iQIYI CEO Gong Yu Sina Technology News, February 16th: Even listing cannot prevent the fierce competition in the video industry. After being low-profile for nearly a year, Gong Yu, CEO of iQIYI (Weibo), is back in the media spotlight. The Mole Kart Racing game entering the top ten on the iPad chart has brought him more good news about the industry: the awkward phase where various video websites competed to purchase expensive hit TV dramas is coming to an end, and iQIYI's advertising revenue is expected to grow by 300%.
Sina Technology: In the past year, iQIYI has been quite high-profile in business, but you have been very low-key. What issues have you mainly focused on during this past year?
Gong Yu: To answer this question, we need to look at the broader industry background. I started paying attention to this industry in the second half of 2009. The second and third quarters of last year were the most awkward stages for the entire industry, mainly due to irrational overemphasis on purchasing exclusive rights to hit TV dramas. This stage is painful in the development process of an industry strongly influenced by market factors, but because excessive emphasis was placed on a single point, the most valuable points were all ignored. Now it seems that this entire process is nearing its end. I believe that this year, rationality will dominate in the purchase of hit TV dramas by various video websites.
Sina Technology: You mentioned emphasizing copyright as a single point while ignoring other points. What other value points are you referring to?
Gong Yu: Copyright is certainly one of the core values first, followed by user experience. This sounds simple, but it requires technical and product support. For example, maintaining national processes in the Chinese environment requires enormous financial resources and technical expertise, which may take 2-3 years or even longer to solve. For instance, clarity, high bit rate is the ultimate guarantee for clarity, but a high bit rate also means high cost. For example, increasing the bit rate by 10% might require an additional tens of millions in costs annually.
Another point is capability. The video industry has developed for so many years, and it can be said that the first five years were all investment phases. Leading companies in the entire industry could incur losses, and even substantial ones, but they couldn't continue to be in the video cultivation phase indefinitely. That would not conform to the rules. Therefore, monetization, or rather income level, has become the core competitiveness this year.
Monetization includes two stages. The first stage involves market expansion—whether you can fully present your brand value to users. The second point is advertising sales capability and subsequent service capability—whether they are strong enough to make advertisers and advertising agencies recognize your value and convert that value into the returns advertisers need.
iQIYI expects a 300% increase in revenue this year
Sina Technology: iQIYI's revenue model mainly comes from advertisements. What level of advertising revenue can currently be achieved? Can it achieve break-even?
Gong Yu: The entire industry expects a 100% increase in advertising revenue for 2012, but iQIYI will grow faster, entering a period of explosive growth. I ensure that the revenue increase will be over 300%. Of course, iQIYI is still in a loss-making state, and the losses are still relatively large. iQIYI continues to be in the investment phase for its third year.
Sina Technology: In the past year, the biggest news in the video industry has been successful IPOs. Regardless of stock price trends, what is the attitude of capital parties towards the Chinese video industry based on your interactions with them?
Gong Yu: First, they believe the industry has great potential, and the capital market has never doubted this. Second, they believe this market desperately needs consolidation. Third, they think the industry is somewhat irrational, doing unconventional things, but this mainly refers to the second and third quarters of last year, and this doubt will gradually diminish.
Baidu provides iQIYI with 40% of its traffic
Sina Technology: You mentioned that a lot of funds are needed to improve technology. Are you undergoing another round of financing?
Gong Yu: iQIYI’s initial batch of funds has long been spent, but for the video industry, financing is not a phased event but rather a regular, continuous process. This can be seen from Baidu's financial reports; they have continued to invest in iQIYI. However, regarding other aspects of financing, there is currently no way to disclose this information.
Sina Technology: iQIYI is a company under Baidu, and it will definitely help iQIYI in terms of traffic, which makes other video websites feel it's unfair.
Gong Yu: Currently, about 40% of iQIYI's traffic comes from Baidu. Baidu is a commercial company prioritizing maximum profit, not a charity organization. Its fairness lies in maximizing shareholder returns. Under the premise of maximizing shareholder returns, the core value is to recommend iQIYI if it satisfies users. If iQIYI does not provide a good user experience, Baidu would immediately remove iQIYI. Therefore, the claim of unfairness is not valid.
The copyright distribution and exchange drama model will become popular
Sina Technology: It seems that the competitive landscape in the video industry is getting more intense now, with alliances forming and breaking. How do you see the actual relationship between everyone?
Gong Yu: There are no permanent enemies, nor permanent friends. The situation last year, where everyone was competing for exclusive broadcasting rights, will lead to significant challenges for the video industry this year, namely a drastic reduction in the number of dramas broadcast by each website. In such circumstances, exchanging dramas with each other becomes necessary. There are precedents, like Tudou and Youku, which can be called either distribution or drama exchange.
Sina Technology: All video websites are using every trick in the book to attract advertisers. What makes iQIYI capable of stronger monetization?
Gong Yu: Compared to others, iQIYI entered the industry relatively late, with the biggest issue being low brand awareness and low recognition from advertising agencies. However, after two years of operation, this recognition has gradually increased, compensating for the difference in revenue. Additionally, our sales team size and maturity have improved, enhancing our monetization capabilities.
Sina Technology: In the past year, besides competing for copyrights, video websites have enthusiastically produced their own content. Why is that?
Gong Yu: Video websites overly rely on purchasing hit TV dramas, failing to establish their own value. Because buying hit TV dramas essentially means buying traffic, media ultimately needs its own value, thus requiring its own content that it can control from planning to production. Therefore, everyone is bound to be enthusiastic about producing original content. However, the differentiation in self-produced dramas is significant, so it won't cause severe direct conflicts. According to the annual volume of self-produced dramas broadcasted, it will not exceed 15% of the total quantity.
Won't engage in user-generated content business
Sina Technology: As the leader, Mr. Zhang Chaoyang of Sohu spares no effort in securing resources for the video department, but you seem relatively low-profile. Do you feel any pressure?
Gong Yu: I consider myself an entrepreneur, not a journalist or someone involved in entertainment content production. At heart, I'm not from the entertainment industry; I am an enterprise manager. Therefore, I prefer to plan things behind the scenes and choose excellent people to execute tasks. Everyone is different, and for me, I am more inclined or better suited for management work.
Sina Technology: Mobile internet is also very popular now. How do you view the development of video in this field? Given the strong interactivity of mobile internet, will iQIYI enter the user-generated content domain?
Sina Technology: The future of video in the mobile internet space is very promising. Our current strategy is to prioritize user experience and increase market share acquisition. However, we will not engage in businesses involving user-generated content.
Sina Technology: Does iQIYI's development today align with your expectations when you first started iQIYI?
Gong Yu: Whether it's the industry or iQIYI's development, the market scale is much larger than imagined. We originally envisioned primarily an advertising model for the PC market, but even within this scope, the market is bigger than expected. Adding other terminals and other business models, our imagination expands even further. (Cui Xi)