Since breaking free from consecutive years of losses with a net operating profit of 1.3 billion yuan in 2022, iQiyi has achieved profitability for three consecutive quarters in 2023. On November 21st, iQiyi released its unaudited third quarter financial report as of September 30th, with a total revenue of 8 billion yuan, a year-on-year increase of 7%; Non GAAP's operating profit was 895 million yuan, a 71% year-on-year increase from 524 million yuan in the same period last year. From a business perspective, iQiyi's revenue from membership services is approximately 5 billion yuan, a year-on-year increase of 19%; The revenue of online advertising services was 1.7 billion yuan, a year-on-year increase of 34%; Content distribution and other revenue achieved revenue of 526 million yuan and 803 million yuan respectively, a year-on-year decrease of 28% and 37%.
It is worth mentioning that compared to the third quarter of 2021, where the operating profit lost 1.4 billion yuan, iQiyi's total revenue only increased by 400 million yuan, but its operating net profit turned from a loss to a profit, increasing by about 2 billion yuan. According to the financial report, in the third quarter of 2021, iQiyi's total revenue was 7.6 billion yuan, with membership services, online advertising services, content distribution, and other revenue of 4.3 billion yuan, 1.7 billion yuan, 627 million yuan, and 1 billion yuan, respectively. In other words, iQiyi's revenue from online advertising services, content distribution, and other businesses did not show significant growth, and even some business revenue declined, with only revenue growth from membership services being relatively significant.
Comparison of iQiyi's revenue in the third quarter of 2021, 2022, and 2023. Prepared by: Huang Wenbin
There have been few changes in revenue, indicating that iQiyi's turnaround is not about "increasing efficiency" but about "reducing costs".
In 2021 and 2022, iQiyi reduced operational and content costs through layoffs, layoffs of business lines, and reduction of waist series investment. According to public information, iQiyi has abolished multiple business departments such as iQiyi account and iQiyi game center, and the number of employees has decreased by nearly 2000 between 2020 and 2022. In addition, iQiyi reduces content costs by reducing content purchases and increasing the proportion of self-made dramas. In the first quarter of this year's financial report, iQiyi stated that the platform's self-made content accounted for 70% of key dramas, while in the third quarter, the proportion of original dramas in the new key drama series exceeded 60%. The effect of iQiyi's "cost reduction" is significant. According to the financial report, iQiyi's revenue cost for the third quarter of 2021 was 7 billion yuan, content expenditure was 5.3 billion yuan, management expenses and other expenses were about 1.2 billion yuan, and research and development expenses were about 680 million yuan; In the third quarter of 2023, iQiyi's operating costs were 5.8 billion yuan, including 4.2 billion yuan in content costs, approximately 980 million yuan in management expenses, and approximately 450 million yuan in research and development costs.
While controlling costs, iQiyi has seen significant revenue growth in its membership services business. The membership service business is also the main source of revenue for iQiyi, accounting for 62.5% of the total revenue in the third quarter of 2023. According to the financial report, in the third quarter of 2023, iQiyi had an average daily subscription membership of 107.5 million, and ARM (monthly average single member income) reached 15.54 yuan, setting a new historical high.
In the same period of 2021 and 2022, iQiyi had an average daily subscription membership of 103.6 million and 101 million, respectively. It can be seen that the number of iQiyi members has not significantly increased in the past two years. After the popular drama "Rage" in the first quarter of this year drove the daily average subscription membership to 129 million, the number of members in the second quarter decreased by 17 million to 111 million, and in the third quarter, it decreased again by 3.7 million to 107.5 million. And iQiyi members raised prices three times in November 2020, December 2021, and December 2022. The monthly subscription price for Gold VIP members increased from 15 yuan per month to 19 yuan per month, 22 yuan per month, and then 25 yuan per month.
On one hand, this indicates that the number of members on the platform has almost reached the upper limit of growth, and the growth in revenue from member services is mainly due to the increase in member prices. At the same time, whether it is membership exclusive, advanced on-demand, or the "point redemption" membership benefits mentioned by iQiyi in the financial report, to some extent, it also squeezes the rights of non members. The redemption of iQiyi member points covers the promotional gifts for episodes such as "Lotus Tower" and "Cloud Feather", as well as IP related derivative products, including the purchase of online viewing rights for the "Lotus Tower" concert at a low price. In addition, according to the "2023 Q3 Drama Online Broadcast Performance and User Analysis Report" released by Yunhe Data, iQiyi has also narrowed the access to non member content and set episodes such as "Incomplete Victims" and "Seven Auspicious Times" to "Lock 7 Episodes" (i.e., the last 7 episodes are only for member viewing).
On the other hand, this also indicates that the membership business that accounts for the majority of iQiyi's revenue relies on popular content. According to iQiyi's financial report, with the broadcast of the first quarter of 2023 phenomenal drama "Fury", iQiyi's revenue increased to 8.3 billion yuan, a year-on-year increase of 15%, and its net profit increased by 266% to 618.1 million yuan. However, the series "Changfengdu", "Lianhualou", "Qishi Auspicious", and "Yunzhiyu", which aired in the second and third quarters respectively, failed to retain members, and their reputation and popularity were also difficult to compare with "Furious Storm". According to the "2023 Q3 Drama Online Broadcast Performance and User Analysis Report" released by Yunhe Data, the main films of iQiyi's entire network drama effectively aired 27.8 billion yuan in the third quarter, a year-on-year decrease of 2%.
High quality content is also a necessary condition for expanding overseas markets. IQiyi stated in its financial report that "Hualiu", represented by high-quality Chinese language dramas, continues to win the favor of overseas users, driving the playback time of iQiyi's international version of Chinese language dramas to increase by 23% year-on-year and 33% month on month. "Lotus Tower" ranked first in terms of cumulative playback volume and duration in iQiyi's international version in the third quarter, and also topped the list in multiple regional markets such as Southeast Asia, East Asia, and North America. These contents also drove the growth of overseas member revenue, with member revenue in Japan, South Korea, the United States, and Hong Kong, China increasing by over 50% year-on-year in the third quarter. Cloud Feather "has become the highest grossing project of iQiyi International Edition during the hot season.
Whether in the domestic or overseas market, good content is the foundation of revenue for long video platforms, which is related to both user subscription and advertising revenue. In summary, continuously producing high-quality content is the key to iQiyi's profitability. In terms of content reserves, iQiyi stated in its financial report that in addition to the already aired "Tiangengji", "Ning'an Rumeng", and "Fearless Season 1", there were also dramas such as "Yinian Guanshan", "Xianjian 4", "Chinatown Detective 2", "Dajiang Dahe 3", and "Three Teams" waiting to be broadcasted in the fourth quarter. In terms of variety shows, there were self-made derivative projects such as "Hello Farming Youth" from "Farming Bar". In terms of international version, iQIYI also plans to launch localized dramas in Thailand, Malaysia and Taiwan, China. In addition, iQiyi is expected to focus on increasing the proportion of investment in top drama projects next year, and will launch a new season of Mist Theater in Q1 2024.
It is worth mentioning that according to data from Guduo, the highest popularity of "Tiangengji", "Ning'an Rumeng", and "Fearless Season 1" that have already been broadcasted in the fourth quarter is not as high as "Lianhualou", let alone "Furious Wind". Real blockbusters are hard to come by, and although iQiyi has finally turned losses into profits, it will never be able to "lie flat".