iQIYI VIP price increases again, why?

iQiyi has raised its prices again.

From 0:00 on December 16, the prices of iQIYI Gold VIP and Star Diamond VIP will increase to varying degrees. Among them, the price of Gold VIP continuous monthly package will increase from 22 yuan to 25 yuan, the price of continuous quarterly package will increase from 63 yuan to 68 yuan, and the price of continuous annual package will increase from 218 yuan to 238 yuan.

After the price increase, netizens had mixed reactions. Some said that the platform cannot always generate power for love, implying that the price increase is reasonable, while others believed that good content should be produced first and then the price should be increased. In short, even in 2022, price increases are still a key point that long video platforms find difficult to balance.

iQiyi is not aware of this fact today, but is facing it today. In 2020, it raised prices for the first time in 9 years. At that time, consumers' reaction was even greater than today. "Can we make good content first?" was the attitude of most consumers.

Behind the "knowingly going to the tiger mountain", it can be understood that iQiyi is "skilled and bold", or it can be understood that it has to do it. Since its establishment in 2010, it has been losing money. The market expects it to reduce losses or even make profits. The focus of major shareholder Baidu is no longer here. Combined with various factors, iQiyi can only save itself.

So, what self-rescue strategy has iQiyi chosen? Where has this road to self-rescue ended? What challenges will it need to overcome in the future?

Price increase is expected

This wave of price increases in December is iQiyi’s first price increase this year and the third price increase in the past two years. The first two price increases took place in November 2020 and December 2021 respectively.

After three price increases, iQiyi's membership price has approached the level of Tencent Video and Youku Video. Taking the quarterly pass as an example, the price of iQiyi (including TV) membership is 128 yuan, while Tencent Video and Youku Video both cost 148 yuan.

An industry insider told Node Finance that iQiyi has a large content reserve and the relationship between price increase and content cannot be viewed in a linear way. "From the user's point of view, price increase means seeing better content, while from the platform's point of view, whether the price increases or not, the investment in content will not be reduced."

The change in iQiyi's content costs does reflect this point: under the premise of reducing costs, its content costs in the third quarter increased by 10% month-on-month, from 3.9 billion yuan to 4.3 billion yuan. Node Finance learned that iQiyi will launch several highly watched works in the future, such as TV series and movies based on the original works of "Fox Spirit Matchmaker" and "Changfengdu".

Cutting costs is the way iQiyi has chosen to save itself. In addition, it has actually had the opportunity to find external reinforcements. Its major shareholder Baidu has negotiated with Alibaba and Tencent to sell iQiyi, but due to various factors, the transaction did not succeed. In the context of Internet anti-monopoly, this road has been completely blocked.

Combining the changes in iQiyi's content costs and the opinions of industry insiders, iQiyi's path to self-rescue is to continue to increase investment in core business personnel while minimizing investment in non-core businesses.

It is easier to understand iQiyi’s choice from the perspective of business model and cost expenditure.

Its business model is also the essence of this price increase: all revenue comes from "content". Its revenue structure is divided into four parts: membership, advertising, content distribution and others. The proportion of "others" is relatively small and will not be discussed.

As can be seen from the table, iQiyi's total costs are falling significantly, while content costs are rising slightly. This also proves that iQiyi is selectively "contracting".

Let’s talk about the impact of price increases on income. The history of 2020 and 2021 has proved that price increases are a double-edged sword, one side of which is that it is conducive to increasing income.

In the fourth quarter of 2020, the membership business revenue was 3.8 billion yuan, and it rose to 4.31 billion yuan in the first quarter of 2021. After the price increase in the fourth quarter of 2021, ARM (average monthly revenue per member) hit a new high in the following quarter. The increase in membership business revenue helped iQiyi hedge against the declining advertising business.

In December 2021, iQiyi's membership price increased by about 9% to 20%, and its membership revenue in the first quarter of 2022 reached 4.5 billion yuan, which exceeded any quarter in 2021.

