Welcome to the wechat subscription number of chuangshiji
By Zhang Zhao
Source / new knowledge of science and Technology (ID: kejixinzhi)
On November 17, iqiyi released its unaudited financial report for the third quarter up to September 30, 2020. It is still iqiyi’s financial normal that the member service income accounts for more than half and the net loss is billions of yuan.
Previously, on November 13, iqiyi officially adjusted the service price of VIP members. The price of a single month was adjusted from 19.8 yuan per month to 25 yuan, and the price of continuous monthly package was adjusted from 15 yuan per month to 19 yuan per month, with significant increases in succession. As a result, the price of aiqifei will rise to $14 in the United States.
At present, as the three domestic video streaming media giants, although aiyouteng’s three companies are not profitable, they are different from Youku and Tencent video, which rely on Alibaba and Tencent respectively. Now, the relationship between iqiyi and Baidu behind him is full of fog. This year, it was reported that iqiyi intends to sell himself to Tencent.
Therefore, for iqiyi, which has been losing money all the year round, whether it is seeking self-help or waiting for a sale, it needs to tell a new story to the capital – trying to become China’s “nefei” is a good choice. But after the financial report was announced, affected by this, iqiyi fell more than 15% that night. Iqiyi fell into trouble before he could fly.
01 can’t take off the hat of loss
According to the financial report, iqiyi’s revenue in the third quarter of 2020 will reach 7.2 billion yuan, a year-on-year decrease of 3%, and a net loss of 1.2 billion yuan, compared with 3.7 billion yuan in the same period of last year, with a year-on-year decrease of 68%.
According to public data, from 2015 to 2019, iqiyi had net losses of 2.58 billion yuan, 3.08 billion yuan, 3.74 billion yuan, 9.06 billion yuan and 10.28 billion yuan respectively, with a total loss of nearly 32 billion yuan. The loss is still the normal situation of iqiyi.
In iqiyi’s revenue plate, member services and online revenue accounted for the largest part, including member service revenue of 4 billion yuan, a year-on-year increase of 7%; online advertising revenue reached 1.8 billion yuan, a year-on-year decrease of 11%.
Since 2018, iqiyi’s membership service income has exceeded advertising, becoming the core revenue source of iqiyi. Therefore, for iqiyi, the number of subscription members is very important. According to the third quarter financial report, as of September 30, 2020, the number of subscription members of iqiyi reached 104.8 million, a decrease of 1% compared with 105.8 million in the same period of last year.
Interestingly, in the second quarter of this year, the number of subscription members of iqiyi was 105 million, an increase of 4% compared with 100.5 million in the same period of last year. However, the number of members of iqiyi in the first quarter of this year was 119 million. Therefore, in the second quarter of 2020, the number of members of iqiyi decreased by 12% month on month, while the number of members in the third quarter was 104.8 million. In other words, in the second and third quarters of this year, the number of subscription members of iqiyi has been declining.
This is a fatal blow to iqiyi. In the third quarter financial report meeting, CEO Gong Yu once responded to the price increase, saying: we also believe that the main reason for users to pay is because of the good content of the head of the exclusive broadcast. Most of these contents come from original and self-made content. The reserve of the content of our later works is very rich, so we believe that this measure of price adjustment will not affect the development of medium and long-term members.
However, in the second and third quarters, we are in the hot period of a series of popular online dramas such as “misty theater”, “band’s summer” and “China’s new rap”, so we can see the growth of iqiyi’s member service income on a month on month basis: in the third quarter, the member service income reached 4 billion yuan (about 585.5 million US dollars), and in the second quarter, it was 4 billion yuan (about 5727.5 million yuan) US $100 million).
While the income of member services increased month on month, the number of subscribers decreased. This shows that the ARPU value of iqiyi members (average income per user) has increased in disguise, but this is not necessarily a good thing.
In the second quarter of this year, iqiyi upgraded its “advance on demand” and officially launched “Star Diamond VIP members”. Prior to that, the advance on demand has caused a lot of public anger. This so-called upgrade can also be seen from the decline in the number of subscription members in two consecutive quarters. After the price increase of iqiyi members this time, the situation will be more severe.
