Good Luck to China’s Netflix iQIYI as It Aims to Become Online Disney in Next 10 Years

iQIYI celebrates its tenth anniversary with the light show (Source:iQIYI)

China’s film and television industry is at the brink of a major reshuffling as the global pandemic shuts more than 5000 cinemas nationwide and drives socially-isolated people to video streaming sites.

While it seems that COVID-19 has reshaped Chinese content consumption patterns, boosting demand for entertainment platforms like iQIYI (a report by QuestMobile revealed that daily active users (DAU) of online video providers climbed by 17.4% with an average 1.5-hour-long usage time), Tim Yu Gong, CEO of iQIYI said in a conference call that both user growth and metrics are declining as the country resumes economic activities and people get back to work.

iQIYI, often dubbed China’s Netflix, was listed on Nasdaq in 2018 and developed a unique business model, producing numerous high-quality content to satisfy its users and showing global ambitions.

Discussions over iQIYI’s next ten years resurfaced as it faced its tenth anniversary on April 22. With a host of challenges ahead, iQIYI, which is now so much more than a video provider, still strives to sell its “Online Disney” story to both investors and users.

SEE ALSO: Online Entertainment Giant iQIYI Launches Content and Marketing Strategy for 2020

Content is King

Though Netflix is not available in Mainland China, homegrown video streaming giants including the Baidu-backed iQIYI, Alibaba-backed YOUKU and the Tencent-backed Tencent Video, do learn an important lesson in producing content from the world’s leading player. Once operating in a market rife with free and pirated content, they have shelled out big bucks to buy copyright licenses and produce self-made shows to attract new users.

The iQIYI-produced drama Story of Yanxi Palace ranked first in the 10 most Googled TV shows of 2018 list. The series followed power struggles among the concubines of Emperor Qianlong in the 1700s and has been streamed more than 15 billion times on iQIYI before it reached more than 70 markets abroad.

To win over the young generation, iQIYI also brought subcultures on the stage. The rap competition show The Rap of China released in 2017, has been credited for making hip hop widespread and mainstream in mainland China. Pandaily also reported earlier in April on a female idol survival show Youth With You, which was essentially the third season of iQIYI’s Idol Producer. The series started off China’s “Idol Era” on video streaming platforms, generating massive revenues and sparking unprecedented nationwide discussion.

These programs allow iQIYI to survive the battle with rivals. Yet, the company is burning cash to maintain the high standard of content. Its financial report showed that it has spent more than 47 billion yuan on video content over the past five years, accounting for 53.6% of its total revenue.

iQIYI’s CEO said at a public event in early 2019 that the industry has made a grave error of letting the cost of copyright procurement increase too fast.

Sluggish User Growth

Content of high-quality has brought iQIYI new users. It announced a subscriber base of 107 million in its Q4 2019 report. While the membership service has replaced advertising sales and became the main revenue generator for IQIYI since Q3 2018, attracting more paying viewers is becoming harder.

In the race for more paying users, in 2018 iQIYI mapped out a dual membership plan together with JD.com, allowing users access to membership services on both platforms for a bargain price. However, a highly-footnoted report released on April 6 this year by Wolfpack, a financial research firm, alleged that iQIYI’s users were inflated by 42% to 60% and around half of its VIP users got the membership for free or through a cheap deal from partners like JD.COM. iQIYI promptly denounced this report and said that it contains numerous errors, unsubstantiated statements and misleading conclusions.

As user growth gradually hits the ceiling, Chinese video streaming platforms like iQIYI and Tencent are accused of “exploiting” their VIP users by introducing controversial premium VIP plans, which charge paying members an additional fee for access to the latest episodes of trending shows on these platforms.

The policy promptly backfired as netizens and even the state-owned news outlet People’s Daily lambasted it. Tencent Video and iQIYI later apologized and cancelled part of the new VIP program.

New Players in the Race

While three video giants, iQIYI, YOUKU, Tencent Video, hold more than 80% of the market, they are facing threat from emerging players like ByteDance and Bilibili.

ByteDance, the internet powerhouse behind TikTok, made a bold move during the Spring Festival, the biggest film season of the year in China. It released a much-anticipated comedy “Lost in Russia” on its platforms including Douyin, Toutiao and Watermelon Video after signing a cooperation agreement with Huanxi Media, in an attempt to promote its video streaming service by leveraging the social isolation situation.

Despite following in ByteDance’s step and making the movie Enter the Fat Dragon available online, iQIYI’s CEO stated in the Q4 2019 earnings call that ByteDance’s business model of free streaming leans heavily on advertising sales and it is not a sustainable and healthy model in the long run.

ByteDance’s ambition to gain foothold in the video market is turning aggressive. In March 2020, it invested 180 million yuan in Mountain Top, a culture media agency managing famous movie stars like AngelaBaby, and established a new company focusing on performance brokerage services this April.

Back to March 28, 2018, a day before iQIYI’s Nasdaq bell ringing moment, Bilibili, a Chinese video-sharing website themed around animation, comics, and games, also went public in the U.S. Since then, the two quite different companies have been vying for user attention.

Unlike iQIYI, Bilibili started as a subculture community where users with similar interests shared their self-made content. It has now grown into a platform with more than 100 million users and attracts even state media to open official accounts there.

As the international entertainment giant Sony announced the purchase of a $400 million stake in Bilibili on April 9 this year, Bilibili, the dark horse in video streaming industry, came to the forefront of analysts’ attention as the latest contender for the video streaming throne.

The Next Ten Years

Established ten years ago, iQIYI has suffered losses since it entered the industry. Similar money-bleeding scenarios have happened in Alibaba’s YOUKU and Tencent’s Tencent Video.

While all the three platforms are backed by internet giants, which makes it easy for them to raise funds to keep operating, they have to develop viable business models to survive through the tough time.

CEO Yu Gong has repeatedly mentioned that iQIYI plans to a diversify its monetization model into categories like membership services, online advertising services, content distribution, live broadcasting, online games, IP licensing, online literature and e-commerce.

The entertainment ecosystem iQIYI proposed aims to pave way to profitability and turn the company into an online Disney in the next ten years.

As iQIYI celebrated its tenth birthday on April 22, many employees posted the firm’s anniversary card on social media. The card, which was painted in iQIYI’s corporate green and represented a planet full of laughter and happiness, depicted IQIYI’s accomplishments in the past and its dream of an online entertainment kingdom in the coming future.