Is iQIYI anxious again?

Recently, the Chinese national football team completed matches against Japan and Saudi Arabia. Since CCTV did not acquire the broadcast rights, iQIYI Sports was the only domestic broadcast platform, and both matches required paid viewing. Moreover, iQIYI's video membership and sports membership are separate, and even iQIYI video members do not have free access to matches.

Issues such as bugs in the payment interface, buffering during live broadcasts, and even black screens, coupled with the national team's 7-0 defeat to Japan, caused topics related to 'iQIYI' to trend on Weibo's hot search list.

Image source: Weibo screenshot

This is already the third time this year that iQIYI has trended on Weibo due to 'payment issues.' In June, the reality show 'Planting Fields' produced by iQIYI offered free offline tickets for its second annual Wheat Field Concert, but charged for online live streaming with viewing time limits, angering many fans. In July, iQIYI attempted to promote a 'basic membership package with ads,' also causing dissatisfaction among users.

However, iQIYI's recent struggles extend beyond this live broadcast to its second-quarter financial results. According to financial reports, iQIYI's (IQ.US) total revenue declined year-over-year in both the first and second quarters of this year, with a significant drop in profits in Q2 2024.

Image source: Financial report screenshot

Since turning profitable in 2022, iQIYI has maintained a stable financial position, but is it now facing 'growth anxiety' again?

Since the rise of long-form video, iQIYI has been recognized as a hit-making machine, particularly in the drama genre.

In recent years, almost all top-viewed dramas have originated from iQIYI, from 'iPartment 5' in 2020, 'My Heroic Husband' in 2021, to 'The Knockout' in 2023. Especially in 2023, with the help of 'The Knockout,' iQIYI reached new heights in market popularity and profitability.

According to 'Fun Biz Insights,' eight of the top ten most-watched dramas last year were broadcast on iQIYI. However, this year, iQIYI seems less prominent among hit dramas.

A recent report from 'Yunhe Data' on the performance and user analysis of summer dramas in 2024 revealed that only one exclusively broadcast drama by iQIYI featured in the top 10 'Domination List.' Compared to last year, iQIYI's hit dramas have visibly decreased this year.

Image source: Yunhe Data

Some netizens even noted that they have opened iQIYI less frequently this year, opting instead to renew their Tencent Video and Youku memberships for 'Celebration 2' and 'Mo Yu Yun Jian.'

The long-form video market has long been characterized by ' Stock competition ' (competition for existing users). According to a research report by Soochow Securities, Youku and Tencent Video's market shares increased year-over-year in the first half of this year, while iQIYI's share declined. The main reason for this is the increased number of popular dramas on Youku and Tencent Video, which diverted market share.

Youku produced several 'dark horse' dramas this year, such as 'Mo Yu Yun Jian' and 'Hua Jian Ling,' which achieved high viewership records. Tencent Video also delivered a string of hits, from 'Prosperity' at the beginning of the year, the sequel 'Celebration 2,' to 'The Story of Roses' starring Liu Yifei during the summer season.

In particular, the highly anticipated return of 'Celebration 2' surpassed 34,000 in popularity within a week of its premiere, setting a new record and earning the title of 'King of Dramas' with its ability to attract 23 sponsor brands.

Image source: Weibo screenshot

In contrast, iQIYI has been somewhat disappointed. From the beginning of the year to the summer season, iQIYI neither produced a 'dark horse' drama like Youku nor achieved the same level of popularity for its top dramas as Tencent Video. Its best-performing drama in the first half of this year was the period crime drama 'From North to South,' which ranked fifth on Yunhe Data's list and had nearly 2 billion fewer valid views than 'Celebration 2,' with half the market share.

Image source: Yunhe Data screenshot

To date, only two iQIYI dramas, 'The Wind Chaser' and 'The Western Journey of the Tang Dynasty's Mysterious Affairs,' have surpassed 10,000 in popularity this year, compared to three dramas reaching this milestone in the same period last year.

The decrease in popular and critically acclaimed works has directly affected subscription enthusiasm. In the first two quarters of this year, iQIYI's subscription revenue was 4.8 billion yuan and 4.5 billion yuan, respectively, down 13% and 9% year-over-year.

