A Desperate Gambit: Breaking the Cauldron and Sinking the Boats

Wu Wei, The Investor Network

In April 2026, long-form video behemoth iQIYI (IQ.US) boldly unveiled its 'AI Celebrity/Artist Database' and associated licensing initiatives at the 'iQIYI World·Conference.' The announcement, still in progress, swiftly ignited intense scrutiny and heated debate across the film and television sector, legal circles, and the general public.

At the conference, iQIYI proclaimed that over 100 artists had consented to join the database, with the ambition to craft digital avatars leveraging generative AI technology. Company executives even made the bold assertion that 'live-action filming by real people may become intangible cultural heritage.' However, this seemingly avant-garde technological revelation rapidly devolved into a 'Rashomon'-esque scenario, with several A-list celebrities swiftly refuting any authorization, while public sentiment vehemently opposed the platform's endeavor to 'mass-produce' real artists.

Beneath this uproar lies iQIYI's profound business apprehensions. A review of iQIYI's 2025 operations reveals that, following a brief profitable spell, the company once again succumbed to a slump in revenue and losses. During this period, the company grappled not only with stagnant membership growth and a dearth of hit content but also witnessed its stock price persistently decline amidst fierce competition from short videos and mini-dramas.

With soaring debt levels and interest expenses eroding profits, iQIYI's aggressive pursuit of AI transformation emerged as a desperate bid to restructure its cost framework, reverse its flagging stock price, and even avert delisting risks.

Behind the 'Rashomon': AI Star-Making's Technological Aspirations and Real-World Hurdles

On April 20, 2026, iQIYI proudly launched 'Nado Pro,' a professional film and television production platform, with its cornerstone being the 'AI Artist Database.' iQIYI executives disclosed at the conference that over 100 closely collaborating artists had agreed to participate, aiming to enhance film and television production efficiency by utilizing the artists' likenesses, voices, and performance data. iQIYI founder and CEO Gong Yu optimistically declared that AI technology could substantially augment the number of roles actors undertake and predicted that 'in the future, 100% live-action filming by real people may become intangible cultural heritage.'

However, post-announcement, the market's reaction fell far short of expectations, instead sparking a fierce backlash.

The news prompted several celebrity studios, including those of Zhang Ruoyun, Yu Hewei, and Li Yitong, to issue stern statements denying any AI authorization agreements, with some artists even engaging their legal teams.

Beyond celebrity rebuttals, hashtags such as 'Is iQIYI Crazy?' rapidly dominated trending lists, with audiences expressing widespread resistance to 'robots acting,' arguing that AI-generated 'digital avatars' lack the emotional depth and nuanced soul of human actors, with some even deriding them as 'digital drivel.'

Confronted with the surge in public opinion, iQIYI urgently issued a clarification on April 21, emphasizing that joining the artist database merely represented artists' 'intent to engage,' with specific authorizations necessitating individual negotiations, and denied including artists in the database without consent. CEO Gong Yu also stepped in to clarify that the current list only indicated collaboration intentions and excluded artists who had issued denials.

Beyond celebrities and audiences, third-party experts also voiced profound concerns. Legal experts highlighted that the boundaries of such authorizations are exceedingly vague, and once an artist's likeness and performance data enter the platform's model, they face significant risks of uncontrolled secondary development and data circulation, leading to prolonged 'misuse' of their likeness rights and challenges in providing evidence. Meanwhile, entertainment industry professionals also grappled with severe existential anxiety, fearing that mid- and low-tier actors could be extensively replaced. iQIYI's move undoubtedly represents a radical 'test' of industry compliance boundaries.

Financial Woes: Lack of Hits, Diminishing Margins, and Debt Pressures

Why is iQIYI willing to risk alienating top celebrities and transgressing regulatory boundaries to aggressively promote its AI Celebrity Database? The answer may lie concealed in its 2025 financial records.

In recent years, following a brief profitable interlude in 2023-2024 through 'austerity measures,' iQIYI once again plunged into a slump of declining revenue and reemerging losses in 2025.

Firstly, iQIYI confronts the challenge of stagnant growth in its core membership business. According to its 2025 financial report, iQIYI's average daily subscriber count exhibited negative growth near the 100 million mark. Over the past few years, iQIYI had raised prices multiple times to boost its ARPU (average revenue per user), but this 'draining the pond to catch fish' strategy encountered resistance amidst consumer downgrading in 2025. The proportion of 'single-month members' with low loyalty climbed, directly causing sharp fluctuations in the platform's quarterly membership revenue.

More critically, iQIYI failed to produce blockbuster hits in 2025 on par with 'The Knockout' or 'Ever Night.' The business logic of long-form video is essentially 'hit-driven'; once core content dries up, advertising recruitment and member renewals become unsustainable.

