Despite the increasing competition and challenges in the video industry, high-quality content output is always the top priority for video platforms and an important guarantee for long-term performance. In the just passed second quarter, iQiyi has always kept this in mind and strives to maintain revenue growth by continuously outputting high-quality content.
According to the latest data disclosed by iQiyi, in Q2 2024, iQiyi's total revenue was 7.4 billion yuan. During the quarter, iQiyi's Non GAAP operating profit was 500 million yuan, with an operating profit margin of 7%. We have achieved positive operating cash flow for 9 consecutive quarters. This is also the tenth quarter in which iQiyi has achieved operational profitability since its first profit in the first quarter of 2022.
Affected by the macro environment, the profitability of the long video industry is also subject to fluctuations. Being able to explore new incremental space beyond advertising and membership revenue is an important ability to resist economic cycle fluctuations. IQiyi, a long-distance runner, has delivered a stable yet impressive performance by introducing AI to improve quality and efficiency, and expanding its IP offline experience business.
Currently, the wave of generative AI led by OpenAI's release of ChatGPT has already swept the globe, and the reason why OpenAI, as a startup company, is not other tech giants is precisely because it has been betting on big language models for several years, making it a "long-distance runner" in the AI industry.
The long video industry has gone through more than a decade of development, and competition has long shifted from short-term pursuit to a stage that requires steady progress. As one of the "long-distance runners", iQiyi chose to embrace innovative technologies represented by AI early on and continue to explore business models that extend the vitality of content IP. The commonality between using AI and IP well is that both require companies to accumulate long-term experience, withstand the test of time, and become friends of time.
The explosion of AI comes from long-term technological long-distance running
Looking at iQiyi's Q2 performance, while consistently producing high-quality content, content costs have also been well controlled, resulting in improved user experience and operational efficiency. And the X factor behind this continuous change is technology, especially AI. The direct assistance of AI to the video content industry is gradually shifting from vision to reality, and this quarter's iQiyi financial report provides a rare opportunity to observe this trend.
In Q2 2024, iQiyi successively launched multiple diversified high-quality contents, with some projects showing fluctuations in performance, but the top projects all performed well, effectively improving multiple key indicators.
Specifically, in Q2 2024, iQiyi will release multiple high-quality content in the fields of drama, variety shows, and anime, including the phenomenal "My Altay", the new Mist Theater works "The Untamed" and "The Invisible Youth", further consolidating its leading advantage in reality and suspense themes. The iQiyi self-produced anime "What is the Body of Unity" has also become a dark horse in the summer season with innovative themes and unique art styles, breaking the heat record of iQiyi self-produced anime. At the same time, iQiyi's high-quality content has become one of the main sources of content for television stations. In the first half of 2024, iQiyi has distributed about 50 TV series to China Central Television, satellite TV, and local TV stations, further strengthening the long tail effect of high-quality content.
And the continuous output of all these high-quality contents, in addition to iQiyi's own accumulation in the field of long video content, has also gradually played a role in its early investment in AI. And this role is mainly reflected in the assistance of AI in content and creative work, as well as the improvement of advertising efficiency by AI.
At iQiyi's Q2 earnings conference call, the company's founder and CEO Gong Yu stated that iQiyi is committed to widely applying AI to enhance content creation capabilities, operational efficiency, and user experience, while improving domestic business performance and expanding into more overseas markets.
In Q2 2024, the use of AI to assist iQiyi in project evaluation, creativity, marketing, and distribution will be further expanded, effectively improving content production and operational efficiency. During the season, iQiyi's AI enabled advertising revenue increased by 150% month on month, once again confirming the enormous value of technological upgrades and AI empowerment in monetizing core traffic and enhancing advertising ROI. For example, the innovative form of combining virtual characters and brand advertising in the drama "Fox Demon Little Red Lady Moon Red Chapter" effectively enhances the advertising effectiveness. AI multimodal models help understand plot information and generate marketing points, effectively improving content marketing efficiency.
As early as last quarter, iQiyi also disclosed the achievements of generative AI assisted content creation: in the planning stage, generative AI tools assisted producers in improving text reading efficiency by 9 times, and the film and television literature knowledge base made the massive research work in creation easier. In addition, AI has also been applied to the intelligent translation and dubbing of content, greatly promoting iQiyi's content going global.
The reason why AI can help iQiyi comprehensively improve quality and efficiency is precisely because iQiyi's company culture of valuing technology is blossoming and bearing fruit.
In addition to AI, iQiyi's technology has been "running" for many years, demonstrating a strong emphasis on technical production and management capabilities. In 2021, Gong Yu first proposed at the iQiyi World Conference that "industrialization of film and television" is one of the key words for iQiyi's future development. In the following years, iQiyi's self-made content management platform, production management system, handheld production, virtual shooting, online film review system and other applications were successively implemented and applied to real shooting projects. iQiyi has established an intelligent production system driven by both management and production.
According to official disclosure, as an important part of the industrialization of film and television, in the second quarter of this year, iQiyi's virtual production application scenarios broke through the fantasy theme and were first applied to real-life drama series. This is the combination of iQiyi's technical and content capabilities.
IQiyi's self-developed virtual rehearsal product can quickly design and visualize scenes in the drama before official filming, and has been applied to multiple top-level projects, achieving significant efficiency improvements. Among them, the ancient costume drama "Fox Demon Little Red Lady Moon Red Chapter" jointly produced by iQiyi, Yuewen Film and Television, and Stellar Gravity was launched on iQiyi on May 23. It is the first long drama in China to apply virtual production technology and a concentrated reflection of iQiyi's technical capabilities.
