Market Insight

COVID-19 update: China's iQIYI reports 35% jump in membership services revenue in Q1

May 19, 2020  | Subscribers Only


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iQIYI reported Q1 2020 results on 19 May 2020. Compared to the same period last year:

  • Total revenues increased 9% to RMB 7.6 billion (USD 1.1 billion)
  • Membership services revenue increased 35% to RMB 4.6 billion (USD 654.5 million)
  • Online advertising services revenue decreased 27% to RMB 1.5 billion (USD 217 million)
  • Content distribution revenue increased 29% to RMB 602.8 million (USD 85.1 million)
  • Other revenue dropped 9% to RMB 875.9 million (USD 123.7 million)
 

Our analysis

iQIYI total paying subscriber numbers grew 23% yoy during lockdown

The increased growth in subscription was driven by increased demand during the Chinese New Year holiday and lockdown due to COVID-19. Membership services revenue has trebled in three years and its share of total revenue increased from 40.5% in Q1 2017 to 60.6% in Q1 2020.

IQIYI benefited from the pandemic as new titles were distributed directly on its online video platform as a result of cinemas closures. For instance, production company Bona Film released Enter the Fat Dragon on iQIYI (and rival Tencent Video) on February 2020, as its theatrical release was cancelled.

In the competitive market, content remains the key to attract and retain subscribers on the online video platform. IQIYI’s success in driving subscription business comes with increased spending on content. Content costs were RMB 5.9 billion (USD 836.4 million) in Q1 2020, up 11% on the same period a year before.

To drive revenue, iQIYI introduced additional charges in November 2019 for subscribers who want to watch new episodes in advance. This requires subscribers to pay an additional RMB3. Even though there were complaints by customers in the beginning, the new policy has clearly increased iQIYI quarterly ARPU from RMB 36 (USD 5) in Q1 2019 to RMB 39 (USD 5.5) in Q1 2020. CEO Gong Yu also added that iQIYI will introduce a new tier of VIP membership which allows subscribers to get advanced access to new episodes without additional payment in the near future.

Online advertising shrank 27% as a result of challenging macroeconomic environment

The company attributed the online advertising revenue dip to the challenging macroeconomic environment in China in the wake of the COVID-19 pandemic.

The pandemic caused a major economic slowdown in all major markets and thus, an overall slowdown in advertising spend. China is no exception, online video advertising was impacted by changes in companies' strategy and consumer preferences, as well as increased competition from emerging video platforms.  

As major players iQIYi, and Tencent now focus on growing their subscriber base with high-quality original content, the lockdown made way for short video platforms like Douyin (the Chinese version of TikTok) and Kuaishou to thrive as people were confined at home, looking for entertainment and user-generated lifestyle videos such as indoor fitness and cooking. What’s more, the change of consumer preference from free to pay video consumption means a smaller audience base for advertisers. This makes online video ad placement on these platforms less attractive than other formats such as social and in-game ads.

This is evident in Tencent's Q1 2020 results. The company's media advertising revenue, which includes revenue from its online video platform, fell 10% to RMB 3.1 billion (USD 441 million) in Q1 2020. Its advertising revenues from social networks, which is made up of social platform WeChat and online games, grew 47% to RMB 14.6 billion (USD 2 billion) in Q1 2020.

Geography
China
Organization
Alibaba Baidu Tencent
Research by Market
Media & Advertising
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