Generative AI is clearly going to majorly disrupt video content creation. And, in the process, most of Hollywood. One look at the videos coming out of Pika Labs and Sora videos make that really clear.
This is a big problem for most Hollywood studios, which are not tech companies. They do video creation, and most have only one real competitive advantage, which is economies of scale in the production of long-form video. Some companies also have impressive IP libraries. But for most, their one advantage is scale in the creation of video content.
And, unfortunately, that is exactly what generative AI is wiping out. It is making video production cheap, fast, and available to virtually anyone.
But then there is iQIYI, which describes itself as an “innovative, market-leading online entertainment service”.
As I have written previously, iQIYI is somewhat unique in that it is both a content creation business and a tech company. It has serious capabilities in both. In addition, it has a close relationship with Baidu, which just happens to be one of the AI leaders of China.
In 2023, iQIYI and Baidu announced an agreement to connect iQIYI to Baidu’s generative dialogue product ERNIE Bot. From the press release, they will “jointly explore leveraging AI-Generated Content (AIGC) technologies on iQIYI’s various business endeavors, including content search, promotion, novel creation and tools, among other areas.”
That is really interesting.
The net result is that iQIYI (plus Baidu) is emerging as the generative AI innovator in video entertainment to watch in Asia. Shortly after ChatGPT shocked the world (Nov 2022), iQIYI began moving very quickly into generative.
- In February 2023, iQIYI announced a framework agreement with Baidu to connect with Ernie, their AI chatbot, for a generative dialogue product.
- In mid-2023, iQIYI launched its “iQIYI AIGC Content Technology Innovation Center”.
- And iQIYI began to integrate GenAI tools into their internal operations. And into the daily activities of its staff.
During a recent earnings call, CEO Yu Gong said the following:
“In terms of Generative AI, we are advancing every stage of content creation, from planning, development to promotion, enhancing both efficiency and creativity. These efforts not only improve content production and operation efficiency, but also unleash creative potentials.”
He also said:
“Our commitment is centered around fostering technology innovation to push the industrialization of content production, improve the user experience and boost operating efficiency.”
Note the three buckets mentioned: content production, user experience and operating efficiency. This is important. More on this below.
So, why is iQIYI the GenAI innovator to watch?
Point 1: iQIYI Was Already Deep into Digital and Data Technology.
As mentioned, iQIYI has always been an entertainment plus tech company. It has been in the business of digital and data technology for a long time.
And this was mostly focused on the areas mentioned:
- Content production (including marketing)
- User experience
- Operating efficiency
For example, iQIYI has an Intelligent Production System. Basically, a project management system that integrates and manages:
- Content Information – such as script analysis, revenue / cost estimates, financial dashboards, project status and docs, etc.
- Producer Business Intelligence – such as financial management, IP, and distribution.
- Talent Info Management – including screenwriters, actors, crews, and casting calls. And increasingly AI casting.
- On-Set Production Management – including shooting progress (remaining days, units, pages, scenes), daily reports, uploaded dailies, scheduling, budget breakdowns, and other.
And when you apply digital and data tools to these areas, the metrics you want to impact are quality, efficiency, and speed.
You’ll hear this from iQIYI often. They use tools to improve the quality of their content. To improve the experience of the customer. To make them more efficiently (i.e., faster and cheaper).
This is easier to understand if you look at iQIYI’s financials and basic strategy.
The Basic iQIYI Strategy is Quality Content Plus a Continuously Improving User Experience. While Capturing Efficiencies.
Here are the latest annual financials.
Note a couple of things in these numbers:
- Revenue is growing steadily over time. And this is mostly about membership subscriptions. Subscriptions generated 20.3B RMB (US$2.9 billion) of the 31.9B RMB (US$4.5 billion) in revenue in 2023.
- The two numbers you look at first for membership subscriptions are:
- Number of members. Overall, it was about 100M members in Q4. But there are lots of different levels of membership. So, you have to look at the subscriber mix too.
- Monthly Average Revenue per Membership (ARM). This was about RMB15.98 per member per month in 2023. Again, you have to look at the different membership types. But that’s an average number. And they have been consistently increasing this number in the past year.
- International membership is becoming interesting as iQIYI continues to expand outside of Mainland China. Think Japan, South Korea and Southeast Asia. But I’m also curious how aggressive they are going to be in the UK and Latin America.
Ok. These financials give you a good sense of the basic strategy. They are building membership subscriptions. And the biggest lever they are pulling to do this is creating premium original content. Mostly internally. Think HBO in the US.
They need to consistently produce premium quality content, in long-form video. And particularly in dramas. In 2023, iQIYI broadcast 7 of the top 10 most-viewed new dramas in China. And 65% of the key dramas they released in 2023 were original.
Finally, advertising also does matter. Total ad revenue in 2023 was RMB6.2 billion (US$876.6 million).
- That’s why when we start talking about digital tools, we are really looking for an impact on the quality of video content. And on the user experience. Second to that, we are looking for greater efficiency and productivity. The content-related cost ratio is really important.
We are looking for digital tools to impact quality, efficiency and speed. And within the areas of:
- Content production (including marketing)
- User experience
- Operating efficiency
Ok. With that lets get to AIGC.
iQIYI’s Is Well Positioned to Expand into AIGC
Generative AI requires significant digital capabilities and data systems. You really can’t do AI without data. So, most companies doing generative AI are building on top of their existing databases and digital tools. This expansion from digital to AI is usually Phase 1 of AI strategy. Business that don’t have existing digital and data capabilities usually have to start doing that before they can do anything in GenAI.
As mentioned, iQIYI was able to move quickly in this area because they have long been focused on data and digital tools. And they have their relationship with AI leader Baidu, which has been investing in AI for decades. iQIYI were very well positioned for generative AI. CTO Liu Wenfeng has already openly pointed the direction the company is going with AIGC. And iQIYI has already developed and launched an AI-based plot understanding tool, called Xingluo.
Xingluo is really interesting. According to iQIYI, it’s an AIGC product that leverages advanced capabilities of LLMs to comprehend and enhance the storyline of long-form video content. Xingluo also generates automated batches of various video types, including film narrations and blended clips. This is the platform they are building internally, which I am trying to learn more about.
Here’s what I think they are doing in this first phase of AI transformation. This is my outside impression.
- They are deploying and adapting Baidu’s foundation models to the three mentioned areas (content production / marketing, user experience and operating efficiency). In many cases, these can be used off the shelf (customer service, finance tools, etc.). In other areas, they will need to be adapted over time.
- They are going to combine these Baidu tools with their own proprietary tech to create unique capabilities for comprehending, creating and improving long-form video content. iQIYI is already generating automated video batches and text. And we can see tools that to do this. But iQIYI is in the business of creating great stories – and then producing long-form video. Movies. Full television series. Those will require some very unique generative AI capabilities. Certainly, we are talking about something very different than making short videos for TikTok. I think they are going to combine the proprietary tech they are developing with adapted tools from Baidu.
- They are going to leverage their content library. Generative AI needs data. And iQIYI has a vast library of films and tv shows. And all the data analysis and experience that went into making them. This data corpus of high-quality content gives them a real advantage in creating uniquely capable AI models. And iQIYI is also creating a library of digital assets (more on this below).
That’s big picture and where I think they’re headed. Let’s look at what they are doing today.
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That’s it for Part 1. In Part 2, I’ll go into use cases.
Cheers, Jeff
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Related podcasts and articles are:
From the Concept Library, concepts for this article are:
- Artificial Intelligence: Generative AI
From the Company Library, companies for this article are:
- iQIYI
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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.
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