In Part 1, I talked about 3 strategy lessons from my visit to iQIYI.
- iQIYI’s entertainment plus tech expertise makes it well positioned for a world of increasing video consumption and generative AI.
- iQIYI will continue its focus on growing “high value hours.”
- iQIYI’s content strategy is mostly HBO, plus some YouTube.
And these lay the ground for the big question:
What will be iQIYI’s digital strategy going forward? Especially with generative AI?
Video entertainment companies have long been on the leading frontier of digital transformation and disruption. They are in the digital goods business and the technology and consumer behavior change in digital goods very quickly. Especially if there are no regulatory requirements to slow digital change.
So iQIYI is now at ground zero for generative AI, which turns out to be exceptionally good at creative content. As I am writing this, Runway Gen 2 (which does image and text to video) has just been released. It is getting really good at creating lifelike videos. Also, as I am writing this, Hollywood actors are on strike for the first time in +50 years. And it has a lot to do with generative AI.
So here is what I think is next for iQIYI and video entertainment.
Prediction 1: iQIYI Will Stay Focused on Building Both Entertainment and Tech Capabilities
I consider iQIYI to be “HBO plus YouTube”. Their created and licensed video entertainment content are high quality. And they have serious capabilities in creative entertainment. They understand storytelling and character development. They understand cultural trends.
But they also have an audience-builder platform. This is a separate business unit focused on matching algorithms and data analysis. Your typical Hollywood studio has little of this type of tech expertise internally.
Against accelerating digital change, iQIYI is fairly well positioned with these capabilities. They are the market leader and I view them as a 50/50 content and tech company.
They appear (to an outsider) to be doing the standard digital playbook thus far (see my digital operating basics). This includes building a digital core, improving productivity by integrating digital tools into the workflow and using data to increasingly improve the user experience. And they are focusing on personalized content recommendations, which is usually the first major improvement in the consumer experience. Personalization does improve user experience and retention significantly, especially in digital goods. I’d be focused on the same thing.
But their biggest move (outside of the DOB playbook) appears to be building a digital asset library and moving towards virtual production. I’ll talk about those below.
Prediction 2: Intellectual Property Will Expand to Include a Wide Range of Intangible (i.e., Digital) Assets.
Video entertainment has always been about the creation of intellectual property, which is a type of intangible asset. Walt Disney famously created Mickey Mouse, a character that has increased in value over decades (just like an asset). It has a fan base. And this asset can be reused at will in merchandise, video games, theme parks, in other films and tv shows and so on.
Well, it turns out you can turn a whole lot of things in movies and TVs show into intangible digital assets. The characters, as mentioned, can become IP and digital assets. However, the lead actors and the extras can also become digital intangible assets. If you can get the permanent rights to use both Iron Man and Robert Downey Jr, that is even better. Pretty much everyone on camera can become a digital asset.
But it doesn’t stop there. The buildings, landscapes and sets can also be scanned and turned into digital assets to be sold and reused. So can the music and sound effects. In theory, the dialogue, scripts, and style of dialogue can also be digitized. Although generative AI is pretty good at just creating this as needed.
All of these can be put into a library of digital assets. And they can then be used in lots of ways. Characters, lead actors, extras and sets can be used internally or licensed for new tv shows and movies. Or for use in video games. That makes production much faster and cheaper. Many can just be held as assets, where they can increase or decrease in value.
Basically, you want to turn every part of a production into digital assets. But you can take this idea even further.
I have argued in previous articles that you want to view digital businesses as four types of intangible assets.
A quick review.
The first category is Innovation / Creative Assets. This is any time, effort or money spent developing intellectual property. So, this includes content creation, such as entertainment and artistic originals, as mentioned.
However, this can also include other types of content such as mapping and user generated content. It can include R&D in new product development, improved customer interfaces and improved user experiences (whether digital or physical). If we are talking about virtual reality, the user experience itself starts to become an asset.
The second category is Digital and Analytics Assets. This includes software, data warehouses, digital infrastructure, and other digital and data capabilities. It also includes CRM software, ecommerce interfaces, data analytics models and algorithms and so on. In theory, these can also be licensed or rented.
The fourth category is Brand Assets. I’m skipping the third as it relates to people and organization. For Brand Assets, this is relationships with current and potential customers, which is an important intangible asset (often called brand equity). In entertainment, we would call this distribution.
As distribution and increasingly production become virtual, all these types of intangible digital assets become more important. And this is my prediction. The intangible assets we care about in video entertainment is going to expand from just intellectual property to these 3 categories of assets. And this is what will be fed into increasingly virtual production.
But what happens when you combine digital asset libraries with virtual production and generative AI, which is really good at creating content?
That’s the big thing to watch for.
Production will increasingly happen virtually (i.e., on computers). The inputs to this process will be real world footage, digital assets and content created by generative AI. That is going to be particularly powerful, which leads to my last prediction.
Prediction 3: Hollywood Will Externalize Capabilities and Offer Content Creation as a Service
Increasingly virtual production based on digital assets and generative AI is going to be a big part of the future. That’s both great and a challenge.
Generative AI will make everything more efficient and productive. AI can do script analysis. It can create characters. It can write dialogue and interactions. It can do business revenue projections. It can even do translations so a tv show can be put out in many languages at once. It’s unlike this will happen with only AI. It will be professionals using AI as powerful tools.
The result is that lots of people are going to be able to create video entertainment. That will be great for consumers in that the volume will increase. It will be bad for consumers because most of it will be very low quality. It will be great for content creators, who have far more powerful tools. And it creates interesting opportunities for Hollywood and the video entertainment industry.
I predict we will see some players in Hollywood take their internal entertainment and tech capabilities and offer them as a service to content creators.
Externalizing internal capabilities and selling them as a service is a common strategy in Silicon Valley. Amazon built big web and IT capabilities for its ecommerce business and then externalized that capability as a service (which became their cloud business AWS). JD is currently doing the same thing with its logistics capabilities.
Video game companies like Epic Games have already done this strategy. They built successful games internally and then began offering game developers a suite of tools to create, distribution, market and monetize their own video games. I predict several Hollywood companies will try a similar strategy. I’m not sure if this will happen in China, which will be different. But this will change the ecosystem of entertainment and is worth watching for.
That’s it for Part 2. I hope this was helpful. iQIYI is a really cool company in a fascinating space. Lots of good digital strategy thinking here.
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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
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