Secondly, iQIYI's gross margin rapidly declined. In 2025, iQIYI experienced its most severe gross margin decline since attaining profitability, dropping to 21.07%, a more than 6-percentage-point decrease from its peak of 27.52% in 2023. The decline in iQIYI's gross margin may stem from the mismatch between 'shrinking revenue' and 'amortization of content costs.' According to industry norms, the expensive copyrights and S-tier drama investments procured by iQIYI during its 2023 peak were amortized upon their 2025 release.

However, under the impact of short videos, iQIYI's 2025 advertising environment and member growth no longer resembled the past, leaving the company with high costs but declining output. Meanwhile, to support its so-called 'AI transformation,' iQIYI procured large amounts of expensive computing resources in 2025, with these infrastructure investments, classified as operating costs, further diluting the company's gross profit.

Most notably, iQIYI's debt structure and interest trap warrant attention. As a content-driven enterprise, iQIYI's asset-liability ratio reached a staggering 71.49% by the end of 2025. On iQIYI's asset side, intangible assets primarily consisting of copyrights amounted to 6.18 billion yuan, along with 3.821 billion yuan in goodwill, 8.458 billion yuan in content investments (prepayments under non-current assets), and 15.07 billion yuan in other non-current asset items primarily consisting of long-term content investments, totaling a staggering 33.529 billion yuan and accounting for over 75% of the company's total assets for the period.

On iQIYI's liability side, as of the end of 2025, its total current liabilities stood at 22.07 billion yuan, accounting for over 66% of the company's total liabilities for the period, along with 3.369 billion yuan in long-term liabilities. Consequently, iQIYI's annual interest expenses have consistently hovered around 1 billion yuan. In 2023 and 2024, after achieving cost-cutting profitability, iQIYI's net profit for those periods amounted to only 1.925 billion yuan and 764 million yuan, respectively.

As multiple iQIYI convertible bonds enter their repurchase periods, and with the company's stock price remaining sluggish for an extended period, iQIYI's creditors will likely opt for cash redemption over conversion, undoubtedly exacerbating iQIYI's liquidity pressures.

The 'Final Showdown' for Long-Form Video: Strategic Dilemmas and Delisting Threats

In reality, iQIYI's aggressive transformation aims not just to curtail costs but also to seek breakthroughs amidst relentless assaults from short videos (Douyin, Kuaishou) and mini-dramas (Hongguo, Hema).

Currently, long-form video platforms confront unprecedented challenges. Short videos have captivated the vast majority of users' fragmented time through exceptionally high production efficiency and precise algorithmic recommendations, while mini-dramas have revolutionized film and television investment logic with their extremely short production cycles and exceptionally high ROI (return on investment).

In contrast, the business model of long-form video like iQIYI's appears overly 'cumbersome.' Although iQIYI has produced multiple blockbuster hits such as 'The Knockout' and 'Ever Night,' producing a single long drama often spans two years and costs over 100 million yuan, carrying high risks and slow turnover.

iQIYI's aggressive push for 'AI celebrity authorization' at this juncture is essentially a financial self-rescue measure dubbed 'cost-cutting and efficiency-boosting.'

In traditional filmmaking, top celebrities may command 40% or even more of the production budget, a primary reason for the persistently high costs of long dramas. This time, iQIYI endeavors to transform this 'labor expenditure' into 'asset licensing' through 'digital avatars,' thereby leveraging AI to mass-produce content and entirely dismantle celebrities' pricing power.

Under Gong Yu's stewardship, management aims to transition iQIYI from a 'buyer' to an 'AI tool provider.' If 'Nado Pro' succeeds in lowering production barriers, the platform can attract more low-cost small and medium-sized developers to create long-form video content using a 'short video production approach,' thereby enhancing the company's cash flow turnover. The company may also morph into a platform akin to YouTube, retaining users through third-party-created content while reducing its own content investments and mitigating related risks.

However, can distant water quench immediate thirst? Following the annual report's release, iQIYI's stock price continued to plummet, hitting a low of $1.18 per share, nearing the $1 delisting threshold. If iQIYI's AI transformation fails to yield substantial financial contributions by the second half of 2026, the company may face the blow of losing its financing capabilities.

Currently, iQIYI's transformation appears logically sound but confronts enormous legal and ethical chasms in reality. As long as celebrities and their fan bases persist in resisting AI-generated 'fake faces,' iQIYI will struggle to establish high-quality content barriers.

Looking ahead, iQIYI's 'AI last stand' resembles an exceedingly passive defensive counterattack. Amidst short video onslaughts, high debt levels, and relentless interest pressures, time is running out for Gong Yu and iQIYI. If it fails to achieve a true industrial revolution through AI, iQIYI may have to confront an even harsher business restructuring or even bid farewell to capital markets.

Is iQIYI truly 'crazy'? Feel free to leave your comments and join the discussion. (Produced by Sihui Finance) ■

Source: The Investor Network