The Chinese streaming giant is betting on short-form content and subscription tweaks to sustain its upward momentum.

On November 21, Nasdaq-listed iQiyi released its unaudited financial report for the third quarter, which ended September 30, 2024.

For the quarter, iQiyi reported total revenue of RMB 7.2 billion (USD 1 billion). This included RMB 4.4 billion (USD 616 million) from membership services, RMB 1.3 billion (USD 182 million) from online advertising services, RMB 810 million (USD 113.4 million) from content distribution, and RMB 730 million (USD 102.2 million) from other revenue. The company achieved a non-GAAP operating profit of RMB 370 million (USD 51.8 million), marking ten consecutive quarters of positive operating cash flow.

iQiyi’s consistent results highlight its acute market awareness and user-centric approach. In the third quarter, the company initiated two significant strategies to refine its offerings. First, it expanded its content ecosystem by entering the mini drama segment, establishing a model that integrates short- and long-form video content to meet diverse consumption preferences. Second, it revamped its membership structure by introducing a new subscription plan tailored for friends and family, complementing its existing basic membership and catering to varied consumer habits.

Short- and long-form content, combined

On November 6, the China Network Audiovisual Association released a white paper on the development of China’s mini drama industry, estimating the market to reach RMB 50.44 billion (USD 7.1 billion) in 2024, a year-on-year (YoY) increase of 34.90%. For the first time, the mini drama market could surpass the mainland box office in revenue.

How should long-form video platforms respond to the boom in mini dramas? The market’s focus has long been on iQiyi, and this quarter, we saw iQiyi’s answer: building a new ecosystem comprising both short- and long-form content. Gong Yu, founder and CEO of iQiyi, said that the company recently upgraded its content strategy, incorporating highly popular mini dramas as an effective complement to its long-form videos.

What kind of mini dramas will iQiyi create, and what are their unique features? How does iQiyi interpret the relationship between short- and long-form content, and what are its advantages?

At a recent event, Gong Yu emphasized that iQiyi’s programs are neither truncated, low-cost online series nor low-quality, paid content. Mini dramas will feature episodes 1–5 minutes long, designed for vertical screen formats, while short dramas will span 5–20 minutes per episode, optimized for horizontal viewing. During the latest earnings call, Gong reiterated iQiyi’s commitment to acquiring high-quality content and creating a distinctive tone and style.

This segmented content strategy caters to diverse user preferences across different scenarios. Vertical-screen micro dramas are tailored for users seeking quick, bite-sized entertainment during fragmented time periods, while horizontal-screen short dramas feature more complete narratives for viewers with relatively more leisure time.

Gong also highlighted that mini drama audiences differ significantly from traditional film and television consumers. By incorporating mini dramas into its offerings, iQiyi aims to attract new users and members. This diversified content approach not only broadens its reach but also enhances user satisfaction and loyalty.

What are iQiyi’s advantages in producing mini dramas? As a long-form content platform entering the short drama market, iQiyi brings significant advantages in its supply chain, distribution channels, and established audience base.

iQiyi’s extensive network includes many of China’s top film and television industry players, including mini drama creators. This existing collaboration enables iQiyi to expand into the mini drama market more efficiently and cost-effectively. Gong noted that the operational rules for mini dramas closely align with those for long-form content, minimizing learning costs and allowing the company to scale quickly in this segment.

In addition, iQiyi’s mobile apps, both iQiyi and iQiyi Lite, are well-equipped to support short drama content, with mature technology and solid user bases. Adding mini dramas and implementing relevant product modifications can therefore be done efficiently and at a manageable cost.

The iQiyi app will continue to focus primarily on long-form content, complemented by free mini dramas. Its monetization strategy will emphasize memberships, supported by advertising. Meanwhile, iQiyi Lite will prioritize free mini dramas, with advertising as the primary revenue source and memberships as a secondary focus.

Building on its strengths, iQiyi is also employing new monetization models for mini dramas. Unlike the prevalent pay-per-episode model in the market, Gong said that iQiyi members will have access to all mini dramas for free in the future. Non-members will be able to watch free mini dramas or opt for a pay-per-view plan to unlock member-exclusive content, with the option to watch short dramas for free in a secondary release window.

This flexible payment model caters to the needs of different users while providing the platform with more revenue streams. For members, free access to all mini dramas enhances the value of membership, encouraging more users to become members and boosting engagement. Non-members, on the other hand, can enjoy free content or opt to pay for premium mini dramas. The secondary release window also helps balance member and non-member interests while maximizing content reach.

