ByteDance and Iqiyi are constantly making new moves, and the long and short video platforms are in close combat？

Wen | Different View Finance

In the field of long video, three video platforms, iQiyi, Youku and Tencent Video, have formed a "three-legged" trend. Three platform opportunities can lead the development direction of the long video industry.

On February 28th, Beijing time, iQiyi (NASDAQ: IQ) announced the unaudited financial report for the fourth quarter and the whole year as of December 31st, 2019. The financial report shows that in the fourth quarter of 2019, iQiyi’s revenue was 7.5 billion yuan and its net loss was 2.5 billion yuan. Both revenue and net loss were better than expected.

Although iQiyi, Youku and Tencent Video are backed by BAT, they still lose money and continue to burn money. The profit seems to be in the foreseeable future. Judging from the latest financial report released by iQiyi, the loss is narrowing. Is this a positive signal?

Why is the long video platform difficult to make a profit from the iQiyi financial report?

According to the financial report, Iqiyi’s Q4 revenue in 2019 was 7.497 billion yuan, up 6.7% from 7.027 billion yuan in the same period of last year, up only 1.4% from 7.397 billion yuan in the previous quarter.

(Source: Financial Report)

As can be seen from the above figure, although iQiyi’s revenue maintained growth, the year-on-year growth rate continued to decline. Iqiyi’s income mainly consists of membership services, online advertising services, content distribution and other income.

In the fourth quarter, Iqiyi’s membership income was 3.861 billion yuan, up 20.6% from 3.201 billion yuan in the same period of last year, up 3.9% from 3.717 billion yuan in the third quarter. In the fourth quarter, membership service revenue accounted for 51.5%, making it the largest source of income for iQiyi. Iqiyi said that the revenue growth was mainly due to the high-quality content and diversified operations, which promoted the growth of the number of subscribers.

Gong Yu, founder, director and CEO of Aiqiyi, said that the revenue of Aiqiyi’s membership business increased by 36% in 2019, and the number of subscribed members reached 107 million. Looking forward to the next decade, the upcoming continuous innovation of 5G commercial and artificial intelligence technologies will bring great opportunities to Aiqiyi. As users in China are more and more willing to pay for high-quality content and use convenient payment methods, they will jointly bring great growth potential to the iQiyi business.

According to the financial report, as of the end of the fourth quarter, the number of subscribed members of iQiyi reached 107 million, and the number of subscribed members increased by 22% year-on-year. On the whole, the growth of subscription members is also slowing down, and with the decline of demographic dividend, membership growth seems to have peaked.

(Source: Financial Report)

Online advertising revenue was 1.883 billion yuan, down 14.6% from 2.204 billion yuan in the same period of last year and down 8.9% from 2.067 billion yuan in the third quarter. In the fourth quarter, online advertising revenue accounted for 25.1%, and the contribution of online advertising revenue continued to decline. Iqiyi said that macroeconomic challenges have led to a decline in online advertising revenue. Yiguan Finance believes that the decline in online advertising revenue is also related to the rapid development of short video platforms. With the rise and rapid development of short video platforms such as Aauto Quicker, Tik Tok and bilibili, users’ attention and advertisers’ budget have shifted, and the advertising business of long video network has been robbed of "share".

Content distribution revenue was 878 million yuan, a year-on-year increase of 68%. Content distribution income mainly comes from broadcasting authorized content. In 2019, hit dramas, such as Little Joy, Dear, Love, and Joy of Life, were distributed by iQiyi. From the perspective of revenue growth, the distribution of these hit dramas has achieved good results.

In the fourth quarter, the income from other businesses of iQiyi was 874 million yuan, down 21% year-on-year. In 2019, the annual revenue was 3.7 billion yuan, a year-on-year increase of 30%. This is mainly due to the growth of many vertical businesses, especially the strong growth of game business after the acquisition of Tianxiang Mutual Entertainment.

Thanks to the reduction of content cost, iQiyi’s Q4 net loss in 2019 was 2.49 billion yuan, narrowing by 28% year-on-year and 32.6% quarter-on-quarter. However, in 2019, iQiyi lost 10.3 billion yuan for the whole year, still showing an expanding trend year-on-year.

