In the early days of internet streaming in China, video content was free of charge and pre-existing content was the main offer. Now, Chinese OTT (over-the-top) companies, such as iQiyi, Tencent Video and Youku, represent a growing ecosystem of their own that runs parallel to the US streaming giants. 

Chinese search engine Baidu founded iQiyi in 2010. Now one of the largest video streaming companies in the world, iQiyi purchases and produces content ranging from blockbusters and dramas to documentaries and contemporary art films.

Unlike Netflix and Disney, iQiyi receives revenues not only from subscriptions, but also from advertising, gaming businesses and e-commerce. It operates on a freemium model, whereby non-subscribers can watch a limited selection of ad-supported videos, while paid subscribers gain ad-free access.

As the company moves to create more original content and innovate technologically, iQiyi has also been expanding into south-east Asia through both local and Chinese-language content to add new sources of growth to its business.

Expansion to SE Asia 

The Nasdaq-listed company became the first platform in China with more than 100 million subscribers in 2019. In late 2019, the company opened its first hub outside of China, in Singapore. In 2020, iQiyi hired former Netflix executive Kuek Yu-Chuang as vice president of international business to help with the company’s Asian expansion.

Yang Xianghua, iQiyi’s senior vice president, tells fDi that “we know that users in south-east Asia have a strong interest in local south-east Asian and Korean content. Our strategy, therefore, naturally includes acquiring and producing titles to meet that interest.”

As of the third-quarter of 2021, iQiyi has a total of 103.6 million Chinese and overseas subscribers, but was unable to say how many subscribers it expects to amass as it moves into south-east Asia.

Cultural FDI

Mr Yang adds that alongside local content, “one of iQiyi’s main objectives within its overseas expansion strategy is to bring Chinese content to the rest of the world”.

According to its own research surveying individuals across 26 countries globally, 76% said they have started to watch Chinese-language content in the past two years, and half claimed to enjoy watching Chinese-language dramas and would recommend them to others. 

The push into south-east Asia from iQiyi and its competitors, namely Tencent Video, comes alongside the call from Beijing for Chinese culture to go global.

In October, China’s Ministry of Commerce led 17 government departments to produce policy guidelines to support the country’s “high-quality national cultural export bases”.

Yet, at the same time, iQiyi is also slated to cease operations in Taiwan, which the Chinese government believes to be within its own jurisdiction. In November, Taiwanese OTT Entertainment, with which iQiyi has a partnership to sell services in Taiwan, announced that iQiyi will not renew its contract after it expires at the end of this year.

Rising competition

Beset by competition from its peers, iQiyi is banking on its diversified business model, overseas expansion and technological innovation.

CEO Gong Yu told investors during the company’s third-quarter earnings call that the company is “proactively adapting [itself] to the new market environment” and sees a “promising growth trajectory” for initiatives like its overseas expansion. Its revenues for the quarter were up by 6% from the same period in 2020, reaching Rmb7.6bn ($1.2bn), but its net loss deepened from 17% to 18%. Research and development expenses were up 2% year-on-year. 

In response to how the company can navigate short-term losses, a spokesperson for iQiyi said “we are seeing new forms of entertainment emerge every day, and we need to keep innovating to satisfy our viewers’ experience”. 

Tech, tech, tech

Liu Wenfeng, iQiyi’s chief technology officer, asserts that “iQiyi’s vision is to become a technology-based entertainment company”, the scope of which encompasses creatives and users alike.

By “technology-based”, Mr Liu refers not only to the user experience, but also the pre- and post-production phases. “iQiyi is working to introduce technology to as many parts of the entertainment ecosystem as possible,” he says.

In the pre-production phase, for example, the company uses machine learning to scan literature and plays for content ideas and in the post-production phases, it uses AI technology to cut and edit efficiently. “At iQiyi, we want to marry the creative spirit of Hollywood with the technological savvy of Silicon Valley,” Mr Liu says.

Gen Z over millennial 

In response to a question posed by fDi about rising competition between the US and Chinese streaming giants, the company said that its primary objective is Chinese content before looking into exploring North America or Europe.

“Our goal is to first become the streaming platform for the world to get acquainted with the excellence of Chinese content, and then we will gradually research and develop expanding into the Western markets,” a spokesperson said.

Cecilia Yau, mainland China and Hong Kong media leader at PwC China, says that the compound annual growth rate of the Chinese OTT market stands at more than 11% over the next five years, while in the US this is only forecast to be 6%.

But she warns that this is not “easy growth”, and will push these companies away from the “saturated” tier 1 and tier 2 cities and towards the untapped subscriber bases in lower-tier cities. According to PwC, China’s OTT market is still only half that of the US, despite having a billion more people.

In comparison with US tech streaming giants, Ms Yau says that Chinese tech streaming companies such as iQiyi and Bilibili have a more ‘Gen Z’ flair about them with tailored individual subscription models, a focus on the user experience and a more diversified business model. “It’s more creative compared to the US and Europe,” she says.

Mr Liu is keen to stress that the technological endeavours of iQiyi specifically are there to boost creativity.  

“Creativity and technology have been in iQiyi’s DNA since the company’s inception. We want to create a win–win situation where the company and the artists together build a diverse and exciting content ecosystem. Working together, we are excited to just keep creating,” he says.

This article was first published in the December 2021/January 2022 edition of fDi Intelligence magazine.