iQIYI Stock

iQIYI, Inc. (iQIYI) is a leading provider of online entertainment video services in China.

The company’s platform features a variety of premium video content, in particular iQIYI original dramas and shows. With in-house studios spearheading the company’s original content production, it is home to many acclaimed original drama series and variety show franchises, and has successfully serialized the company’s original content into blockbuster sequels to accumulate and amplify IP value overtime.

The company’s in-house content production studios, together with its experienced supporting teams, help it industrialize content production, amass creative talents and produce premium content efficiently. The company also expands its premium content offering through licenses and collaboration with third-party partners, which supplement its original content.

As of December 31, 2022, the company had over 40,000 professionally produced content (PPC) titles in its comprehensive and diversified video content library, comprised of drama series, variety shows, films and others.

The company has one of the largest subscribing member base among all internet video streaming services in mainland China. In 2022, the company achieved an average daily number of total subscribing members of 103.1 million and an average daily number of subscribing members excluding individuals with trial memberships of 102.4 million. Beyond its core focus on content, the company has also crafted new strategies to attract more users to become its subscribing members through additional privileges to enhance the value of its membership. With a strong dedication to offering diversified premium content and membership privileges, the company has attracted a massive and loyal paying user base. The company has developed diversified monetization models. The company generates revenues through membership services, online advertising services and a suite of other monetization methods. The company’s monetization model fosters an environment for high-quality content production and effective content distribution on its platform, which in turn expands its subscriber base and increases user engagement, creating a virtuous cycle.

Products and Services

The company provides its users with a variety of products and services encompassing online video, online games, online literature, animations and others.

Video

The company produces, aggregates and distributes a wide variety of professionally produced content, or PPC, as well as a broad spectrum of other video content in a variety of formats.

Professionally Produced Content (PPC)

iQIYI Original Content

Driven by the company’s long-term commitment to original content, it has established a unique and effective methodology for both original content production and operations. Powered by a strong team of professionals and supported by a mature and highly efficient operating mechanism, the company’s methodology encompasses from content creation, production to post-broadcasting. The company has achieved breakthrough in original content as evidenced by the scores tracked by iQIYI popularity index, which is an influential indicator of content popularity.

The company’s original content includes content produced in-house and content produced in collaboration with quality third-party partners. The company’s original content titles include popular drama series, such as Love Between Fairy and Devil, Chasing the Undercurrent, New Life Begins and Wild Bloom, all of which were launched in 2022 and broke the landmark 10,000 iQIYI popularity index score; popular variety shows, such as The Big Band, Qipa Talk, The Rap of China and Super Sketch Show; high-quality movies, such as Mirrors and Feathers, Tough Out, Break Through the Darkness and Northeastern Bro; and popular animations, such as Deer Squad, The World of Fantasy and Love Between Fairy and Devil. iQIYI obtains the IP through production, adaptation or purchase from third parties, while the partners, typically established entertainment production companies, are responsible for content development and production. iQIYI maintains a high degree of control during the content development and production process.

The company also adapts high-quality video IP into multiple entertainment products, such as online games, animations, online literature, and derivative merchandise.

Licensed Content

In addition to original content, the company provides users with a curated selection of high-quality PPC from third parties. Leveraging the company’s expertise in content selection, it has successfully debuted well-received titles, such as drama series iPartment, In the Name of People, Go Go Squid, My Heroic Husband, A Lifelong Journey and variety show Keep Running. The company’s licensed content library also features a rich collection of movies, animations, documentaries and other content.

The company’s licensed video content are typically procured at fixed rates for a specified term. The average term of licenses varies depending on the type of content, with films and drama series having an average term of nine years and thirteen years, respectively. Payments of licensing fees are generally made in installments upon signing of the contacts and during the license period. The company also exchanges rights to distribute licensed content with other online video streaming services to enrich its content library. In certain cases, the company has the right of first refusal to purchase new content produced by the licensor.

The company leverages its content procurement team’s insights and its AI-based big data analytics capabilities to optimize content procurement. The company has established strong partnerships with content providers to ensure access to high-quality content. These partners include leading domestic drama series production companies, film production companies and TV stations, Big Six Hollywood production studios, top TV networks in the U.S., etc.

Other Video Content

In addition to professionally produced content, the company offers a broad base of other video content with all kinds of genres, formats and lengths of duration, such as internet movies and dramas, mini variety shows and animations, vertical or horizontal videos, as well as grassroot or influencer uploaded videos, edited video clips, and video blogs, or Vlogs, among others. The company’s other video content expands its library and allows it to capture a broader user base, drive user engagement and enhance user stickiness.

The company’s other video content is created and uploaded to its platform by a wide array of content providers. The content providers range from, among others, ordinary registered users, amateurs, semiprofessional partners, to internet influencers, multi-channel networks, self-media, and production studios, which collectively contribute to growing the company’s creative user community. Content providers upload their videos onto their iQIYI partner accounts, an open platform the company provides, to share, distribute and monetize their video content. The company then evaluates the quality of uploaded videos before final approval. Users can subscribe for and follow their favorite iQIYI partner accounts.

