Iqiyi CEO Gong Yu: Video website membership fee competition will be more cruel than advertising

The online video industry has become the main battlefield for BAT to compete in the mobile Internet and pan-entertainment industries, with iQiyi, Tencent Video and Youku Tudou standing together. Under the cruel competition landscape, Gong Yu has to think about what nearly a quarter of China people watch every day and decide how to spend the annual budget of several billion yuan. At the same time, he also needs to think about innovation in products and revenue models, and strives to turn iQiyi into a profitable company.

After leading the company to lead the market share in the video industry, life for Gong Yu, founder and CEO of iQiyi, has not become easier.

Gong Yu announced at the iQiyi 2016iJOY Joy Conference last month that he would invest 10 billion yuan in content next year. Tencent's video investment is quite large, spending about 800 million yuan on "The Legend of Ruyi" alone. After Youku Tudou fell into the arms of Ali, it also regained sufficient ammunition.

The battle is escalating and the threshold is getting higher. Gong Yu believes that the good thing is that fewer and fewer players remain at the table, and there is a huge gap between the three players in the first camp and the second camp,"which is a very good market structure." Of course, this also means that costs continue to increase,"everyone has a heavy burden."

Although no video website can achieve profit in a short period of time, compared with the "blindfolded rush" just to grab market share a few years ago, everyone's competitive goals are very different. The rapid development of the paid membership business has pointed out a new direction for market participants.

"The model of charging users is beginning to take shape." Gong Yu feels that this is the most important trend in the industry in the past year, and it is estimated that it has brought "billions in revenue" to the entire industry. In June this year, iQiyi first announced that the number of VIP members exceeded 20 million. In November, Tencent Video announced that the number of VIP members had increased by nearly 300% in the past year, also exceeding 20 million.

Theater movies, popular TV series, variety shows, homemade online dramas, and the shelves of video websites are becoming more and more abundant. For tens of yuan a month, you can pick up your mobile phone to see these content anytime and anywhere (you can also skip seemingly endless advertisements), and young viewers are happy to pay for it.

This trend has made Gong Yu, who has always called for making authentic long videos, confident when talking about this topic: "It is misleading to say that mobile time is fragmented and users will only watch Short Video. It is inevitable (trend) for everyone to use fragmented time to read long content. The key is to make it stop and broadcast at any time."

Gong Yu believes that the fee-paying member business has huge potential. After the model matures in the next three to four years, fees, like advertising business, will each account for 1/3 of iQiyi's revenue, and other revenue, including game distribution, will contribute the remaining 1/3. At the same time, he also believes that "there are only two at most" that can eventually reach a certain scale of fee-based membership business.

In a recent exclusive interview with reporters, Gong Yu talked with us about his views on the changes in the video industry in the past year and how iQiyi will deal with the next fierce competition.

"There is limited room for growth in head content, and only by making your own content can we build a brand."

After Alibaba acquired Youku Tudou, the former video boss rejoined the ranks of big content buyers, grabbing many head dramas and variety shows from competitors at higher prices. However, Gong Yu believes that it will only bring local changes and "make good resources more tense." Since the overall price base of top-level content is already very high, a large price increase is impossible.

"In the past few years, there have been cases where the growth has doubled, tripled, and quadrupled in one year. Some cases have increased by tenfold, but it will never appear again in the future. Now, there are 9 million, 10 million good dramas. If you add 1 million, you will only increase by 10%." Gong Yu told reporters.

Gong Yu believes that although TV's hit dramas can still attract huge traffic to video websites, considering the long-term interests of the company and the entire industry, there is no need to continue to invest huge amounts in this part. "Of course, we still have to fight hard, but we don't have to fight hard to the death. Everyone is starting to become smarter and learn to use limited resources for longer-term benefits." Gong Yu told reporters.

The most popular dramas on the iQiyi platform in the past year-"Descendants of the Sun","Old Nine Gates", and "Remains of Sin"-are not the most expensive TV dramas on the market.

Homemade dramas such as "Old Nine Gates" and "Remains of Sin" are becoming new weapons for iQiyi. Compared with TV stations 'follow-up dramas, these homemade content has its own advantages. On the one hand, it can allow advertisers to have earlier and deeper participation methods to conduct customized marketing; at the same time, it can use a more flexible scheduling method to try and make mistakes for paid membership business.

Home-made content with the brand logo of video sites may eventually bring the "differentiation" they have always wanted. After Yang Weidong replaced Gu Yongqiang (Weibo) as the new leader of Youtu, homemade variety shows such as "Mars Intelligence Agency" have emerged one after another; Tencent Video has also announced that next year will invest eight times more in homemade content than this year.

When the online drama "Tomb Robber Notes" was launched in July last year, iQiyi also made the headlines due to server downtime due to excessive instantaneous viewing requests. However, for people in the video industry, a bigger surprise is that iQiyi is willing to spend millions to produce an episode of an online drama, because the most expensive TV series aired in 2014 only had 2 million episodes.

"The cost of a single episode of American TV series ranged from US$3 to US$4 million per episode to US$6 to 8 million per episode. At that time, our most expensive episode was 2 million yuan, which was a huge gap. In terms of development trends, sooner or later we will follow the path of American TV series." Gong Yu believes that iQiyi has long made long-term plans on the road to high-quality online dramas.

Although the cost of a single episode has increased, Gong Yu believes that the overall business risks have been reduced. First of all, it does not have to shoot dozens of episodes at a time like traditional TV dramas. It can shoot season after season, collecting audience feedback for creative adjustments while filming; secondly, it will be more willing to put its superior resources on good dramas, and since there are only 12 episodes in a season, resources will be more concentrated and will bring greater commercial returns.

"User-paid competition will be more cruel than advertising models."

Against the background of reduced piracy and more convenient mobile payments, video websites have adopted a large number of high-quality homemade dramas, making this model of user-charging has taken shape in the past year.

However, Gong Yu believes that everyone has ignored an extremely important factor in promoting paid membership business: the rapid growth of China's film market. On average, iQiyi users watch 8 movies per month, and the content users consume the most on video websites is still movies, especially domestic movies.

Gong Yu recalled that the KPI set when he first started the VIP membership business in 2011 was 200,000 paying users, but in the end there were only tens of thousands of people. The real explosive growth in the number of users has occurred in the past two years, when China's film market suddenly grew from more than 10 billion to more than 40 billion. The rapid growth of the film market has brought users 'continued attention to domestic films, and video websites have become an important export to solve this consumer demand.

"This is the foundation. I think this foundation may be more effective than a single drama, because if it is just a single drama, the number of users will fluctuate very much." Gong Yu told reporters,"There are slight fluctuations now, but it is very clear that it continues to grow at a high speed."

Gong Yu doesn't think iQiyi has much foresight in terms of paid membership."If you review my remarks three or four years ago, I thought it was impossible to charge for TV dramas at that time." He believes he underestimated the market and the changes in user habits.

Even for "Tomb Robber Notes" and "Descendants of the Sun", two paid attempts that are considered extremely successful by the outside world, Gong Yu prefers to call them "crossing the river by feeling the stones."

"We didn't start charging until the later episodes of" Tomb Robber ", and we didn't decide to charge for" Descendants of the Sun "only two or three weeks before the broadcast." Gong Yu told reporters.

After doing some paid experiments in the past year, iQiyi has more confidence and room for trial and error. But the war for the future has only just begun.

"The charging model is too cruel, and it is difficult for many to coexist. The more users you have, the more money you receive, the more shows you can invest in, and the matthew effect becomes more pronounced." Gong Yu said,"The charge will be put together for another two years, and there will only be two at most."

Editor: yvette