On August 22, iQIYI released its second-quarter financial report for 2024, revealing revenue of 7.4 billion yuan, a 5% year-on-year decrease. Membership service revenue stood at 4.5 billion yuan, down 9% YoY, while online advertising revenue was 1.5 billion yuan, a 2% YoY decline.

iQIYI attributed the decline to fluctuations in content performance rankings and a decrease in brand advertising revenue, partially offset by growth in performance-based advertising.

This outcome is unsurprising, given the success of Tencent Video's dramas earlier this year ("With Feng Xing," "Celebration of Life Season 2," "The Tale of Roses"), and Youku's "Mo Yu Yun Jian." In comparison, iQIYI's much-anticipated manga adaptation "Fox Demon Matchmaker: Moon and Red" underperformed.

Despite this, iQIYI's founder Gong Yu stated in the financial report that the intense competition in the long-form video industry during the second quarter was constructive and enhanced its appeal compared to other forms of entertainment.

On the surface, Gong Yu seems to be defending iQIYI's second-quarter performance. However, "New Position" argues that his statement inadvertently confirms a re-emerging trend: the relative attractiveness and monetization efficiency of long-form video (primarily live-action dramas, hereinafter referred to as 3D content) are declining again.

Users have no loyalty to platforms but follow content, which flows freely between them. For platforms, the decline in attractiveness is compounded by the misalignment between the evolving business models of the long-form video market and audience demands.

Compared to other long-form video platforms, iQIYI relies more heavily on dramas (unlike Tencent Video's anime focus) and targets a broader audience (unlike Youku's focus on female-oriented content). Thus, iQIYI is more vulnerable to the disparities between market and audience evolution.

iQIYI's recent strategies, such as "Fox Demon Matchmaker: Moon and Red" and "My Altay," and Gong Yu's mention of a second growth curve in offline performance indicate that iQIYI is exploring new approaches: premium content production and maximizing the potential of high-quality IPs.

01. Why does the decline of 3D content first affect iQIYI?

Major online entertainment forms like games, anime, dramas, and celebrity worship share common traits: they are IP-driven, fostering long-term engagement and strong marginal effects.

From a user perspective, these activities can be collectively referred to as "falling into a pit." Music and movies are less engaging but purer forms of entertainment, while short dramas, mini-games, and short videos offer quick fixes with limited marginal effects.

Non-live-action characters in games and anime are considered two-dimensional (2D), while live-action dramas and celebrity worship are labeled three-dimensional (3D) in this context.

For years, there has been a delicate balance between drama-watching and celebrity worship. Top stars drive commercial certainty for dramas, which in turn enhance their influence. However, in China, long-form video platforms rely heavily on hit dramas and star power, leading to a phenomenon dubbed "rotating love" among a fixed group of actors.

This has contributed to the perception that Chinese celebrities hold a higher status and are prone to acting big. Conversely, the commercial certainty of 2D games and anime is rising, while that of 3D dramas and celebrity worship is declining.

Recent years have seen a surge in flops for both dramas and celebrities, with stars facing scandals that impact their works. Despite the continued existence of the "rotating love" model, China's celebrity worship culture is evolving towards rationality, as evidenced by iQIYI's reality show "Farming Time," which fosters healthier relationships between idols and fans.

While the de-extremization of the celebrity economy is not the sole factor affecting long-form video, three principles are tilting the balance towards 2D IPs: their relative stability, shorter monetization paths, and bolder storytelling capabilities amidst 3D IP's narrative stagnation.

For instance, "Black Myth: Wukong" garnered immense attention despite a summer devoid of major hits. Its popularity surpassed all other blockbusters released earlier in the year.

Domestic audiences still crave 3D long-form videos, but the market is undergoing a shakeup. Short videos, international dramas, and other content formats are challenging the status quo. As a result, viewers, particularly younger ones with diverse entertainment options, are less inclined to engage with 3D long-form videos solely for drama consumption.