It is worth noting that iQIYI's first-quarter financial report, released on May 17, did not disclose specific subscriber numbers. iQIYI's founder and CEO, Gong Yu, stated that subscriber numbers only partially indicate the health of the subscription business and that overemphasizing this figure can distract from daily operations. He also announced that the company would no longer disclose specific subscriber numbers in quarterly financial reports.

Image source: Weibo screenshot

However, based on changes in subscription revenue and ARM (Average Revenue per Member), it is clear that iQIYI's subscriber base has continued to decline this year. In other words, after 'The Knockout' helped boost subscriber numbers to a new high, iQIYI's subscriber base has been on a downward trajectory.

Fans' dissatisfaction with iQIYI this time extends beyond just the issue of paid matches.

On the night of the match against Japan, a significant number of users encountered issues where they could not watch the match even after paying. The hashtag '#iQIYI Paid But Can't Watch' quickly trended on Weibo, with many netizens complaining that they were still stuck on a black screen while the national team was already down by a goal.

Image source: Weibo screenshot

In response, iQIYI Sports attributed the issue to 'excessive instantaneous traffic leading to the allocation of technical service resources exceeding limits' and announced refunds for all duplicate purchases, along with compensation in the form of a viewing voucher.

Image source: Weibo screenshot

This incident involving iQIYI echoes last month's outage of NetEase Cloud Music due to 'infrastructure failures.' Afterwards, 'Ifeng Tech' mentioned that insiders believed that many large-scale technical incidents in internet companies in recent years were related to cost reduction and efficiency enhancement efforts. Due to previous layoffs at NetEase, 'even troubleshooting took a long time.' It remains unclear whether iQIYI Sports' issues were also affected by such cost-cutting measures.

Image source: Weibo screenshot

Cost reduction and efficiency enhancement have been key phrases not only in the internet industry but also in the film and television industry over the past two years. Long-form video platforms are now placing increasing emphasis on the 'cost-effectiveness' of their projects, shelving those that are not profitable. Following significant layoffs in late 2021, iQIYI also cut many unprofitable projects.

Due to the lag in the release of film and television works, the current lack of hit dramas on the platform may be attributed to cost-cutting strategies implemented two years ago.

Financial reports show a significant reduction in iQIYI's content costs. From 2021 to 2023, its content expenses were 20.7 billion yuan, 16.5 billion yuan, and 16.2 billion yuan, respectively, declining for three consecutive years. In the first two quarters of this year, content costs continued to decline year-over-year. This reflects iQIYI's cautious and stringent approach to investing in new projects.

While striving for quality is commendable, excessive caution may negatively impact the platform's competitiveness.

As self-produced dramas account for an increasing proportion of platforms, production companies often submit projects to platforms first, and further cooperation follows after approval. For good scripts and teams, the higher the price and faster the process offered by the platform, the easier it is to secure the collaboration.

Some production companies have struggled with 'slow payments' when working with iQIYI. According to previous reports by 'Shijie,' insiders revealed that iQIYI's approval process is 'particularly difficult,' and that 'delayed payments are common, with many projects going unpaid for over six months or even more than a year.'

Image source: WeChat public account screenshot

'Fun Biz Insights' understands that some production companies that have long-term collaborations with iQIYI have begun to approach other platforms this year. For instance, Ma Dong, who rose to prominence on iQIYI, has led his team to 'jump ship' to Tencent Video.

Image source: Weibo screenshot

Some in the industry believe that Ma Dong's departure from iQIYI was due to 'money not being negotiated.' Ma Dong did not directly address this in his program, stating only that 'Miwei is a production company, and the audience is the only client.'

It is evident that long-term collaborations do not necessarily lead to lasting ties. As competition in the long-form video market intensifies, platforms that fail to offer more sincere cooperation and resource support may find it increasingly difficult to secure high-quality works and teams.

Subscription revenue is now a crucial pillar for long-form video platforms. Since 2023, subscription revenue has accounted for approximately 60% of iQIYI's quarterly revenue.

