IQiyi posts first year of profits and says it’s ‘excited’ about Sora

BEIJING — Chinese video content and streaming company iQiyi CFO Wang Jun said he is “excited” about potential new business opportunities with the emergence of OpenAI’s text-to-video tool Sora.

Speaking exclusively to CNBC on Thursday, Wang said such tools can help iQiyi tell stories more creatively, and that internally, it is exploring the text-to-video space.

But Wang indicated the tech’s capabilities aren’t yet necessarily able to offer people what they want. “We are waiting for the moment,” he said.

OpenAI, the creator of artificial intelligence-powered chatbot ChatGPT, unveiled Sora earlier this month. Widespread public access to the tool, which appears to create cinematic scenes based on text prompts, remains limited.

Wang’s comments come as iQiyi on Wednesday reported it swung to a profit in 2023 for the first time since it listed in the U.S. in 2018. For nearly every year since, the company posted annual losses of $1 billion or more.

After a major effort in 2022 to improve performance, iQiyi came close to breaking even. Net income finally turned positive in 2023, with a total of $271 million.

IQiyi’s strategy is not “audacious” Wang said, but rather a meticulous approach integrated with big data analysis using technology and AI.

The first step was to attract the best talent in China’s film industry, Wang said.

That involved moving IQiyi’s headquarters in late 2019 from a tech hub on the northwestern outskirts of Beijing to a central location in the eastern part of the city, closer to where more creatives live or already work.

The new office is in a popular neighborhood called Sanlitun, which is home to an Apple flagship store, an upscale outdoor shopping complex and many restaurant and bars.

Wang pointed out the Sanlitun office layout is also flatter than the tower the company previously occupied, allowing more people to work on one floor and interact organically. He added the rent at the new location was cheaper.

IQiyi creates its own television dramas and reality shows and licenses movies for its video platform that is available as a smartphone or television app, or on its online website.

For 2023, iQiyi said Wednesday its original content accounted for a record 65% of major dramas it released.

The company claims it now has more than 50 in-house studios that produce more than 200 shows a year.

The growth of in-house production reflects a bigger change in China’s film industry over the last five years, Wang said, noting that previously the majority of content was made by third parties, resulting in bidding wars for shows which raised costs.

Other major Chinese video platforms with longer-form content include Tencent Video, Alibaba-owned Youku and Bilibili.

The second aspect of iQiyi’s strategy, Wang said, is using a centralized platform to analyze consumer preferences.

The data, of which the company now has five years’ worth, allows it to determine what kind of viewers are watching during the summer holidays, for example, and which director’s or producer’s involvement contributed the most to success.

Recent data insights show more people across China are watching iQiyi’s content on internet-connected television sets, and, increasingly screens inside electric cars, Wang said.

Finally, he said the company is making a targeted effort to ensure return on production projects, rather than just pouring funds into a single large project with a famous director or cast.

Despite iQiyi’s record revenue, net income and cash flow in 2023, the company’s average daily number of total subscribers fell to 100.3 million in the fourth quarter, versus 111.6 million for the same period a year ago and 107.5 million the third quarter.

Monthly average revenue per membership rose to 15.98 yuan ($2.25) in the fourth quarter, up from 15.54 yuan in the third quarter and 14.17 yuan in the fourth quarter of 2022.

When asked about the subscriber numbers, Wang said 100 million still indicated the company was reaching a few hundred million people a month since each subscription can represent a household. But he acknowledged that there was pressure to produce better content in order to get subscriber numbers back up to levels seen during a hit television drama series in early 2023.

IQiyi, whose parent is Chinese tech company Baidu, has also long had its eye on the market outside China, and has a presence in Southeast Asia.

Wang said overseas expansion would remain a focus in the year ahead, but declined to share specifics.

“We’ve looked at Netflix’s successful precedent, we’ve seen Disney’s global success, and we know that at some point, quality content will be appreciated,” he said, noting that sentiment motivates the team overall.