Even with the success of hit variety show "King of Comedy Stand-Up Season" and popular drama "Tales of the Tang Dynasty: Journey to the West" in the third quarter, iQIYI's performance failed to improve. iQIYI's problems seem to be more numerous than they appear.

Starting from November 12, iQIYI will introduce a Gold VIP Membership Family Card service, allowing Gold VIP members to open an additional new Gold VIP membership account for an additional fee of only 8 yuan for the first month. From the second month onwards, the primary account can renew the Gold VIP Membership Family Card package at a special price of 33 yuan.

Members purchased after November 12 can log in on up to 5 devices, but only 1 device can play content. In other words, the change from 2 devices being online out of 5 to 1 device being online out of 5, with an additional 8 yuan allowing for 1 more device to be online.

Upon the announcement, many netizens took to social media to complain about iQIYI's "ugly business model," asking questions like "Does a family of 10 need 10 VIP accounts?" and "I stopped using iQIYI a long time ago because I can't even cast in the highest quality."

Prior to the Gold VIP Membership Family Card, iQIYI, which focused on sports, sparked controversy due to national football matches.

Under the influence of multiple events, iQIYI delivered a financial report showing a decline in both revenue and net profit. iQIYI's video business is facing an unprecedented challenge.

There Are Too Few Hits

The entire long-form video platform industry is under unprecedented pressure.

Mango TV, the first long-form video platform to turn a profit, saw a 7.14% decrease in revenue and a 27.41% decrease in net profit in the third quarter.

Alibaba Digital Media and Entertainment, which owns Youku, saw a 1% decrease in revenue in the third quarter. Tencent Video also saw a month-on-month decrease in paying members.

Compared to the other three, iQIYI's performance seems to be the worst. In the third quarter, it achieved total revenue of 7.2 billion yuan, a year-on-year decrease of 10%. Net profit was 229 million yuan, a decrease of approximately 52% compared to the same period last year when it was 480 million yuan.

On the surface, membership fees and advertising are the two main sources of income for long-form video platforms. In the third quarter, iQIYI's membership service revenue was 4.4 billion yuan, a year-on-year decrease of 13%. Online advertising revenue was 1.3 billion yuan, a year-on-year decrease of approximately 20%.

However, to increase membership service revenue and online advertising revenue, the core still lies in producing high-quality content to attract users. High-quality content can drive membership payments and increase advertisers' enthusiasm for placing ads.

Therefore, without hits, nothing else matters.

However, according to the Cloud and Data report from Digital Intelligence Research Institute, there were hits among the dramas released by iQIYI in the third quarter. For example, iQIYI's exclusive "King of Comedy Stand-Up Season" ranked second on the online variety show chart with a market share of 4.7%. "Tales of the Tang Dynasty: Journey to the West" topped both the drama dominance chart and the member content dominance chart.

Compared to the first half of the year, iQIYI's hit performances in the third quarter seem noteworthy, but they still failed to boost its performance. The Digital Intelligence Research Institute found that compared to Mango TV and Tencent Video, iQIYI has a pitifully small number of hits. In the 2024 summer drama season report, Tencent Video occupied six of the top ten spots, while iQIYI only had three.

In fact, after the "phenomenal" nationwide hit drama "The Soaring wildly " at the beginning of 2023, many of the dramas released by iQIYI have failed to surpass it. As the hype died down, the number of iQIYI's daily average subscribing members dropped from 129 million in the first quarter of 2023 to 100 million by the end of the year. The continuous decline in the number of daily average subscribing members has pushed traffic and advertisers into the arms of competitors.

Facing the decline in both revenue and net profit, iQIYI continues to focus on cost reduction and efficiency enhancement. In the third quarter, iQIYI's content costs were 4 billion yuan, a decrease from 4.1 billion yuan in the second quarter and 4.2 billion yuan in the third quarter of last year, showing a year-on-year and quarter-on-quarter contraction. As content costs shrink, the probability of producing hits will surely decrease. High-quality dramas imply higher costs. It remains to be seen whether iQIYI's hope in micro-dramas can help enhance its content appeal. However, according to the Digital Intelligence Research Institute, although micro-dramas have been popular in 2024, the probability of producing hits is still not high.

In the long-form video field, this means that iQIYI must compete with Youku, Tencent Video, and Mango TV for market share while also diverting some resources originally allocated to long-form videos to micro-dramas. This two-pronged development strategy could either lift iQIYI to new heights or gradually cause it to blend into the crowd.

Service Experience is also Deteriorating

Besides the decrease in hits, the declining willingness of iQIYI users to pay also plagues the company's development.

In fact, there are various reasons behind users' decreasing willingness to pay, but most are related to issues such as content homogeneity and declining membership service quality.

According to the Digital Intelligence Research Institute, recently, some users have reported unpleasant experiences when trying to recharge for a continuous annual VIP membership after their iQIYI TV membership expired. Although the first recharge only costs 148 yuan and the renewal fee is 238 yuan, continuous annual VIP users still cannot skip ads. This discovery has left users feeling dissatisfied and questioning the value of an annual VIP membership.

Moreover, iQIYI has also stated that it has no obligation to provide free high-definition casting services, further exacerbating users' concerns about the quality of membership services.

On October 22, iQIYI announced a new rule, stating that it would add a Gold VIP Membership Family Card service, allowing users to open a new Gold VIP account at a special price. The key point is that starting from November 2, new member accounts can log in on up to 5 devices, but only 1 device can play content at the same time. In comparison, both Youku and Tencent Video's VIP members can support up to 2 devices streaming content simultaneously.

The new rule quickly sparked controversy. The Digital Intelligence Research Institute found that most netizens on various social platforms were complaining, with comments like "The sky is falling. They say it's to protect user rights, but it's just a pretext to make users pay more money."

Besides frequently announcing new rules, iQIYI has also increased revenue by raising membership fees. From December 2020 to December 2022, iQIYI raised prices three times, increasing the monthly fee from 19.8 yuan to 30 yuan and the continuous annual fee from 178 yuan to 238 yuan, representing increases of 51% and 34%, respectively. Although iQIYI did not raise prices in 2023, restrictions on casting were also seen as a disguised price increase.

Behind iQIYI's "Russian doll" pricing strategy lies its own profitability challenges. Without hits, users' willingness to pay is already low. Raising membership fees increases users' expectations. If iQIYI fails to provide dramas of equivalent value, it will only force users to leave the platform.

For iQIYI, the ability to produce high-quality content is particularly important, but the exploration of traffic and the operation of existing users are also essential.

After delivering a financial report showing declines in both revenue and net profit, JPMorgan Chase downgraded iQIYI's target price from $2.50 to $1.80. In the capital market, iQIYI hit a new low of $1.94 per share on November 21, with a total market value of only $1.8 billion. Throughout 2024, iQIYI's share price fell by more than 60%.

What's more pessimistic is that there seems to be no sign of improvement.