iQiyi product analysis!

With the development of the Internet, traditional TV program broadcasts can no longer meet people's needs for watching entertainment programs. The rise of streaming media has gradually replaced people's traditional entertainment model of watching TV.

As video websites of the same type, Netflix and iQiyi are both well-known video websites that greatly meet the entertainment needs of users. People say that iQiyi is like the Chinese version of Netflix. As long video platforms, their market capitalizations differ by 80 times. In terms of business model and revenue, they both show different results. This report focuses on analyzing the product structure of the two, and analyzes the product situation of the two by analyzing core data and monetization methods. Finally, it briefly discusses whether iQiyi can become the Chinese version of Netflix, and how to break through and move towards a better development path.

1. Product Structure

1. Netflix’s product structure

To log in to Netflix, new users first register using their email address. Netflix will provide three packages for users to choose from. As long as users register as members, they can watch all the film and television resources on the platform.

Netflix has set up five users, and users can edit each user's nickname, avatar, and age rating settings.

This is very convenient and easy for family users, because Netflix's movies and TV series have a rating system, and some content is not suitable for minors. Children can watch their own channels, and the content and movie recommendations watched by different users are different.

After entering Netflix, users can see Netflix's simple and straightforward interface.

On the homepage, Netflix will recommend similar types of movies and TV series to the corresponding users, and only pictures will appear. When the mouse is positioned on the picture, the play, add to playlist and rating functions will appear. Users can play the movie immediately with one click and enjoy an ad-free, high-definition video experience. It can be said that Netflix's design is very direct and simple. Even for good and bad reviews, there is only one icon for users to click. There is no barrage and no comment area. iQiyi’s overseas website also draws on this model.

In addition, each Netflix video is equipped with dubbing and subtitles in various languages, which is convenient for users in various regions and languages ​​around the world.

We can see that the entire product purpose of Netflix is ​​to satisfy users' viewing and usage experience, focusing on creating high-quality video content. It does not rely on advertising and traffic, but focuses on deeply exploring content that users like in order to retain users.

2. iQIYI’s product structure

In terms of product structure, iQiyi also presents many differences. Although iQiyi is a large video platform in China, we can see that iQiyi's product structure does not just stay on the function of video playback. For example, iQiyi's opening screen often has advertisements covering the entire page, and the navigation bar also has games, novels, live broadcasts, cars, bubbles, live broadcasts, comics and other functions.

From a structural perspective, this is because iQiyi wants to retain all kinds of users by building a large and comprehensive video website product and launching various functions. Although such a product structure looks rich, it actually makes iQiyi pay more attention to traffic and has to reduce its emphasis on the principle that video quality is king.

On iQiyi’s homepage, you can watch a variety of long and short videos for free, including free programs, highlights, trailers, etc. Users can watch videos through search or recommendation. In addition, iQiyi has other functions:

Paopao Community: An entertainment community set up for fans. Its main function is to connect the video-star-fan relationship chain, attract more fan users through star airborne interactions, fan posting, communication, and support, etc.

iQiyi account: UGC video channel, where users create and upload videos, which is also one of iQiyi’s monetization methods

Games: With film IP as the center, we have opened mobile games, web games, TV games, board games and other categories. For example, "The Journey of Flower" was not only a huge success in film and television, but the game of the same name was also popular.

Here we also need to talk about iQiyi's membership function. iQiyi's membership price levels and membership types are different. In addition to ordinary members, the website also has animation channel members and sports channel members. This is one of iQiyi's monetization methods, which is achieved through multi-channel charging.

Compared to Netflix, which set a threshold from the beginning, iQiyi is open to users for free with the aim of attracting more users. Its product strategy is to set up paid functions in the future, such as ad-free, ultra-clear picture quality, the ability to watch some VIP films, etc. Even after becoming a paid member, members are required to pay for advanced on-demand episodes.

2. Let’s talk about the benefits

Looking at the total revenue of the three companies, we can first see from the data that there is a big gap in the revenue of these three companies. In 2019, Netflix's revenue was nearly 5 times that of iQiyi and nearly 20 times that of Bilibili. Where does their income come from?

