October 28, 2020


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Is the price increase the only choice for iQiyi?

Youku has fallen behind
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Is the monthly membership fee of 19.8 yuan really too low?

In the second quarter earnings conference call of iQiyi (IQ.US), iQiyi CEO Gong Yu once again mentioned the issue of membership fee increase. He believes that this price is “too low to cover the cost of content.” Since the beginning of 2019, price increases have become a matter of iQiyi’s management. Gong Yu and other executives have repeatedly expressed their willingness to increase prices at different times and on different occasions.

Why increase the price? It has been in existence for ten years and has suffered losses for ten years. Since 2017, iQiyi has almost achieved an average quarterly net loss of 2 billion yuan (RMB, the same if not specified below), and it has never achieved a single quarter profit. The Q2 2020 financial report of iQiyi just released a few days ago shows that iQiyi’s revenue this quarter was 7.4 billion yuan, an increase of only 4% year-on-year; the net loss was 1.4 billion yuan, which was 39% narrower than the 2.3 billion yuan loss in the same period last year. .

It seems that there is only 1.4 billion yuan away from eliminating losses, but in the current uncertain environment, iQiyi’s road to profitability is still difficult.

While losing money, it provides domestic users with fairly rich copyrighted content and high-quality self-made content, but they are not supported and understood by users. Almost every time iQiyi wants to charge more, such as advance on-demand, it will be Users scolded Hot Search, and were even sued in court.

From the remarks over and over again, we can see Gong Yu’s anxiety. He is the only founder who has been in the long video industry for more than ten years and has persisted. With the fruit of iQiyi, he has survived from the era when pirated video was prevalent, until now that the genuine version has become the industry consensus; it is difficult to develop video membership fees After iQiyi went public, I couldn’t wait for the day to turn losses into profits.

Want to make a profit is nothing more than reducing costs and increasing efficiency. Gong Yu has repeatedly emphasized that monthly subscription fees are the main income of iQiyi in the future and the only way to turn losses into profits. Members’ income is affected by the number of members and the price of members. However, iQiyi’s dilemma is that the number of members peaked at only 105 million in the quarter, an increase of only 4% year-on-year, and a decrease of 14 million from the previous quarter. Faced with great resistance again, it has been delayed to implement.


It is harder to increase efficiency and reduce costs. Without the popular content, users will leave the platform at a faster speed, and the cost of iQiyi will remain at a relatively high level in a short time. Under the current circumstances, raising prices seems to be the only feasible way, and it must be as fast as possible. The more you delay, the less confidence the market has in iQiyi, and then iQiyi will face more serious problems than losses.

Not only that, after being shorted in April, iQiyi said on August 13th, Eastern Time that the company is under investigation by the US Securities and Exchange Commission (SEC). Affected by this, iQiyi’s stock price plummeted 19% to 17.50 after the market. USD/share. As of press time, iQiyi closed at 19.26 US dollars per share after the market, down 11%, with a total market value of 14.13 billion US dollars and a loss of 2.2 US dollars per share.

In 2020, iQiyi is destined to have a hard time.

When will iqiyi lose?

On August 14, Beijing time, iQiyi released its unaudited financial report for the second quarter of 2020. Financial report data show that in the second quarter, iQiyi’s total revenue reached 7.4 billion yuan, an increase of 4% year-on-year; the net loss was 1.4 billion yuan, a year-on-year decrease of 39%. As of the end of the second quarter, iQiyi’s subscription membership reached 105 million; membership service revenue increased by 19% year-on-year to 4 billion yuan; online advertising revenue was 1.6 billion yuan, and content distribution revenue was 861 million yuan.

When will iqiyi lose

From the perspective of iQiyi’s quarterly revenue structure in the past two years, paid memberships and online advertising accounted for the bulk of revenue. Revenue growth in this quarter was still mainly driven by membership payment services. In the second quarter, iQiyi’s membership revenue was 4 billion yuan, a year-on-year increase of 19% and accounting for 55% of total revenue. IQiyi interprets this growth as an increase in the number of subscription members and the company’s various operational measures to increase the monetization of its membership business.

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This may also be related to iqiyi’s “advanced on-demand” model. As early as the financial report meeting in the fourth quarter of 2019, Gong Yu once stated that the “advanced on-demand” has achieved certain success. Regardless of the online drama “The Hidden Corner” that went viral in the first half of this year, or the previous popular dramas “Celebrating the New Year”, “Love Apartment 5”, “My Name is Yu Huanshui”, etc., iQiyi has tried to broadcast ahead of time.

iQiyi has tried to broadcast ahead of time

However, it is worth mentioning that although the number of subscription members of iQiyi has achieved a year-on-year growth of 2%, overall, the growth rate of the number of members is gradually slowing down. And from a chain comparison, compared to iQiyi’s 119 million members in the first quarter’s earnings report, it has dropped. Looking back further, it is not even as good as 106 million in the third quarter of 2019 and 107 million in the fourth quarter.

While “advanced on-demand” has brought growth points to iQiyi, it has also caused dissatisfaction among many viewers. Previously, some members and netizens were dissatisfied with the “advanced on-demand” model, and took iQiyi to court. In the end, iQiyi was sentenced by the court. It can be seen that there are still big disputes among viewers about this model. However, iQiyi is not willing to compromise. In the second quarter of 2020, iQiyi further upgraded the model and officially launched the “Star Diamond VIP Member”. The rights include the ability to watch “advanced on-demand” content. However, this upgrade has not yet achieved significant results, and it remains to be seen.

The growth of Baidu’s own business is also not very optimistic. In this quarter, online advertising fell 8% year-on-year, and active users of Baidu APP experienced a month-on-month decline. In the search field, Tencent’s purchase of Sogou also brought new pressure to Baidu’s core business. For Baidu, the synergy between iQiyi and its own business has no particularly significant strategic significance. On the contrary, it is a bit of a drag, and the support it can give to iQiyi in the future is also very limited.

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The other two head video sites are wealthy. Tencent Video’s membership reached 114 million this quarter, an increase of 18% year-on-year. It has surpassed iQiyi and reduced its loss to 3 billion yuan in 2019. Its biggest advantage lies in China Reading Group, Tencent Pictures, and Penguin. The film and television industry synergies produced by joint ventures such as Film and Television and Xinli Media can reduce copyright costs. In addition, there is a continuous supply of huge traffic from Tencent.

Although Youku has fallen behind, the core of Ali Entertainment is Youku. Ali cannot easily abandon this business. Even if it reduces investment, it will seek a differentiated development direction.

Youku has fallen behind

Compared to price increases, the best destination for iQiyi may indeed be sold to Tencent. This will quickly change the industry landscape and combine iQiyi’s excellent content production capabilities with Tencent’s rich copyright library and channels. This will eliminate competition, increase the right to speak up in the upstream of the industry, and increase prices. The effect is similar to the merger of Huya and Douyu.

But this is only an option. From all angles, there are huge obstacles to the merger of iQiyi and Tencent Video. In the short term, iQiyi holds cash and cash equivalents, restricted cash and short-term investments totaling 9.5 billion yuan, and can maintain normal operations for a longer period of time when losses continue to narrow. Gong Yu and management are also more inclined In independent development, strive for early profit. Whether to sell to Tencent or not depends on Baidu’s willingness, and Baidu has the right to decide.

However, there is also news in the market that iQiyi is seeking to go public in Hong Kong. In this regard, iQiyi once responded that it would not comment. If it comes true, this may mean that iQiyi’s deal with Tencent has ended.