iQiyi has been in a bind lately.
On May 9, Youth with You 3, a proprietary idol competition show produced by the streaming site, was pulled from the air before its long-awaited finale. The reason? The show’s most popular contestant became the subject of a scandal, and Chinese regulators wanted to put an end to programs that fostered inappropriate behavior in fans. Expectedly, viewers who had been following the show since the first episode were disappointed.
The situation with Youth With You 3 is just the tip of the iceberg. While iQiyi lost one of its most popular shows, what’s worse is the growth rate of its paying subscribers—its main revenue source—has stalled, dipping from 22% year-over-year (YoY) growth in Q4 2019 to a 4% YoY decrease in Q4 2020. The numbers indicate that iQiyi has not been able to keep up with its deep-pocketed competitors like Tencent Video, Alibaba-owned Youku, and Gen Z-oriented Bilibili. And short video apps like Douyin and Kuaishou are taking up viewers’ screen time as well.
Meanwhile, public investors still question the company’s long-term profitability. The price of iQiyi’s Nasdaq-listed stock dived by more than 50% in the past two months. Several institutional investors, including Goldman Sachs, already sold blocks of iQiyi shares in March. According to Reuters, those sales were linked to Archegos Capital Management, a hedge fund that held large positions in several Chinese tech stocks, which have been impacted by spats between the US Securities and Exchange Commission and its Chinese counterpart.
At the moment, iQiyi has more than 105.3 million paying subscribers. To keep their eyes on the platform’s content and add even more viewers to the count, iQiyi says it is stocking up on fresh content. The company’s CEO, Gong Yu, even invoked the latest tech in iQiyi’s plans for the near future. “Because of the availability of basic capabilities such as 5G, AI, and cloud computing, more technological innovations will reshape the industry,” Gong said at iQiyi’s annual World Conference, which was held in Shanghai on May 13 and 14.
Where have the viewers gone?
In the first half of 2020, iQiyi had a captive audience because of pandemic-induced lockdowns. Its paying subscribers reached a record-high 118.9 million at the end of March last year, but slid back down to 101.7 million in December. In that same period, its biggest rival Tencent Video’s subscriber count climbed from 112 million to 123 million.
Viewers chase after entertaining content, and now they have more options. Chinese market watchers make comparisons between iQiyi, Tencent Video, and Youku—the top three “native” streaming platforms that run business models similar to Netflix. But Mango TV, a streaming service owned by the state television network of central Hunan Province, and Bilibili, a video site that hosts user-generated content, are churning out a slew of original content, including serial dramas and variety shows that draw viewers away from the likes of iQiyi.
Mango and Bilibili manage to lure viewers because they have hefty war chests. Shenzhen-listed Mango Media has a market cap of RMB 121 billion (USD 18.78 billion), and that of star Chinese stock Bilibili is more than USD 37 billion. In contrast, after tumbles in March and April, iQiyi’s market cap is at a modest USD 10 billion.
Facing continuous losses, iQiyi spent less on content in recent quarters—which the company describes as a consequence of better management of content costs. In 2020, iQiyi’s production costs came in at USD 3.2 billion, a 6% YoY decrease, while net losses narrowed from USD 1.6 billion in 2019 to USD 1.1 billion. It raised subscription fees for the first time in November 2020, bumping the monthly charge up by about 25% to RMB 25 (USD 3.90). Tencent Video did something similar last month. The long-term impact of rising subscription fees is not yet known.
More broadly, the high costs of cloud hosting, content licensing, and production mean iQiyi has yet to log a profitable quarter after all these years.
The cancellation of Youth with You 3 is a blow to the company and this type of K-pop-inspired idol competition program. Popular contestant Yu Jingtian’s family was accused of being involved in illegal businesses, including sexual services and drug dealing. And his own introductions as a Canadian and Chinese contestant drew ire on social media in a country where dual nationality is not officially recognized. On Weibo, the topic #Yu_Jingtian_quit_the_show was tracked in more than 66,000 threads. Yu left the program after citing “personal health reasons” on May 5.
Aside from the controversy over Yu’s personal background, a video showing some people pouring milk down drains went viral, speeding up the show’s demise. They did this to vote for their favorite idols: votes were cast by scanning QR codes underneath milk bottle caps. Opening more bottles meant casting more votes—and incredible food waste.
On May 4, state-run news agency Xinhua criticized Youth with You 3 for “misleading youths and eroding their pursuit and values.” Shortly after the article was published, the Beijing Radio and Television administration ordered iQiyi to stop filming for the finale.
In recent years, idol shows like iQiyi’s Youth with You and Tencent Video’s Chuang have become streaming sites’ cash cows. These shows command high ad rates, and fans are prepared to shell out to cast votes, buy concert tickets, and pay subscription fees to watch drama series featuring their favorite stars.
The cancellation of this year’s Youth with You might be a watershed moment. It’s a sign that regulators are tightening control over the content of online programs. One issue runs even deeper: idol shows have played out over the years, and they require fresh elements in their format to sate the appetite of their capricious audiences.
What’s my age again?
At iQiyi’s World Conference held last week, the company announced more than 200 new offerings, including serial dramas, variety shows, anime series, documentaries, and theatrical films. While the company plans to cover the tastes of viewers of all ages, it is specifically grooming Gen Z viewers, who have their own cultural capital and, more importantly, disposable income.
That targeting is evident even on its content roster. iQiyi has transformed its five-year-old blockbuster, The Rap of China, to rebrand it as Generation Z—Hiphop Project, with all contestants aged between 18 and 24 years old. The same production team will also release Generation Z—Fashion Project, which is said to be a “fashion social reality show” featuring China’s streetwear culture.
Other changes are coming too. iQiyi is expanding its “theater brand franchise,” as the company calls it. Each theater brand is a content library for web series that are part of the same genre. Last year, “Light On Theater,” a catalog of its original suspense and crime dramas, was successful. One hit was The Bad Kids, a thriller about the fallout after three children film a murder. It currently holds a rating of 8.9 out of 10 on review site Douban.
“Theater brands host collections of high-quality short dramas, which are more flexible in production, more diverse in representation, and less risky,” said iQiyi’s senior vice president Chen Xiao in an interview with KrASIA. “Instead of promoting the series one by one, we chose to pool our resources to promote theater brands.” This year, iQiyi launched theater brands featuring romance and comedy content.
iQiyi also plans to develop various types of content based on popular Chinese IP that it has acquired—think of this as building its own Marvel Cinematic Universe or Harry Potter world, but with a local flair. A case in point is Fengqi Luoyang (“The wind rises in Luoyang”), which is based on a historical novel by Ma Boyong. The drama will be released online in the fourth quarter. iQiyi is involved in the production of films, comics, plays, variety shows, offline cultural tourism projects, and games based on the novelist’s original work.
These strategies will “keep audiences subscribed and build brand loyalty,” said Chen Xiao.
More fundamentally, iQiyi is setting out to rewrite the rules for China’s film industry. “Compared to traditional studios, as a platform, iQiyi has the ability to make its content reach a wider audience, and it’s also our goal to make the film industry grow,” said Yang Xianghua, president of membership and overseas business group at iQiyi. Although he didn’t disclose how much money would be poured into developing original films, he said that five iQiyi-produced movies will be released this year, and the company plans to raise the number to 20 by 2023.
“Love yourself and your industry as much as you love your eyes,” said CEO Gong Yu in a speech he gave at the World Conference. iQiyi needs to demonstrate it can create hits to hold onto the attention of Gen Z viewers.