The revenue structures of these three companies are completely different. Taking 2020 as an example, 99% of Netflix's revenue came from membership fees, and the rest came from DVD rental services. iQiyi’s membership service revenue accounted for 54% of its total revenue, followed by advertising revenue at 22%. Although Bilibili is a video website, its revenue structure is more special. Nearly 40.9% of the company's revenue comes from gaming business, and 32.7% comes from membership business.

There are several key factors that explain this huge gap in returns.

1. Membership Fees

First of all, membership income is the bulk of these two companies, and membership income = number of members * package price.

In terms of the number of members, according to 2020 data, Netflix has 236 million members, while iQiyi has 101.7 million members. This is a two-fold difference. Let’s take a look at the membership packages of Netflix and iQiyi.

When registering for Netflix, you need to apply for membership. The package Netflix initially provided was a monthly package, but the most basic package was nearly three times the price of iQiyi's monthly package. While iQiyi is open to users for free, some films require membership privileges to watch.

The number of members and the higher unit price result in a revenue gap of more than ten times.

What are the deeper reasons behind this?

(1) Why is iQiyi’s membership fee lower than Netflix’s?

First of all, one of the reasons is the difference in income between different countries. In some developed countries, Netflix’s membership fee is just the money for a few meals.

Although the price is high, Netflix does not earn advertising fees or other hidden fees in order to improve the user's video viewing experience. Therefore, the price needs to be high so that it can earn a one-time profit to cover the content production cost, and users can also truly enjoy VIP treatment.

As we all know, iQiyi's entry threshold is free, which means that many people come with the mentality of getting something for free.

After most users get used to this model, they will take it for granted that these resources are free. If they are charged, a low fee is fine. If a high fee is charged, I will not watch them, or I will use other means to get them for free. So if iQiyi’s membership pricing is the same as Netflix’s. Users will not buy it. Therefore, iQiyi first attracts users by offering free or low prices, expands the user base and number, and then earns other fees later.

(2) Why is Netflix’s membership fee so high?

Making a good film or TV series requires creativity, stories, time and resources. But these high-quality movies and TV series are often the most attractive to users. When Netflix first started, it was the fastest to withdraw from the DVD rental business and focus on the streaming media business. Therefore, it had relatively few competitors and relatively more time to develop its own products.

Netflix has always believed that DVD rental is just a stepping stone, not its end, so it has been preparing for streaming media before the advent of the Internet, including thinking about how to reduce its costs, and self-produced dramas are one of the ways out. In 2013, "House of Cards" became a huge hit, adding more than 3 million new users to Netflix and increasing its revenue by 18% year-on-year.

After developing in the United States, Netflix launched its globalization strategy and went online in 130 countries around the world, becoming a global company and gaining users from all over the world.

In 2021, "Squidward Fever" swept the world, and even many countries where Netflix was not online had a very high level of discussion about it, which deepened their trust and understanding of Netflix. It is not cheap to produce such a hit, so Netflix needs to earn more production costs through enough membership fees. Netflix has a large number of users, high membership price, and sufficient costs to produce hits. The arrival of a hit product increases user stickiness and attracts more new users, entering a positive cycle.

(3) Why does Netflix have more users than iQiyi?

Excluding the fact that some domestic users tend to look for online resources, according to my observation, the competition among China's major video websites, iQiyi, Youku and Tencent Video, is very fierce. So where will Chinese users sign up for membership?

The answer is simple. Just become a member wherever you can find what you want to see. In other words, the reason why iQiyi has relatively few users is that it does not have that many film and television resources that users want to watch. It is undeniable that iQiyi has produced many hit TV series and movies, such as "The Bad Kids" and "Youth With You", but the number of hits is small, and after the hits are launched, some users will only sign up for a one-month membership. After other popular dramas and variety shows are launched on other video websites, they will go to other websites to sign up for membership.

Since it is difficult and time-consuming to produce hits, iQiyi can only spend most of its money hiring popular stars to produce scripts, or to produce variety shows with low difficulty coefficients, in order to attract users. As a result, iQiyi only has some low-quality TV dramas or variety shows. Although some fans will buy them, it cannot retain other users who do not chase stars, resulting in user loss, a decrease in the number of members, and a decrease in revenue.

In recent years, the short video wave has continued to rise, and users' entertainment habits are not fixed on long videos, so iQiyi has not been able to subtly change users' entertainment habits and lost some users.

