Source | BohuFN

In the third quarter, iQIYI was still struggling with the lack of hit dramas.

According to financial reports, in the third quarter of this year, iQIYI's revenue was 7.2 billion yuan, a year-on-year decrease of 10%; net profit attributable to shareholders was 229 million yuan, a year-on-year decrease of 51.8%. Among them, membership service revenue was 4.4 billion yuan, a year-on-year decrease of 13%. Online advertising service revenue was 1.3 billion yuan, a year-on-year decrease of 20%.

In other words, iQIYI's most important businesses, memberships and advertising, have again seen a double decline.

Even so, in the third quarter of this year, iQIYI's Non-GAAP operating profit was 370 million yuan, achieving positive operating cash flow for the 10th consecutive quarter.

In the absence of hit dramas, iQIYI is also seeking new ways to survive.

01 The tough days without blockbusters

Facing the double decline in memberships and advertising, iQIYI explained that the content was lighter and brand business was declining.

In simple terms, there was a lack of blockbusters, failing to attract users and thus failing to attract advertisers.

In 2023, iQIYI had five dramas with over 10,000 heat ratings, especially "The Storm Rider", which was the only domestic drama last year with over 10 billion effective plays and 30-day effective plays reaching 100 million.

However, as of the third quarter of this year, only "The Wind Chaser" and "The Mysterious Records of Tang Dynasty: Journey to the West" have surpassed 10,000 heat ratings. It is worth mentioning that, according to the Cloudhe Data Report, among the top online variety shows in the third quarter, iQIYI's exclusive "Stand-Up Comedy Season" ranked second with a market share of 4.7%.

There are still some hits, but they are not enough to support the platform. From the perspective of dramas, according to the 2024 Drama Summer Vacation Report released by Cloudhe Data, Tencent Video occupied six out of the top ten spots, while iQIYI occupied three. Obviously, there is still a gap between the number of hit content on iQIYI and Tencent.

From the perspective of variety shows, among the top five in the Cloudhe Data's third-quarter online variety show rankings, Mango TV occupied three spots, while iQIYI and Tencent Video each occupied one spot.

The importance of hits to long-form video platforms is self-evident. In Ma Huateng's words, the key to supporting long-form video memberships lies in "a few big dramas". "Those small ones in the past can't hold up; at most, they can be used as telephone poles to post advertisements, which have little value."

Taking Tencent Video as an example, "Love Like the Galaxy Season 2", "The Willow Pavilion", "Rose's Story", and "Celebration of Life Season 2" all ranked among the top continuous drama membership content in the third quarter.

Consecutive hits have increased the attractiveness to members and brands.

Tencent's third-quarter financial report shows that thanks to popular anime and drama content, paid long-form video memberships increased by 6% year-on-year to 116 million. At the same time, it also increased the interest of brand advertisers. According to Jirang Data, Tencent Video accounted for 50% of the top ten dramas in self-recruitment on the platform in H1 2024, and "Rose's Story" ranked first in self-recruitment on the entire platform after its launch.

However, in fact, "cutting low-quality projects and focusing on producing big dramas" has long been the consensus among long-form video platforms. But hits are often counterintuitive and counter-standard. In the absence of hits, while iQIYI is going through tough times, it has also made more explorations.

02 iQIYI seeks new paths

For long-form video websites, the inability to mass-produce hit dramas naturally limits profitability. The popularity of short videos has made this situation worse. Youku Vice President Xie Ying revealed earlier this year that the scale of online audio-visual users has exceeded 1 billion, but the number of paid members of long-form video platforms is only 250 million.

Specifically for iQIYI, its membership services have been declining for the past seven quarters. Last year, this part of revenue was 5.5 billion yuan in the first quarter, but it was only 4.4 billion yuan in this quarter.

How to find certainty has become one of the focuses of various platforms. Netflix has once again set an example for its peers. In the third quarter, Netflix's revenue was $9.825 billion, a year-on-year increase of 15%; operating profit was $2.909 billion, a year-on-year increase of 52%.

The improvement in cash-generating ability comes from two aspects. On the one hand, it strives to make money by raising prices, providing family cards, cracking down on password sharing strategies, and offering cheaper membership packages. The latter two are considered the main drivers of Netflix's return to growth.

On the other hand, it makes up for its shortcomings by investing heavily in weak areas such as games and sports. Earlier this year, Netflix spent $5 billion to acquire the exclusive rights to WWE RAW, the flagship product of WWE (World Wrestling Entertainment), for the next ten years and secured the streaming rights to the NFL (National Football League)'s Christmas Day games from 2024 to 2026.

In addition, Netflix has also set its sights on games. At the end of last year, Netflix secured the gaming license for the "Grand Theft Auto" (GTA) trilogy, which subsequently contributed to 18 million downloads.

Obviously, binding more people through cheaper services, purchasing professional content to attract stable professional sports audiences, and investing in games are reliable approaches. This also explains why iQIYI broadcast sports events and launched family cards this year.

However, on the one hand, the broadcast rights for sports events are too expensive, and consumer viewing habits also need to be cultivated. During live broadcasts, any mistakes can easily lead to criticism. On the other hand, short-form video platforms are generally wealthy, and long-form video platforms are not their match when it comes to competing with huge investments.

The launch of family cards is obviously not as convenient as shared memberships. From the perspective of domestic consumption habits, carpooling solutions may not be as effective as imagined.

Judging from the third-quarter financial report, overall user growth and advertising revenue have not shown significant growth.

The most promising area is still short dramas.

Currently, long-form video platforms have varying attitudes towards short dramas, with iQIYI being one of the biggest investors. Not long ago, iQIYI announced the launch of Short Theater and Micro Theater, attempting to use micro-short dramas to increase the ceiling for paid memberships.

This mainly involves two aspects. One is the launch of "Short Theater" and "Micro Theater", which focus on vertical screen micro-short dramas with a single episode duration of 1-5 minutes and horizontal screen short dramas with a duration of 5-20 minutes, respectively. The other is the innovation of the business model for micro-short dramas, where users can either purchase a membership to watch all content or pay to watch a single piece of member content.

The logic of micro-short dramas has been verified. From the overall market perspective, according to official information, as of June 2024, the number of micro-short drama users in China has reached 576 million, surpassing internet services such as food delivery, online literature, ride-hailing, and digital music in scale. The best-performing platform in the industry is Douyin's Hongguo Short Dramas, with a monthly active user base exceeding 120 million, a year-on-year increase of 1045.9%, and an average usage time of 1.38 hours per person.

Industry practitioners, including Yu Zheng, are also investing in short drama production, and the refinement of micro-short dramas is becoming a new trend.

However, for iQIYI, the key still lies in content production. Although iQIYI has shown great sincerity by proactively breaking the traditional IAP revenue-sharing model and transferring more than 70% of revenue to producers, the short drama market is highly competitive. Not only are there short-form video platforms such as Douyin and Kuaishou, but old rivals like Tencent Video are also keeping a close eye on the market.

The effectiveness of this new approach will depend on iQIYI's subsequent performance.

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