In addition, in the third quarter, iqiyi’s content distribution business revenue was 392.3 million yuan (about US $57.8 million), a decrease of 42% compared with the same period of last year. The reason given in the financial report was that the content released to other platforms decreased in this quarter; other revenue was RMB 979.6 million (about US $144.3 million), up 5% year-on-year. Revenue cost was 6.4 billion yuan (US $937.2 million), 22% lower than the same period last year, mainly due to lower content costs in the third quarter. Content cost is a part of revenue cost, which is RMB 4.7 billion (US $692.1 million), which is 24% lower than that in the same period in 2019, and also a corresponding decrease compared with 5.1 billion yuan in the second quarter.
Wang Xiaodong, chief financial officer of iqiyi, once said that in this challenging period, iqiyi is more cautious and effective in controlling expenditure. For iqiyi, under the premise of loss becoming normal, controlling expenditure has become the top priority.
However, the financial report as a whole does not have much bright spot. In the case of the loss still and the growth of member subscription number is tired, it is also natural to be looked down on by the stock market.
02 forced price increase
Compared with the long-term loss, iqiyi has been the number one video player in recent years.
According to Yiguan Qianfan’s data in April 2020, iqiyi ranked first in all indicators, while Tencent video and Youku ranked second and third respectively. Iqiyi has more than 600 million active users, Tencent video over 500 million and Youku 300 million.
Wang Guanyi belt, its heavy difficult to bear. Although iqiyi has always been in a tripartite confrontation with Youku and Tencent video, the relationship between aiqiyi and aiqiyi has become complicated and confusing in recent years for Baidu, which is all in AI. At present, baidu holds about 56.6% of iqiyi’s equity. As a listed company of Baidu, iqiyi’s financial report will be included in Baidu’s financial report, but aiqiyi, which has been losing money, makes Baidu love and hate it.
In June, Reuters reported that Tencent intends to invest in iqiyi and become its largest shareholder. In fact, Tencent is not iqiyi’s first customer. A person close to iqiyi revealed that before iqiyi contacted Tencent, Zhang Yiming had negotiated with Gong Yu at the business level, and promised to continue to give iqiyi certain funds and resources every year in the future, in addition to the capital invested.
But in response to iqiyi’s sale of shares, Guo Feng, Baidu’s public relations director, responded: “don’t guess, Baidu will support iqiyi’s development as always.”.
This year, iqiyi’s “solo” trend is becoming more and more obvious. In April, iqiyi launched with engraving, aiming to bring users a content community experience of combining long video with short video. On November 11, the media reported that Baidu mobile ecological business group integrated good-looking video and national small video into a short video business department, and their business overlapped.
In July this year, a person familiar with the situation disclosed that iqiyi started to explore the commercialization of short videos and live videos. However, on the day of iqiyi’s third quarter financial report, huanju Group officially announced that it had signed a final agreement with Baidu. According to the agreement, Baidu will buy huanju’s domestic live video entertainment business with about $3.6 billion in cash.
Although Gong Yu said in the third quarter financial report conference call, Baidu’s acquisition of YY domestic live service is far from iqiyi’s business in terms of business logic and has no obvious direct impact. But in fact, the two do overlap in business. For Baidu, the relationship with iqiyi has become intriguing in the direction of short video and live broadcasting this year.
In addition, the pattern in the field of long video is not unchangeable. Just after iqiyi’s price hike, according to media reports, mango hypermedia plans to transfer 5.26% of the company’s equity through public solicitation. On November 16, 2020, the company received a notice from Mango media, the controlling shareholder: Mango media received the application materials submitted by one intended transferee of Ali venture capital in effective form. In other words, Ali may become a shareholder in mango hypermedia, and the long video field will usher in a new situation.