A week before releasing its financial report, iQiyi unveiled revenue-sharing rules for mini dramas. The platform offers three models—membership viewing revenue share, pay-per-view revenue share, and ad revenue share—with up to 70% of revenue shared for exclusive content. Compared to the typical traffic-based model in the short drama industry, iQiyi’s approach provides more options for creators, incentivizing high-quality production and helping standout content gain visibility.

Historically, the mini drama industry has prioritized heavy spending on distribution and marketing over production quality. However, the evolution of the industry hinges on delivering high-quality content. With its expansive user base, professional production capabilities, established membership model, and attractive revenue-sharing rules, iQiyi is well-positioned to elevate the mini drama segment.

While broadening its mini drama portfolio, iQiyi’s core offerings in film, television, and variety shows remain stable. In the third quarter, its hit variety show The King of Stand-up Comedy led Enlightent’s variety show leaderboard for ten consecutive weeks. In the drama segment, iQiyi reclaimed the top market share, according to Enlightent. Strange Tales of Tang Dynasty became the platform’s 14th drama to surpass 10,000 on the heat (popularity) index, while For The Young Ones set a new record among iQiyi’s short dramas with fewer than 20 episodes.

Targeting friends and family

As content continues to evolve, the membership system remains a critical strategy for long-form video platforms to enhance user engagement and retention. This quarter, iQiyi introduced adjustments to its membership offerings, responding to observed user demand.

On November 12, iQiyi launched a new option allowing standard members to add an additional account for RMB 8 (USD 1.1) per month, with the main account subscription priced at RMB 25 (USD 3.5) per month.

A key feature of this offering is the separation of membership credentials, passwords, and viewing histories between the main and family accounts. This ensures an independent and seamless viewing experience for each family member, allowing them to access iQiyi’s premium content and high-quality audiovisual features on their own devices, tailored to their individual preferences and schedules.

The new service reflects iQiyi’s understanding of family viewing habits. With growing demand for shared viewing in family settings, coupled with the unique needs of seniors and children, the offering provides a cost-effective solution without requiring duplicate subscriptions.

Notably, overseas streaming platforms such as Netflix and Disney+ have launched similar services with considerable success. For instance, Netflix reported a 10% YoY increase in paid memberships in the third quarter of 2023 following the introduction of additional account options.

Additionally, iQiyi has expanded the availability of its basic membership, previously limited to the iQiyi Lite app, to all major platforms. This basic membership, priced lower than the gold VIP membership, allows users to access premium content with ads, catering to those looking for a more affordable option for member-exclusive content.

Of course, while embracing change, iQiyi has also retained several constants, including deepening the application of artificial intelligence and pursuing international expansion.

From a business perspective, the priority in today’s content market is clear: to move beyond fragmented trends and fleeting consumption, aiming instead to establish a more complete and sustainable business cycle.

iQiyi’s capabilities in film and television production continue to strengthen. It is among the first streaming platforms in China to implement virtual production across the entire content creation process. Its virtual production team provides comprehensive services, including content production, cost evaluation, technical design and rehearsals, and production supervision, all managed concurrently across multiple projects.

Notably, Shadow Love, now in production, is the first film and television project in China to use the latest version of Unreal Engine for virtual shooting.

In its advertising business, iQiyi has leveraged AI-powered campaigns to boost performance, with AI-enabled ad creatives achieving over 20% higher cost per mille (CPM) compared to traditional formats.

On the global front, iQiyi has capitalized on the growing international popularity of Chinese dramas to expand its overseas business. In the third quarter, both total overseas revenue and revenue from membership services recorded YoY and quarter-on-quarter growth.

Notably, membership revenue in markets such as Hong Kong, the UK, Brazil, and Australia posted YoY increases exceeding 40%. Average daily subscription numbers also rose YoY and quarter-on-quarter, with standout growth exceeding 45% in Brazil, Mexico, Hong Kong, and Thailand.

Since shifting its strategy from scaling to prioritizing profitability, iQiyi has focused on high-quality development in its core business. This pivot has also influenced the market’s perception of iQiyi, with investors placing greater emphasis on its fundamentals and long-term value.

Despite facing challenges, iQiyi’s cost reduction and efficiency initiatives over the past two years have delivered expected results. The market will closely watch how iQiyi’s evolving ecosystem model shapes the industry and what new heights the company can achieve in the future.

#iQiyi #StreamingInnovation #ShortFormContent #MiniDramas #GlobalStreaming