According to the financial report, in Q4 of 2019, the operating cost of iQiyi was 7.914 billion yuan, and the content cost was 5.7 billion yuan, accounting for 72% of the operating cost. Content cost includes copyright purchase cost and content production cost.

Gong Yu, founder, director and CEO of iQiyi, mentioned in the earnings conference call that the content cost in 2019 only increased by 6% because of the continuous optimization of the content structure. The financial report shows that in 2019, the content cost of iQiyi was 22.2 billion yuan.

As can be seen from the balance sheet of iQiyi, the content assets of iQiyi include current assets-net value of copyright content, non-current assets-net value of copyright content, and non-current assets-net value of self-made content.

The financial report shows that as of December 31, 2019, iQiyi’s self-made content assets were 4.355 billion yuan, an increase of 16.6% compared with 3.736 billion yuan in the same period of last year; At the end of the period, the authorized content assets totaled 7.51 billion yuan, down 3.7% year-on-year.

From the changes of self-made content assets and authorized content assets, iQiyi achieves structural optimization by increasing the proportion of self-made content and decreasing the proportion of authorized content.

Gong Yu said at the conference call that film and television plays are still the main driving force for members to add value. At present, the hit dramas on the platform of iQiyi, such as Joy of Life and Dear, Love, all belong to copyrighted works.

Self-made video content, which will involve IP copyright purchase of film and television dramas, actor pay, shooting and other production costs, which are all important items of cost expenditure. The self-made variety "Qi Pa Shuo" has continued for six levels, and the topic heat has remained unchanged. "Sword Dynasty", starring Li Xian, a streaming star, is popular in Iqiyi. Although the limitation of star pay and the rising trend of drama prices slow down, the cost of purchasing copyright and the cost of self-made drama and variety shows decrease, it still cannot reverse the loss of video platforms.

In the case of membership growth meeting the ceiling, video websites began to change their thinking and tap the value of membership. If video websites want to turn losses, they need to constantly try new business models.

In terms of member value-added services, the charging mode of "member-on-demand in advance" launched by the video platform was criticized by the whole network and was questioned as "ugly", but it did not stop the determination of video websites to implement the charging mode of "member-on-demand in advance", which will become a normal broadcasting mode in the future.

Gong Yu thinks that although there are relatively few dramas adopting this mode at present, it accounts for a small proportion of the total revenue, but this mode is successful. "In the future, we will take this mode as a normal way of broadcasting. At present, the impact of advanced on-demand on the average revenue per user (ARPU) in the fourth quarter of 2019 and the first quarter of 2020 is not great, but it will be an important way to improve ARPU in the future. "

Iqiyi is constantly changing in the form of advertisements, such as patch advertisements and original small theater advertisements for online dramas. Iqiyi is also constantly trying to make use of advertising resources. Although Iqiyi members have purchased VIP members, they still have to watch advertisements. For example, in a 45-minute episode, all kinds of advertisements are inserted in the title, preview, film and ending, and even members are not spared. Some members can close it manually, while others can’t close it by force.

Iqiyi also said that the membership fee has increased. With the development of video websites for many years, people in China have a certain understanding of the paid membership model, but the acceptance of the paid membership model in China is not so high. In the long-term competition, video websites attract paying members through promotion, although it can boost revenue growth, but it is difficult to achieve profitability. Under the situation of tripartite confrontation, if only one party announces the price increase, it is likely to cause the loss of users.

Video websites are still content-oriented. Yiguan Finance has conducted a small-scale survey. Most paid members of video websites said that a video website member can almost meet their own needs for watching movies/dramas. Which platform can meet your own viewing needs, you will choose which platform, and you will not love a certain platform alone. There are also some users who have registered a number of platform members, but they will not buy annual members, but will only choose monthly membership when chasing a favorite film and television drama.

From this point of view, the loyalty of video platform users remains to be assessed. Whether the video website has enough rich content such as TV dramas and variety shows is the key to retain users. After all, users pay for high-quality content, and the continuous output of high-quality content is the key to the continuous growth and retention of paying users on the platform.