Other Products and Services

The company’s other products and services include online games, literature, comics and others.

The company develops and distributes online games featured in various formats to domestic and overseas users. Following the acquisition of Skymoons Inc. and Chengdu Skymoons Digital Entertainment Co., Ltd. (Chengdu Skymoons, together with Skymoons Inc., Skymoons) in July 2018, the company further broadened its game offerings, especially self-developed games that fully leverage the IP value in its content. The company provides high-quality online literature and comics works which can be adapted into script for derivative entertainment products. Furthermore, the company is developing a video community to build an ecosystem that empowers users to discover video content based on their interests, follow content creators, and interact with other users with the same interests.

iQIYI Lite

In January 2021, the company officially released the iQIYI Lite app, which offers users an easy and quick access to the personalized videos based on their user preferences. The company offers various free content on iQIYI Lite app with advertisements catered to the preferences of users, and it also offers ad-supported membership services for subscribing members of iQIYI Lite app. iQIYI Lite helps the company to expand its total addressable market by penetrating into regions and user cohorts which are not yet covered by its main app.

Overseas Business

The company expands its business overseas through its multilingual iQIYI app and website, which offer a curated selection of popular imported and local video content titles. The company supports interfaces in more than ten languages and its app can be downloaded globally from major app stores. The company also seeks collaboration with local partners to leverage their strong marketing capabilities and know-how in high-quality local contents.

User Experience

The company offers entertainment content across its user-friendly and feature-rich interfaces on its website, mobile app, smart TV and other online terminals.

The company’s home page is a one-stop portal for users to access both trending and recommended content. Leveraging the company’s big data analytics, it analyzes user browsing behavior to understand their tastes and preference, and dynamically update the content shown on the home page to offer users with the most desirable content. The company’s interface offers comprehensive viewing functions designed to enhance user experience. The company provides various picture resolution and play options. Other key functions include bullet chat, screenshots, VR viewing, screen mirroring and video caching.

Monetization

The company generates revenues primarily through membership services, online advertising and content distribution. The company also generates revenues from other monetization methods, including online games, IP licensing, talent agency, online literature and more.

Membership Services

The company’s membership services generally provide subscribing members with superior entertainment experience that is embodied in various membership privileges. The company’s membership program is composed of multiple packages, each offered at a different price and provides subscribing members with access to a large collection of VIP-only content consists of drama series, movies, animations, cartoons and online literature, earlier access to certain content aired on iQIYI platform and a bundle of viewing functions and features. For example, the members-first model of The Lost Tomb enabled members to gain instant access to the entire season while non-paying users could only follow weekly updates for new episodes; and certain auxiliary content of Folk 2022 was accessible exclusively to the company’s members. The company’s members primarily include subscribing members and, to a lesser extent, users who gain access to its premium content library through paid video-on-demand service.

Online Advertising

The prices of the company’s advertising services depend upon various factors, including form and size of the advertising, level of sponsorship, popularity of the content or event in which the advertisements will be placed, and specific targeting requirements. Prices for the brand advertising service purchased by each advertiser or advertising agency are generally fixed under its sales contracts.

In addition to traditional pre-video and pop-up advertisements, the company launched various innovative advertising products and solutions. For example, video-out advertisement appears on the screen when the video is showing content related to the advertised product; soft product placement incorporates the advertised product into the production of the company’s premium original content to facilitate a more natural advertisement viewing experience; content-integrated advertisement integrate brands with content itself, such as theme songs with lyrics embedding brand names of advertisers; and interactive advertisement that facilitates enhanced interaction between brands and users.

The company also offers performance-based advertising, the prices of which are competitively priced through an online bidding process.

Content Distribution

The company monetizes and enriches its content through content distribution. The company sub-licenses content within its authorized scope to TV stations and other internet video streaming services. The company also enters into barter agreements to exchange internet broadcasting rights of licensed content with other internet video streaming services. The barter agreement provides the licensee with the right to broadcast the licensed content, and the licensor retains the right to continue broadcasting and/or sub-licensing the exchanged content. The company distributes its selected content not only to third-party platforms in China but also to regions outside of China.

Others

The company’s other monetization models include online games, IP licensing, talent agency, online literature, other licensing and others.

For its online games, the company distributes both self-developed and third-party games, and it monetizes online games through users’ in-app purchases of virtual gifts and game privileges. For IP licensing, the company licenses its proprietary IP to third parties to develop derivative merchandise products, with a focus on long-term licensing. The company also licenses its popular trademarks to third parties for use in their products. The company collaborates with its partners generally through fixed-price licensing fees and/or revenue-sharing arrangements. The company monetizes its talent agency business by organizing its talents to participate in dramas, variety shows, commercial performances and brand endorsements, among others. For online literature, the company monetizes through advertisement and paid reading (including membership subscription) on its platform, where readers can pay to gain access to its premium online literary titles.

The company also generates revenue from other licensing by granting rights to certain customers to re-create short-form videos for selected content assets from its existing content library over a fixed license period.

Sales and Marketing

Brand Promotion

iQIYI’s brand values are youth, vitality and positivity. The company’s high-quality video content and services lead to strong word-of-mouth referrals, which drives customer awareness of its brand in mainland China.