2. Different experiences brought by business model and product structure

Judging from the revenue structure of iQiyi and Netflix, in addition to video business, iQiyi has also developed many entertainment businesses, such as novels, comics, games, etc., while Netflix's revenue structure is very simple, simply membership fees, nothing more.

Judging from its product structure and business model, Netflix appears to be very specialized and sophisticated. We have no other businesses and focus on film and television content. The page is simple and ad-free, and we strive to improve the user experience. This is undoubtedly a success, and it is also attributed to Netflix's reputation of "quality products" and content quality.

iQiyi has developed many businesses but has not achieved good results. Even in the film and television dramas, there are certain problems. What is the reason?

Multi-line business is actually not impossible. For example, Bilibili, another domestic video product, is like the Chinese version of Netflix. iQiyi is like the Chinese version of Netflix, and Bilibili is like the Chinese version of YouTube. Bilibili's business model is also very different from Netflix and iQiyi. From the beginning, Bilibili was a video platform focusing on games, live broadcasts, and animations, so it brought together many game and two-dimensional enthusiasts. Therefore, many game up-loaders will upload videos on Bilibili, which in turn attracts many viewers, so the live broadcast business is easy to do.

In terms of games, we can see that the games on Bilibili and iQiyi are actually very different in type and style, and they target different users. The games on Bilibili are mainly anime-style and mostly independent games, while the games on iQiyi are mostly web games or ARPG mobile games, and are mostly related to film and television IPs.

We can also see from the financial report that the biggest source of revenue for Bilibili is actually its gaming business, so the reputation and quality of Bilibili’s games need to be the best. Then why can’t iQiyi succeed? First of all, iQiyi’s game content itself is still relatively niche, such as film and television IPs, which may attract some drama fans.

Secondly, iQiyi’s main business is not gaming, so its focus is still on acquiring copyrights, producing film and television dramas and variety shows, etc. Its gaming section is not as prominent as its video section, so iQiyi cannot compete with other professional gaming platforms. Therefore, even if iQiyi has diversified businesses, it still cannot succeed.

Here we have to mention Netflix's excellent recommendation engine.

(1) Why can the recommendation engine achieve relatively good results in Netflix?

In my opinion, the functions within Netflix are relatively simple. If you want to retain users, you have to continuously feed them with good-looking content. Only when there are things that many users like to watch on this platform will users frequently visit this platform and stay on this platform for a long time.

For example, after the user has finished watching the updated series, he or she is still not satisfied. At this time, Netflix will recommend similar content, such as the series/variety shows that the user likes. The user will continue watching and watching a new series/variety show, which means that the user's retention rate is higher and the willingness to renew is higher. And if Netflix wants to create a hit, the recommendation engine can actually lend a helping hand. Through the recommendation algorithm, Netflix can understand the tastes, favorite genres, etc. of the majority of users, giving Netflix more and more precise market guidance.

(2) What kind of content is the recommendation engine suitable for?

Although Netflix's recommendation engine has achieved good results, I think that the recommendation engine is actually more suitable for short videos and UGC content.

The recommendation engine algorithm requires a large amount of data collection, and users spend a long time on long videos, perhaps 90 minutes watching a movie. But in the same amount of time, the number of videos a user watches on short video platforms may be dozens or even hundreds. The data generated by short videos is more conducive to the operation of the recommendation algorithm. Moreover, short videos and UGC have many similarities, such as short duration, independent content, and no story development line.

This means that in order to retain users, we must continue to attract users to watch, so the recommendation engine can recommend similar, interesting and diverse content to users. And with recommendations, users will know that refreshing or swiping up will reveal unknown new things, so users will stay on the platform. In terms of commercial feasibility, after the recommendation algorithm engine obtains a large amount of data, it is more conducive to pushing highly matching advertising content to users, thereby increasing advertising revenue.

3. Content production is the root cause of the huge gap

In 2021, a TV series suddenly became popular all over the world. Whether in Asia, the United States, Canada, Europe, etc., everyone is familiar with the phrase "The hibiscus flower is in bloom". This TV series is "Squid Game" produced by Netflix. On the streets of South Korea, because the popularity of the TV series has only increased, the production team also replicated the amusement park in the play in some subway stations. Among them, Netflix's name also appeared in the promotional venue. Suddenly, Netflix's popularity experienced explosive growth again.