To further stabilize its subscription business, iQIYI needs to focus on ARPU (Average Revenue Per User) and find ways to encourage subscribers to spend more.

Image source: BOCOM International Research screenshot

iQIYI's primary strategies for increasing ARPU involve reducing discounts and investing more in exclusive paid content.

The recent broadcast of national football team matches is a case in point. iQIYI acquired the exclusive media rights to the Asian Qualifiers for the FIFA World Cup at a high cost, requiring users to pay to watch the matches against Japan and Saudi Arabia. Nevertheless, this attracted many sports fans outside the long-form video community to pay for access.

Additionally, iQIYI has experimented with 'monetizing' its popular IPs in multiple ways. Following the conclusion of last year's hit period drama 'Lotus Pavilion,' iQIYI hosted a themed concert, charging members 30 yuan for live streaming access and non-members 60 yuan. Physical tickets were limited to annual subscribers and required the purchase of a Star Diamond annual subscription for each entry into the draw.

According to feedback from netizens, many fans spent thousands of yuan to secure tickets, with some even extending their subscriptions until 2033.

Image source: Weibo screenshot

Linking subscription renewals and other deep engagement activities with viewing opportunities is likely to boost subscriber numbers and revenue. Indeed, in iQIYI's recent financial reports, the increase in ARPU has been a highlight.

The first-quarter financial report this year revealed that iQIYI's ARM (Average Revenue per Member) has achieved six consecutive quarters of quarter-on-quarter growth, with CEO Gong Yu stating that this trend will continue.

However, improper handling can also lead to a backlash in user sentiment. Like the recent national football team broadcast, iQIYI's playback issues prompted many users to demand refunds.

Image source: iQIYI official website screenshot

Moreover, iQIYI has faced criticism over its advertising and subscription billing issues. Multiple consumers have complained on the Heimao Complaints platform about issues such as deceptive third-party ads, hidden and repeated subscription fees, and mismatching subscription benefits.

Subscription-related issues have been a major source of complaints against iQIYI, including difficulties in obtaining refunds (no refunds for mid-contract cancellations), hidden fees (no prior notification before charging), and repeated charges (monthly fees still applied after purchasing an annual subscription). This year, iQIYI gradually promoted a cheaper basic membership package with ads, but the inability to skip the ads led to many user complaints about 'bait-and-switch tactics.'

Image source: Heimao Complaints screenshot

To date, there are over 42,000 complaints related to 'iQIYI' on the Heimao Complaints platform when searching by keyword.

Overall, the domestic paid content market still has a long way to go. To find new growth opportunities, iQIYI is also turning its attention to overseas markets.

Previously, iQIYI, Youku, Tencent Video, and Mango TV have successively launched the overseas versions of their apps in Southeast Asia, North America, and other regions, distributing their popular domestic dramas and variety shows overseas, but rarely disclosing specific overseas revenue data.

It was not until iQIYI's earnings call recently that management specifically mentioned growth in overseas markets. In Q2 of this year, overseas membership revenue from top mainland dramas increased by more than 30% year-on-year, significantly boosting iQIYI's overall overseas revenue.

Image source: Screenshot from iQIYI's official WeChat account

Chen Min (pseudonym), a Chinese living in Malaysia, said that many young Malaysians enjoy watching ancient Chinese dramas. Long-form video platforms like iQIYI are no less well-known in Malaysia than Netflix, and many people subscribe to their services.

In addition to directly exporting domestic content overseas, iQIYI has also partnered with local production teams to launch local content. Earlier this year, iQIYI's self-produced Thai drama "The Substitute" achieved considerable viewership on its international version. As domestic growth stagnates, expanding overseas to capture new markets may be a viable option.

Image source: Can Stock Photo

For iQIYI, the overseas market represents a promising second growth curve; however, the extent of this growth potential remains unknown.

Ultimately, whether domestically or internationally, "good products and content" will always be the core factor driving business growth. The question for long-form video platforms like iQIYI is how to maintain high-quality, blockbuster content production while managing costs wisely.