to drive maximum membership revenue.

Gong Yu also pointed out that in the second quarter, intense competition within the industry is positive for the development of long videos, enhancing the attractiveness of long videos compared to other forms of entertainment. He firmly believes that the key to the long-term development of the long video industry lies in the sustainability of high-quality content supply, as well as a win-win situation between content quality and commercial revenue, which is also iQIYI's constant pursuit.

However, on the path to maximizing membership revenue, iQIYI has not yet found a balance point. It is unavoidable that this year, iQIYI has been criticized multiple times for its "nested" charging practices.

This is not a challenge unique to iQIYI. Over a decade ago, platforms like "iQIYI, Youku, Tencent Video" began experimenting with membership services, gradually cultivating the habit of users paying to watch by providing richer and higher-quality content. During this stage, the number of members became a key focus of competition among major platforms.

Now, as the mobile internet enters a period of intense competition and short video platforms rise rapidly, the growth of membership numbers and daily usage time for long video platforms face a ceiling. "iQIYI, Youku, Tencent Video" have all begun to focus more on exploring new profit points. At this time, a slight misstep can easily lead to user dissatisfaction.

Content quality is closely tied to profitability. CICC International pointed out that in the second half of the year, given the decent performance of new series like "Dislocation" and "The Records of the Tang Dynasty 2", it is expected that membership revenue will recover and increase from the previous quarter. However, the weak performance of series in the first half of the year indicates that the success rate of content on a single platform still fluctuates, and it is expected that there will be continued fluctuations in membership revenue between quarters.

How to consistently produce hit series and increase member stickiness remains a challenge that iQIYI still needs to overcome