In this scenario, long-form video platforms must offer diverse content or precisely target drama audiences. Among iQIYI, Youku, and Tencent Video, iQIYI's content strategy is neither the most diversified nor precisely targeted, making it more reliant on general 3D long-form videos.

Tencent Video has thrived in both dramas and anime, leveraging Tencent's extensive IP portfolio. Youku excels in catering to modern female audiences with sophisticated female-centric narratives, such as "Queen of News" and "Mo Yu Yun Jian." iQIYI's recent hit, "Storm," is a general-audience drama, but replicating its success is challenging. Therefore, iQIYI is exploring new strategies, including manga adaptations and premium content production, to revitalize high-quality IPs.

02. High-quality IPs and the second growth curve

iQIYI's notable dramas in the first half of the year, "Fox Demon Matchmaker: Moon and Red" and "My Altay," demonstrate its efforts to leverage premium IPs.

"My Altay" achieved a perfect balance between content quality and commercial value, turning a profit shortly after its premiere, marking iQIYI's further commitment to premium content production. This article focuses on "Fox Demon Matchmaker: Moon and Red."

The drama's public reception, popularity, and revenue generation were intriguing.

While "Celebration of Life Season 2," "With Feng Xing," and "Mo Yu Yun Jian" received positive reviews, "Fox Demon Matchmaker: Moon and Red" faced initial negative feedback, limiting its promotional potential. With fewer than 100,000 ratings on Douban (as of August 25) and 11.4 billion views on Douyin, it lags behind similar dramas like "With Feng Xing" (280,000 ratings, 26.4 billion views) and "Mo Yu Yun Jian" (150,000 ratings, 23.5 billion views). Compared to "Celebration of Life Season 2" (29 billion views), "Fox Demon Matchmaker: Moon and Red" performed modestly.

Despite securing 32 brands and 175 advertisements, its performance in public opinion, popularity, and revenue generation is inconsistent. "New Position" speculates that this discrepancy may stem from its status as a manga adaptation, with anime fans often reluctant to accept live-action adaptations. Additionally, the IP licensing revenue likely comes from anime-style merchandise sales, attracting the purchasing power of the 2D community rather than the drama itself.

iQIYI's investment in this manga adaptation can be attributed to the strong appeal and commercial value of 2D IPs, coupled with a lack of such IPs in its portfolio. In contrast, Tencent Video enjoys synergies with its comic industry, while Youku boasts successful manga adaptations like "The Outcast."

From an anime fan's perspective, the drama may have disappointed their 2D imagination but opened up opportunities for merchandise sales and offline events.

Both "My Altay" and "Fox Demon Matchmaker: Moon and Red" have significant offline value. The former boosted tourism in Altay, while the latter's IP licensing focused on offline merchandise sales, often accompanied by other commercial activities. Similarly, iQIYI's upcoming "Tales of Tang Dynasty: Westward Journey" series aims to create a complete business ecosystem around the "Tales of Tang Dynasty" universe, encompassing IP licensing, offline VR experiences, merchandise stores, and theme parks.

During the earnings call, Gong Yu emphasized that developing content IPs in various forms, including offline monetization, is crucial for iQIYI's long-term growth and competitiveness. He hopes that offline experiences will become the company's second growth curve.

However, this integrated online-offline business model places greater emphasis on IP quality to avoid accusations of exploiting fans. While previous long-form video eras explored similar models, they ultimately relied more on online advertising and celebrity synergies. Today, long-form video monetization is increasingly focused on offline interactions, driving content creators to prioritize quality.

03. Final Thoughts

The decline of 3D long-form video content has been a recurring theme, initially attributed to the rise of short-form video platforms. However, the recent decline appears unrelated to external factors, stemming instead from content quality issues. Chinese dramas have lacked blockbusters akin to "Empresses in the Palace" in recent years.

The industry is pushing for higher-quality content, emphasizing its intrinsic value. In this context, content monetization becomes more predictable. iQIYI is tapping into the certainty offered by premium IPs to maximize revenue streams.

*Images and illustrations in this article are sourced from the internet.