This is Netflix’s business strategy: use good dramas to accumulate good reputation and use high quality to gain users’ trust.

From "House of Cards" and "The Queen's Gambit" to "The Queen's Gambit" and "Dark", Netflix has produced many hit or masterpiece dramas.

The so-called blockbuster here refers to high-quality, popular film and television works, which usually have a moderate pace and content and plot that are deeply loved by the audience. Even if there are no big stars with high traffic, the actors' acting skills are online, which will bring the audience an immersive viewing experience, thereby attracting a large number of viewers to apply for membership services to watch. For example, the cost of "Squidward Tribulation" was only 21.4 million US dollars, but its efficiency value reached 41.7 times the cost, creating a commercial return of more than 890 million US dollars for Netflix.

We can see from Netflix's financial report that in the third quarter, 4.383 million new paying users were added. After the show aired in the fourth quarter, the number of new paying members increased by 8.281 million. The data for the fourth quarter after the hit was launched was almost twice that of the third quarter. After "Squid Game", other drama variety shows such as "Sea of ​​Silence" and "Single is Hell" were launched again, which once again made a sensation in the global market.

A hit also has a characteristic, that is, high-quality dramas will not drag on, so these hit dramas generally have fewer episodes and will be finished within one or two months. If there is no hit to continue to retain users, the renewal volume will decrease. Income can only increase in a short period of time. Therefore, Netflix’s strategy is to continuously produce high-quality movies, TV series, and variety shows to retain users and make users trust Netflix.

The trust mentioned here is very important.

In the above benefits, we have mentioned that iQiyi users tend to sign up for only one month of membership to watch the dramas they want to watch. After the series ends, if there are no more dramas that users want to watch, users will not renew their subscriptions. What’s the problem with iQiyi?

(1) Affected by the cultural market, there is a lack of high-quality content

Doesn’t iQiyi want to produce high-quality content? Not really, I believe every video platform wants to make every video perfect and popular. However, the influence of the entire cultural market has forced iQiyi to shift to producing things that have a positive ROI and are popular with traffic capital.

iQiyi can only shoot some relatively safe and mainstream scripts. In addition, the competition among iQiyi, Youku and Tencent Video is extremely fierce. If iQiyi wants to stand out, the time and financial costs required will be very high, and the risks are too high. It is very likely that it will face operational difficulties before it even produces high-quality content.

So this is like a highly polluting factory. Although it will cause pollution, it can guarantee a certain profit in the short term. But we also know that such a factory cannot develop healthily and will eventually be eliminated.

IQiyi also has the idea of ​​creating hit content, and some of its dramas have actually demonstrated the potential to be hits. For example, The Bad Kids is said to have cost more than 80 million yuan to produce, and the official revenue has not been announced, but the total number of views of the drama has reached more than 610 million, so iQiyi still has certain profits. However, there are basically few such low-cost hit dramas, and the profits are not as much as those of a hit drama on Netflix.

(2) There is an overabundance of popular variety shows and a lack of down-to-earth TV dramas

In the past three years, iQiyi has produced nearly 20 variety shows every year. Why does iQiyi produce so many variety shows?

First, if you want to reduce costs or create popular content, self-production is a very important way. In addition, self-produced dramas actually cost more and require better story scripts, which take a very long time and cost to produce. It's not that iQiyi doesn't want to do it, but it needs to make money now, so iQiyi has to prefer some variety shows with a positive ROI and a more stable profile. Variety shows are relatively simple to produce and do not require good scripts to study the emotions and logic of the story. Variety shows tend to allow stars to play their roles freely and attract traffic.

Therefore, iQiyi has produced many variety shows and invited many popular stars to produce programs to earn profits.

Second, my country's entertainment industry is still developing, so variety shows still have a huge market. IQiyi has targeted this point and produced variety shows based on popular and well-received foreign shows.