Liao Xuhua, senior consultant of cultural consumption industry at Analysys, once said that the fundamental reason behind iQiyi's price increase is still the profit issue. Although the price increase will inevitably affect the company's overall revenue, the last price increase has provided sufficient data and experience. iQiyi has understood the impact of the price increase, so this time it is raising prices again for the purpose of profit.

Is there any other solution besides raising prices?

In 2015, Youku was acquired by Alibaba, and long-form video officially entered the era of competition among large companies, with each platform having deeper pockets. Baidu, Tencent and Alibaba, which stand behind iQiyi, Tencent Video and Youku, all chose the strategy of investing heavily to open up the market.

In 2016, iQiyi took advantage of the popularity of the online drama "Grave Robbers' Chronicles" to achieve a significant increase in the number of members. But the price was high. The online drama once offered Youku 100 million yuan in copyright fees, but because Youku could not afford it, iQiyi finally won it at a cost of 5 million yuan per episode. Based on the total number of 48 episodes, the copyright fee for this drama is as high as 240 million yuan.

Image source: iQiyi official website

Online dramas are just the tip of the iceberg of money competition in the long video industry. Variety shows, investment and other sub-industries are all filled with the taste of money competition, and the cost of competition in the industry has been continuously raised. This matter became a burden when iQiyi went public. The high content costs hindered iQiyi's profitability and were the culprit for the company's losses.

On the normal competition track, "content" is the core of iQiyi's business model. iQiyi has developed many new businesses around this and put forward some new concepts, which are all potential growth points for iQiyi.

Like other companies, it is not uncommon for iQiyi to develop new businesses and cultivate new growth points, and it is normal that few of them succeed in the end. The problem is that it has created a difficult problem for iQiyi. When things are going well, iQiyi can invest in new businesses, but when the environment is not good, iQiyi can only strategically abandon these new businesses and lose all its previous efforts.

iQiyi's last large-scale new business was mid-length videos. In April 2020, iQiyi launched the "Sui Ke" App, which is positioned as mid-length videos. The company attaches great importance to it and is optimistic about it. iQiyi CEO Gong Yu listed it alongside the iQiyi app in a shareholder letter in May 2021, saying that these are the company's "two main video types."

Image source: Suike official website

However, according to "LatePost", iQiyi stopped investing in Suike at the end of 2021.

The situation of the game business is similar to that of the mid-length video business. In 2014, iQiyi acquired the video website PPS, and then the game team based on PPS established iQiyi Games. The main strategy at that time was "movie-game linkage".

iQiyi once hoped that game revenue could account for 20% - 30% of total revenue. However, game R&D capabilities require a lot of upfront investment. For iQiyi, which is under great financial pressure, it is destined not to invest too much in non-main channel businesses. At the end of 2021, iQiyi announced layoffs, including in the game department.

It is obvious that iQiyi has made a choice and is sacrificing its own products to save its own business. The result of sacrificing its own products to save its own business is a significant drop in costs, which has brought iQiyi profitability. In the four quarters of 2021, iQiyi's total cost scale has been shrinking, from 7.1 billion yuan in the first quarter to 6.5 billion yuan in the fourth quarter. Starting from the second quarter of this year, iQiyi's total cost scale has dropped below 6 billion yuan.

Another consequence of abandoning the car to save the driver is that other new businesses temporarily lost opportunities. Gong Yu's original strategy for iQiyi was called "Apple Tree", which is to develop an IP (trunk) into film and television, variety shows, animation, literature, live broadcast, games (branches) and other full-chain development to obtain more revenue and share costs. Since 2020, these branches have almost all shown signs of shrinking.

When communicating with the above-mentioned industry insiders, Node Finance believes that the "calm growth" strategy emphasized by Gong Yu in the third quarter conference call should receive high attention from the market.

Simply put, this strategy means that iQiyi will appropriately increase its investment in content, marketing and branding. Prior to this, iQiyi would prioritize its resources in top content while reducing costs, which Gong Yu called "targeted". Tencent founder Ma Huateng recently expressed a similar view at an internal meeting, "In the past, we were willing to invest in some mediocre dramas, but now we have to think about it."