In addition, some insiders told Yiguan Finance that there is another factor in the loss of video websites, that is, the pressure on servers and bandwidth. The video platform should ensure that hundreds of thousands or even millions of people can watch online at the same time, and sometimes upload data traffic such as barrage. These fixed expenses are not small.

With the sudden outbreak of the COVID-19 epidemic, everyone was forced to stay at home and play drama. As a result, when I wanted to meet you was updated on February 26th, iQiyi collapsed, and "iQiyi collapsed" was returned to Weibo for hot search. From the technical principle, there are two reasons for the server crash, one is that the server content is tight, and the other is that the service design is flawed. It seems that Ali, JD.COM and others built their own cloud computing data centers for a reason.

In the layout, short videos, long videos and short videos erode each other and fight hand in hand?

Typical Internet users will allocate their online entertainment time to many different fields, including video (Youaiteng’s three long video websites; Tik Tok, Aauto Quicker and other short video sites) game videos (Tiger Tooth, bilibili, Betta Fish, etc.) and news push platforms. With the disappearance of traffic bonus, the peak of membership and the continuous loss, iQiyi needs new stories to enhance its commercial imagination. With the rapid rise of short videos, Iqiyi is constantly trying to seek new breakthroughs.

In fact, iQiyi has launched a variety of short video products, such as gingerbread, whale eating, natto, Jinshi and many videos. Although it failed to attract enough attention, it never gave up. Currently in the "Small Video" entrance of the top column of iQiyi app.

According to Tech Planet, iQiyi recently launched a short video featuring short videos of young trends. Iqiyi launched the "Shake Short Video" this time, on the one hand, it is an expansion and attempt of its own short video classification, on the other hand, it is to seize the popularity of 5G, constantly innovate, accelerate trial and error, and strive to create an explosive short video APP.

For the layout competition in the field of short video, at the conference call of Iqiyi’s 2019 Q4 and annual financial report, Gong Yu, the founder and CEO of Iqiyi, announced that he planned to launch a YouTube mode App called "On Time", and said that Ge Hong, who had rich technical and management experience in companies such as Facebook and Airbnb, would fully lead the business. This seems to show the determination of short videos in the layout of iQiyi.

It is reported that there will be two main categories of "on-demand" video content. The first category is PUGC content, which is mainly uploaded by MCN, individuals and professional organizations. In addition, the long video content of iQiyi will also be played on-demand, thus forming a strategic synergy of "long video+short video".

The content production methods of short videos are mainly PGC (professional production content) and UGC (user-produced content), which are mainly realized by advertising. The long video is either self-made or needs to buy copyright, and the realization methods are mainly user payment and advertising.

In the field of short and medium videos, iQiyi will face the competition from headline department, bilibili and Tik Tok.

Headline has a huge user base and a high daily activity rate, which lays the foundation for the commercial realization of long video. Headlines rely on its good recommendation algorithm to analyze and summarize users’ video preferences and playing habits through big data, and apply them to headline-made videos. They can even customize headline users’ exclusive homemade dramas and homemade variety shows according to the results of big data analysis and user preferences.

Compared with short video platforms, the advantages of long video platforms such as Youaiteng come from the copyright and IP resources of a large number of content creators. Youaiteng takes the lead in the segmentation field in the short video industry through its own areas of expertise. Strict supervision has, to some extent, "forced" the short video head platform to enhance the awareness of copyright, continuously expand the content map, and cultivate and expand the long video user base.

With the sudden outbreak of the COVID-19 epidemic, all the films for the Spring Festival in 2020 were withdrawn. On January 24th, Lost in Russia, directed by Xú Zhēng, announced that he would cooperate with ByteDance’s platform, and the "Headline System" short video platform (Tik Tok/Watermelon/Volcano) was broadcasted independently for free, which aroused the attention and heated discussion in the industry. Many people think that this is not only a symbol of headlines entering the long video and film industry.

With the expansion of users, long and short video platforms have already eroded each other. Short video platforms pay more and more attention to original content, and the competition for original content between long and short video platforms will become more and more fierce.