On the other hand, Netflix is ​​not without variety shows, and among Netflix's self-produced variety shows, there are a large number of reality shows and amateur variety shows. For example, the recently popular "Single Is Hell" in the Asian market, and the previous "Dancing Queen", etc. These reality shows and amateur variety shows have relatively low production costs, and the star appearance fees can be used in other places, such as scene setting, photography technology, etc. However, compared to film and television dramas, Netflix has fewer variety shows. This is because film and television dramas have strong storylines and the audience will always want to finish watching the story, while variety shows have weaker logic and storylines, and the user retention rate may be relatively low.

Under this content model, popular, high-quality film and television dramas are only short-lived and fail to produce content that brings long-term benefits and healthy development, which makes it easy to lose the trust of users. If users do not believe that the next work on this platform will be of high quality and good-looking, they will naturally not continue to subscribe to membership, and the income will naturally not be high.

Above we talked about how differences in membership fees, business models and content production lead to huge disparities in revenue. Currently, there are great differences between the cultural markets of China and the United States. iQiyi is being overwhelmed by the domestic cultural market. iQiyi alone cannot reverse the current impetuousness and drawbacks of the Chinese cultural market. Therefore, iQiyi cannot simply invest in developing film and television drama business like Netflix and raise membership fees all at once to reach Netflix's market value.

(3) Can iQiyi find a way to retain users and members to increase revenue?

Is it possible to allow members to renew their membership for two or three months? It is possible.

Bilibili is a representative of the current domestic Internet annual membership business with relatively good development. Many users refer to Bilibili’s membership as “annual premium membership”. There are even many users who don’t know that Bilibili offers monthly or annual subscriptions. They only know the term, which seems to have become a symbol of Bilibili membership. When users apply for membership, they will subconsciously apply for an annual membership.

There are many users who apply for annual membership on Bilibili. One reason is that some users of Bilibili are willing to pay for the sentiment, and the other is that these users trust Bilibili. Station B has produced many high-quality documentaries, such as A String of Life, Guarding Jiefang West, etc. When applying for membership, users of Bilibili develop trust in Bilibili because it produces a lot of high-quality content. They believe that Bilibili's next work will still be a good one, and Bilibili is an app that users use very frequently, so users feel that it is worthwhile to become a member.

Therefore, the way out for iQiyi is to increase user stickiness, continuously produce high-quality content, and gradually eliminate low-quality content. In simple terms, it means making users want to watch more and more, and making users involuntarily open the iQiyi app when they are entertained. It can be seen that many popular dramas have one characteristic, that is, being "down-to-earth", and such down-to-earth dramas usually do not require very high costs, and a good story script is above all else.

iQiyi can not only try to obtain good scripts from multiple channels, but also produce some film and television dramas that reflect social phenomena. We can even learn from Netflix, build an international market, produce hit dramas in the international market, and let foreign screenwriters also produce hit dramas for iQiyi. For the domestic market, iQiyi can also try to shoot content such as the overseas life of Chinese people, use Chinese cultural atmosphere and elements, break away from sensitive frameworks, and focus on real and diverse content.

As long as there is diverse and high-quality content, users will buy it. After gaining the users' trust, even if you still can't set thresholds to obtain paying members like Netflix, you can still gain more annual members like Bilibili.

In terms of product structure, at present, iQiyi cannot make enough profit just by relying on the input and output of film and television dramas and membership fees like Netflix, so we cannot make iQiyi give up other businesses across the board. However, it can gradually transform and shift its strength to gradually develop the film and television drama business.

3. As the saying goes, increase revenue and reduce expenditure, let’s take a look at the cost

1. Content Cost

From the data in 2020, we can see that the content cost ratios of iQiyi and Netflix are very close, at 74.4% and 75% respectively. But I believe that the content costs of the two companies are spent in completely different places. At iQiyi, because traffic can attract more viewers, most of the costs of content production in the Chinese market need to pay celebrities' salaries. On Netflix, because Netflix itself has popularity and high-quality scripts, Netflix's works are more attractive to celebrities, so there is a certain gap in remuneration here.

Secondly, the proportion of content costs is not low, but the hit products produced by iQiyi are still few and far between. Most of them are variety shows and standard film and television dramas. Although the ROI of these works is positive, it is not high, and the profits produced are relatively low.

Reduce content costs? No, spend your money where it counts.

The way to increase profits is either to increase revenue or to reduce costs, but content costs cannot be reduced.