Leveraging the company’s in-depth understanding of user behavior, it employs a variety of online marketing programs and promotional activities to build its brand as part of its overall market strategy, including celebrity endorsement, hot topic dissemination through different media outlets, brand value embedment in blockbuster content, as well as resource exchange with major internet media platforms.

The company hosts many offline activities to enhance its brand recognition. To increase members’ loyalty, the company organizes special events for members, such as on-site visits during the show productions. The company also hosts innovative offline marketing activities, such as offline music festivals and its content IP based exhibitions.

The company also executes marketing strategies aimed at young users to enhance user affinity. The company uses innovative technology to communicate with the younger generation, such as using AR to enable user interaction at bus stops. The company uses social media platforms to facilitate user engagement. The company attracts young users by offering artist-fans interactions opportunities. The company also collaborates with major wireless carriers to provide monthly unlimited data package for using iQIYI app on mobile devices.

Advertising Sales

For brand advertising, the company sells its advertising services primarily through third-party advertising agencies, including members of American Association of Advertising Agencies, or 4As, and leading Chinese advertising agencies, and a portion of its brand advertising services directly to advertisers. The company primarily sells its performance-based advertising service through third-party advertising agencies. The company strategically leverages advertising agencies’ existing long-term relationships and network resources to increase its sales and expand its advertiser base. Depending on the type of advertiser and content, the duration of an advertising framework agreement is typically 12 months.

The company has an experienced sales team consisting of salespeople with prior experience at Chinese internet companies, members of 4As and domestic advertising agencies. The company divides its sales team by regions across the country to ensure the delivery of targeted advertising solutions. The company provides regular training to its sales team to help them provide advertisers with comprehensive information about its services.

Content Promotion

The company employs a variety of traditional and internet promotional activities to promote its content. The company deploys outdoor brand advertisements, such as display ads in subway stations. The company’s promotional efforts are also focused on brand advertisements placed on internet video platforms and social media campaigns. Furthermore, the company also organizes offline promotional events attended by popular celebrities to raise the awareness of its content offerings.

Intellectual Property and Copyright Protection

The company highly values its intellectual property rights, which are fundamental to its success and competitiveness. The company relies on a combination of patent, copyright, trademark and trade secret laws and restrictions to protect its intellectual property rights. As of December 31, 2022, the company had applied for the registration of 9,080 patents, among which 2,078 patents of invention, 30 utility model patents and 3,758 patents of appearance had been registered with the State Administration for Market Regulation of the PRC, or the SAMR. As of December 31, 2022, the company had applied for 6,022 trademarks, among which 5,077 have been registered with the Trademark Office of the State Administration for Industry & Commerce of the PRC. The company had also registered 509 software copyrights with the Copyright Protection Center of the PRC, as of December 31, 2022.

The company employs a three-phase copyright protection scheme consisting of copyright management, network monitoring, and complaint or legal action. The company’s proprietary copyright management system registers all procured copyrights and ensures that licensed content on its platform do not exceed its scope and term of the licensing agreement. The company developed a proprietary system to detect unauthorized use of iQIYI content on other internet platforms. The company also establishes various other channels for copyright protection. After a user registers and before each upload, the company requires the user to confirm that the content to be uploaded is in compliance with the terms and conditions set forth in the user agreement, to guarantee that he or she is the copyright owner or has obtained all necessary consents and authorizations for such content.

Content Moderation

The company implements strict monitoring procedures to remove inappropriate or illegal content, including video, online literature, animations, iQIYI Show, bullet chat and comment postings, and content from other services. Text, images and videos are screened by the company’s content moderation team, which reviews its content on a 24/7 basis. Illegal and inappropriate content can generally be identified and removed promptly after it has been uploaded.

The company’s content moderation team employs systematic monitoring procedures that include machine screening and manual review based on the latest laws and regulations. The company’s proprietary machine identification system automatically screens text, picture and video content. The text identification system screens text content based on pre-set key words and anti-spam system; the picture identification system screens picture content based on optical character recognition and pornographic-content detection; and the video identification system screens video content based on similarity analysis against its video database to analyze each frame and each second of video content. The company regularly communicates with relevant government authorities to stay abreast of relevant laws and regulations to ensure compliance. The company provides periodic and comprehensive training to its content moderation team to ensure and enhance their understanding of regulatory requirements.

Competition

The company faces competition for content sourcing, user traffic and advertising customers from other providers of online entertainment video services in mainland China, primarily including Tencent Video, Youku, Mango TV and Bilibili.

Seasonality

Seasonal fluctuations have affected, and are likely to affect the company’s business in the future. Historically, the company has experienced lower online advertising services revenue in the first quarter of each year in connection with the Chinese New Year holiday as advertisers limit their budget for online platforms. The first and third quarters of each year (year ended December 31, 2022) typically represent the peak seasons for the company’s membership services historically, when users tend to consume more content during Chinese New Year and summer holiday.

Research and Development Expenses

The company’s research and development expenses included RMB1,899.2 million (US$275.4 million) in 2022.

History

iQIYI, Inc. was incorporated in 2009 in the Cayman Islands.