Previously, in 2018, mango super media, the listed company of mango TV, had a revenue of 2.196 billion yuan in the third quarter and a net profit of 240 million yuan to its parent company. Mango TV was the first to make profits in the case of all losses of aiyouteng. At present, the loss predicament of domestic long video platforms generally lies in that the cost (the major video websites try their best to buy the copyright) can not be reduced, the service fee can not be raised, and even in order to seize the users, the members of the major platforms discount all the year round, and no one dares to take the risk of the first price increase. However, this first price increase shows that iqiyi can’t bear it.
For iqiyi, to stabilize its position in the industry, it is necessary to change the existing profit dilemma. For iqiyi, which accounts for more than half of its members’ income, expanding its revenue is nothing more than making efforts to increase its members’ income, which can be increased either by increasing the number of subscribers or by increasing the ARPU value. Since 2018, however, the growth rate of Aiqi members has gradually slowed down.
Therefore, improving ARPU value has become a way in front of iqiyi, and it is natural to imitate the price rise of Netflix. Gong Yu has been longing for this for a long time. In this year’s conference call after iqiyi released its report on the second quarter of fiscal year 2020, Gong Yu mentioned that members had not raised their prices for nine years, mainly because of competition, and said that the price was still too low. On the conference call in the third quarter, Yang Xianghua also said that he “prepared for this price increase since the second half of 2018, and then conducted several rounds of user interviews.”.
03 Netflix is hard to do
Obviously, iqiyi’s price increase this time is to follow Netflix’s route of “creating high-quality content through large investment to attract paying users – paying income to continue to invest in high-quality content – nurturing users and industry – continuously enhancing original strength and creating more high-value content”.
The pace is set, but the road is not easy. Although Gong Yu and Yang Xianghua both mentioned that they were well prepared for this price increase, the risk of price increase can also be seen from the “teacher of the past” of Netflix.
In 2011, Netflix cut prices for the first time, when it spun off video streaming from its old DVD mailing service, which increased fees by 60% for subscribers who wanted both services. After making this adjustment, Netflix lost 600000 users. Since then, in April 2014 and after the three price increases, all of them will cause a rebound in the cancellation rate.
It can be seen that Netflix needs to face the risk of a sharp increase in the cancellation rate after each price increase. For iqiyi, the price rise also needs to be prepared in advance to face the risk of the sharp rise in the cancellation rate, which may be fatal to iqiyi, which suffers losses all year round.
Although the price increase has just passed five days, the attitude of users to this is very obvious. According to the micro blog poll, 87% of the 100000 people who participated in the vote did not renew their fees after the price increase. For iqiyi, the price increase is indeed a big gamble.
In addition, after Naifei’s price reduction, it has encountered international competitors to seize the market with low price strategy, which is also applicable to domestic long video platforms. At present, Tencent and iqiyi of the first echelon choose to increase their prices, but Youku, mango TV, Sohu Video and Migu video of the second and third echelons have not made any statement. Moreover, after Ali takes charge of Youku and invests in mango TV, if other video platforms on the market also choose to seize the market with low price strategy, it will be a big blow to iqiyi when it comes.
The different business environment at home and abroad is also a major factor. Nowadays, the copyright awareness of domestic users has not been fully awakened. Before that, popular dramas such as “Qing Nian Nian” were pirated all over the network, which brought great losses to the platform. At the present stage, the desire of domestic users to pay for content is not high. The popularity of domestic free novel platform is an example.
For iqiyi, the first thing to do after the price increase is to create high-quality content and popular dramas. However, there is no general formula for blockbusters in the entertainment industry. Take the IP adaptation of the most popular series as an example. In recent years, the IP adaptation has gradually become rational. The combination of “big IP + strong team” has become the standard configuration in the industry, but no one dares to guarantee that the mode production will be popular. Previously, “Mou Ju”, which was released at the same time as iqiyi, silent truth and secret corner, was adapted from Zijin Chen’s works, but did not achieve the same results.
Therefore, whether iqiyi can continue to create the fog theater style success is still unknown. If the paid content of the platform is not satisfactory, it will bring domino effect, and iqiyi will face a more severe situation.
(statement: This article only represents the author’s point of view, not Sina’s position.)