In order to produce high-quality content, it is necessary to increase investment, but the money must be invested in areas that can truly improve the content of film and television dramas. For example, costs can be invested in obtaining good scripts, creating film and television drama technology, more realistic scene layouts, etc., to ensure high-quality content. Money cannot be saved, but it must be spent in the right places.

2. Marketing costs

There is one point worth studying about cost: marketing.

iQiyi's marketing expenses account for 18.5% of total costs, while Netflix's proportion is 10.9%. In other words, iQiyi spends a higher proportion of its costs on acquiring new customers than Netflix. Here we can calculate the customer acquisition cost. In 2020, iQiyi's customer acquisition cost was US$7.82 per person, while Netflix's was US$9.44 per person.

Although Netflix spent about 1.62 more on a single customer acquisition cost, it ultimately gained twice as many members as iQiyi. There are reasons for the gap. Since Netflix has many paying users, the membership price is relatively high and the proportion of annual subscription members is large, the ROI is not only positive but also very high. However, iQiyi has a large proportion of monthly subscription members, its user arpu value is lower than Netflix, and its number of users is relatively small. Ultimately, after spending the same proportion of marketing costs, the differences in user arpu value, number of users, and user consumption habits lead to an exponential difference in ROI.

Why are iQiyi’s marketing costs higher than Netflix’s?

Usually, the release of new works requires a lot of publicity and advertising. Since iQiyi has not established a good reputation among its user base, after producing a work, iQiyi still needs to promote it to all potential users through various channels, such as advertising, celebrity publicity, blogger publicity, etc. Netflix already enjoys a good reputation among its user base, and users trust the works it produces, so Netflix does not need to spend a lot of effort to let old users know about the release of new works and watch them. Netflix only needs to focus on marketing to attract new users, so the marketing cost will naturally account for a small proportion.

(1) After spending money, did iQiyi retain its users?

In the 2020 financial report, iQiyi's retention rate in the first quarter of 2020 increased slightly compared to 2019, but in the second quarter, retention fell back. In addition to the reason that users returned to work and school, the low user stickiness of iQiyi was the main reason. Even if iQiyi spends a lot of marketing costs, the retention rate will drop after some popular TV series end. Unless the next hit drama comes out, the retention rate will rise. But before that, iQiyi needs to spend a lot of costs again to market to all potential users.

(2) Where should we reduce costs?

From a structural perspective, there is still a lot of room for reduction in marketing costs. Can iQiyi reduce the proportion of marketing costs to around 10% like Netflix? Netflix uses word of mouth to reduce marketing costs, so what iQiyi can learn is to build a high-quality reputation and gain the trust of users. Reduce marketing costs, focus on content and improving user experience, attract users, keep them on the platform, and continuously provide high-quality content. Users will feel comfortable using the platform and will enjoy and be fascinated by the content. This will not only improve retention rates, but can even change users' entertainment habits during their leisure time, thereby increasing user stickiness.

4. China’s road to Netflix is ​​long and arduous

iQiyi feels like the Chinese version of Netflix, but it does not have Netflix's successful business model and development.

Back to our question, can iQiyi become the Chinese version of "Netflix"?

The answer is no.

There are many differences between the two in terms of business model and product structure, and the accumulated number of members, user ARPU value and retention rate all have a quantitative impact on revenue and ROI.

If iQiyi wants to reach the level of Netflix, content is the foundation.

IQiyi also believes that only high-quality content and service models can improve user reputation, thereby increasing user stickiness and retention rate. However, it is undeniable that due to the influence of our current domestic cultural market, we have to make some inefficient decisions.

In fact, introducing overseas film and television works is a good idea. Many foreign blockbusters have caused a lot of heat in the domestic cultural market. In fact, domestic users also have a strong interest in foreign works. Therefore, introducing overseas film and television works, and even inviting overseas directors, production teams, and actors to create international works, can not only enrich the variety of works on the platform, but also be more conducive to building an international platform and opening up an international market.

After gradually forming a model where high-quality content is king, users' consumption habits will gradually change. With good works, users are willing to pay for them, which is conducive to improving users' ARPU value.

The road to becoming China's Netflix is ​​long and arduous, but iQiyi is still able to slowly make changes, gradually approaching the ideal video platform for users and providing the best user experience.

Author: Good Luck

Source: Good Luck