Director Du Lin admitted that "Fox Demon Little Red Maiden Moon Red Chapter" presents a magnificent and fantastical Eastern imaginary world, so the biggest difficulty in filming is to create a "sense of wonder" in the picture. The use of virtual production technology has helped the team better present this imaginative subject matter.
We firmly believe that the key to achieving long-term development in the long video industry lies in the sustainability of high-quality content supply, as well as a win-win situation between content quality and commercial revenue, "said Gong Yu, CEO of iQiyi, in the financial report released this time.
The competition in the long video industry has always been whether it can continuously output high-quality content to the public. The reason why iQiyi can continue to lead its industry competitors is closely related to its keen insight into content themes, bold attempts at AI, and continuous promotion of film and television industrialization during the "long run".
Amplify the value of IP, the second growth curve is promising in the future
The competition for content quantity and market share among major long video platforms has receded, and the industry has entered a new stage of pursuing high-quality development. In addition to continuously improving content quality, long video platforms also need to find their own second curve to let the market see new stories.
For iQiyi, its biggest advantage accumulated over the years is that it has mastered the content IP in its own hands, which enables it to more flexibly develop the comprehensive value of IP both online and offline.
IQiyi CEO Gong Yu stated at the Q2 earnings conference that iQiyi will continue to strengthen its ability to develop IP series in the future. "Currently, our reserve of drama content covers the viewing needs of mainstream users, especially in the key tracks of core female costume, suspense, and realism, where we have sufficient reserves
The latest successful case of iQiyi's content IP creation is last month's broadcast of "Tang Dynasty Mysterious Affairs Record: Journey to the West", which has become iQiyi's 14th best-selling drama series with a long tail effect and significant results in series development.
Similar to last year's "Wind Rises in Luoyang" VR Full Sense Theater, the "Tang Dynasty Mysteries: Journey to the West" VR Full Sense Theater is a "real-life+full sense VR" project developed by iQiyi based on the series IP. As the drama itself has received sufficient recognition from the market, the China-Chic Immersion Theater of "Stories of the Tang Dynasty: Journey to the West" has landed in Beijing, Shenzhen and Xi'an. Recently, it has been officially announced that the third season of the "Tang Dynasty Mystery Chronicles" series, "Tang Dynasty Mystery Chronicles: Chang'an," will soon begin filming.
During the Q2 earnings conference call, Gong Yu also disclosed some key data. It is said that as the company has been producing self-produced content for many years, its IP assets have accumulated more and more, and prices have become higher. For example, in Q2 2022, iQiyi's top self-produced dramas accounted for about 50%, and now they have stabilized at around 70%.
The self-produced drama "My Altay" by iQiyi this quarter is undoubtedly a representative work that achieves a win-win situation between content quality and IP commercial revenue. It has not only successfully stimulated the offline consumption trend of Xinjiang's cultural and tourism industry, but also received widespread praise from users, sponsors, and local cultural and tourism industries for the "My Altay" offline wilderness concert held in July, effectively extending the vitality of the IP. The "Fox Demon Little Red Lady Moon Red Chapter" has set a new record for iQiyi's original drama IP licensing revenue.
Previously, iQiyi had been trying to extend its IP content to offline travel spaces. Last year, iQiyi created the world's first VR immersive and cross dimensional interactive entertainment project based on its eponymous hit TV series IP "Fengqi Luoyang". The project featured scenery in a space of approximately 300 square meters, combining real and virtual spaces to greatly recreate the scenes from the drama "Fengqi Luoyang".
And this is also a kind of 'IP long-distance running'. According to Zhang Hang's introduction, as early as the beginning of the project preparation, iQiyi proposed the strategy of "one fish, twelve eats" and planned a series of IP peripheral extension developments. In addition to VR full sensory theater, iQiyi has also released derivative content of "Fengqi Luoyang", such as the documentary "Shendu Luoyang" and the animation "Fengqi Luoyang's Divine Machine Youth" from Luoyang IP.
Like technology long-distance running, iQiyi's IP long-distance running also originated several years ago, and this strategy continues to this day, which was mentioned again by Gong Yu at the Q2 financial report meeting. From the perspective of effectiveness, the offline development of IP has solved the problem of traffic sources for local cultural tourism. Combined with a team that is more familiar with commercial space operations offline, it can greatly expand the commercial value and influence of IP itself.
Gong Yu believes that these high-quality top content not only succeed during the hot season, but also have a long-lasting long tail effect. He stated that with the changes in offline commercial and cultural tourism consumer behavior in China, the empowering role of high-quality content IP in scenarios is becoming increasingly prominent, and iQiyi has significant advantages in this field. Continuing to promote the multi form development of content IP, including monetization of offline business, is an important long-term and sustained task for iQiyi, and is also the key to improving the company's long-term value and competitiveness. We hope that offline experience business will become our second growth curve in the future
In fact, the second growth curve of any company is never a overnight product. The reason why iQiyi's IP strategy was successfully implemented is precisely because it had already "started" as early as 2021, and had long sensed that the combination of IP and offline scenes would become a new blue ocean, cooperating with various offline operators, local cultural and tourism departments, and related departments. At that time, some long video platforms and practitioners were still trapped in the quagmire of competing with short video platforms for traffic.
Over the past three years, the cooperation between iQiyi and various industries such as culture, commerce, and tourism has blossomed, and local cultural tourism has gained traffic and reputation. iQiyi has also gained valuable IP development experience, which can be reused on more IPs now and in the future.
To have such a strategic layout, it is necessary to have extremely high demands on the vision and patience of the company's management, and it must be a "long-distance runner" who can afford physical strength. Since OpenAI released Sora earlier this year, the entire industry has known that AI will bring profound changes to the content industry. However, different video platform companies still have doubts about when and how much to invest in AI. From the historical experience of IP development, continuing to persist in "long-distance running" may be the way to solve the problem.