iQIYI to beef up original content ahead of planned listing
Baidu-backed video site to invest 300m yuan on programming to stand out from its main rival
Chinese video streaming provider iQIYI plans to attract more internet users to pay for production of more premium original content, part of its strategy to differentiate itself from rival Youku Tudou before making its US IPO in two years.
"It is original content that matters the most to our key audience group such as the post-1985 generation and those living in non-tier-1 cities," Gong Yu, chief executive of iQIYI said in an interview, adding that sitcoms and romantic comedies are the most popular shows, capturing the highest percentage of female audiences.
More funds for original content will be available since the purchase price of foreign dramas, especially those from Korea, have fallen due to an increase in the current inventory.
The strategy will also help boost advertising revenue since big brands and advertising firms only want to be associated with professionally-made content which carries their brand image more effectively.
"Unlike professionally-made content, advertisers don't pay for traffic [generated] from user-generated content because there [is too much of it]", said Hou Tian, a Beijing-based analyst at TH Capital, an independent research firm.
Youku Tudou has licensed 200,000 original programmes compared with 8,000 for iQIYI, according to Hou's estimate. In addition to generating advertising revenues, producing in-house content such as variety shows can help retain loyalty with active users.
The average production cost of a variety programme such as a talk show, musical or magic demonstration is about 200,000 yuan (HK$253,000) per episode, according to Hou, who added that the company could produce up to 9,200 episodes.
The Beijing-based company, which is backed by search engine giant Baidu, will spend about 300 million yuan this year to produce original content, including TV dramas, variety shows, movies, and animation to gain market share in the country's fast-growing entertainment market, while another 50 million yuan will be used for licensed content.
Gong said iQIYI has budgeted total spending of 3.5 billion yuan this year as the success or failure of this aggressive expansion will impact its maiden share sale in 2017.
Hou noted that 2015 is a critical year for iQIYI to impress investors before the company's planned IPO. Following Xiaomi's recent investment, iQIYI can leverage the Chinese phone maker's strong mobile network, but building its own brand and increasing its overall traffic by original content remains challenging.
iQIYI raised US$300 million by selling an undisclosed stake to Xiaomi last year. The rest of the funding will come from internally generated cash, the company said.
Gong said iQIYI, which has yet to make a profit, has more daily active user than Sina Weibo, China's equivalent to Twitter, while claiming to have posted revenue growth of 140 per cent last year. He declined to give specific financial figures but said the company's annual revenue is expected to reach 10 billion yuan in three years, with a forecast 30 per cent increase in advertising revenue per annum.
Xiaomi's investment in iQIYI allows it to promote its original content via Xiaomi's large user base in mobile phones, smart TVs and set-top boxes, creating "a level playing field" since Xiaomi invested an undisclosed amount in Youku Tudou, in which Alibaba owns a 16.5 per cent stake.
"We hope to increase our original content to 15 to 30 per cent of the overall video traffic, up from less than 5 per cent at current levels," said Gong, who believes this would be the right balance between original content and user-generated clips.