"Calm growth" means that iQiyi will further increase its investment and enter the second stage of self-rescue. Recently, it launched the metaverse concept variety entertainment APP "Yuanyin Continent", which is based on iQiyi's film and television IP and has derived a 3D virtual interactive space. Users can create a 3D virtual image like QQ Show, including pinching the face, arranging the hairstyle, etc.

If we compare iQiyi over the past year or so to a person who is losing weight, then "reducing costs" is equivalent to losing fat, and "calm growth" is equivalent to "gaining muscle". This is the path iQiyi will take in the future.

Is the rest of the journey easy?

Since its establishment 12 years ago, iQIYI has done a lot. It has defined the membership payment model and video advertising model of Chinese video websites, pioneered the era of online dramas and variety shows in China, and made outstanding contributions to the industry. However, the market is fair and it will not completely favor you just because you have made contributions.

The abnormal competition in the long video industry has forced iQiyi to take some detours, and iQiyi has also paid some tuition fees in other aspects. These detours and tuition fees have already been secretly marked with prices.

The gaming business is a typical example. iQiyi’s strategy is that the development and launch of each game must be coordinated with the progress of the TV series, which will make the game and the TV series form a stronger bundle, but this goes against the production logic of the game.

The premise of film-game linkage is that the game and the TV series must be released at the same time, so that the game can take advantage of the "power" of the TV series. The game products of "Empresses in the Palace" and "Legend of Miyue" missed the TV series schedule, making it difficult to form a film-game linkage, and thus unable to exert the influence of the IP. To achieve this, it is necessary to overcome some uncontrollable problems.

There are many uncontrollable factors in the drama itself, such as policies and approvals. If any link is delayed, the entire process will be disrupted. Some dramas will take several years to be broadcast, and sometimes they cannot be broadcast at all. Most of the developers of this type of game are small and medium-sized game companies, which cannot afford such time consumption. The game business has not been able to become iQiyi's main source of income.

What is more well-known is that the cost of content remains high, which is due to the abnormal industry competition. In order to obtain certain content, the three major long video platforms often offer higher prices than each other, even ignoring whether this is reasonable.

Before the 2018 World Cup in Russia, Youku and Migu won the broadcasting rights for the World Cup, spending 1.6 billion yuan and 1 billion yuan respectively. Tencent Video bought out the exclusive broadcasting rights for the NBA for five years in 2019, spending $1.5 billion for it.

Looking back, it is hard to say that all these new businesses undertaken by iQiyi were wrong choices, but they all went astray due to the distorted competition in the industry, which in turn increased the burden on iQiyi.

This brings two challenges to iQiyi's "calm growth". On the one hand, the industry's deformity is still plaguing long-form video platforms; on the other hand, how to balance investment between new businesses and content.

Inferring from the results, the current self-rescue measures have received positive feedback. iQiyi's profitability has improved significantly, and it has achieved operating profit for three consecutive quarters.

In terms of content, iQiyi's performance is also remarkable. Since the launch of the content heat value (content heat index) in 2018, iQiyi has a total of 7 dramas with a recommendation value of over 10,000, of which 5 were broadcast this year, namely "The World", "Cang Lan Jue", "Punishment", "Daily Life of the Lover" and "Wind Blowing Half Summer".

However, iQiyi cannot rest on its laurels. An industry-wide problem is that iQiyi has not been able to consistently and stably produce blockbuster works, which is directly related to the performance of iQiyi's membership, advertising and content distribution businesses.

Under the premise that consumers have no loyalty to the platform, iQiyi and other long video platforms can only retain users by mastering as many hits as possible. After iQiyi's total number of daily subscribers reached 104 million in the fourth quarter of 2019, it has never returned to this level, and it was 101 million in the third quarter of this year.

In short, whether it is the previous "apple tree" and "apple orchard" or the current "calm growth", it cannot be achieved overnight, and iQiyi still has a lot to do.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.