On December 29, 2021, at the round table dialogue of the Opening Forum of China Golden Rooster and Hundred Flowers Film Festival in 2021, Gong Yu, CEO of iqiyi, shouted loudly, "the online (film) ticket price has to rise, 6 yuan, too low!" At this time, less than two weeks have passed since iqiyi (IQ. US) raised its membership price in mid December. Throughout December 2021, iqiyi, the leading enterprise of domestic video websites, frequently appeared in the public's view. At the beginning of December 2021, iqiyi was on the news search because of large-scale layoffs. On December 15, 2021, iqiyi announced that it would start to raise the price of its gold members on December 16, which attracted heated discussion from netizens again. In the capital market, iqiyi's performance is also surprising. On December 29, 2021, iqiyi's share price fell 6.5%. From the high of $28.97 in the first quarter of 2021, it fell all the way to $4.03, a decrease of 86%. If calculated from the high of $46.23 in the year of listing in 2018, iqiyi has decreased by more than 90% and its market value has shrunk by more than $30 billion. Under the surface of various signs, iqiyi's dilemma also appears in the public's view. 01 long video industry difficulties From the incremental era to the stock era, money burning and drainage are unsustainable. Due to the lack of early property rights protection in China, piracy is rampant, and users are not willing to pay to watch copyrighted films and television. In the early stage of entrepreneurship, it is difficult for domestic video websites to directly charge users for content viewing, while the plan of curve saving the country is to expand the number of registered users and enclosure by providing free content. Then, by cultivating users' payment habits, form the transformation from free users to paying users, and finally form a sustainable business model by covering the cost through paid subscription revenue. And burning money also became the collective choice of video websites in this period. According to media reports, over the past decade, domestic long-term video platforms have burned 100 billion, of which iqiyi accounts for nearly half. Since 2013, the introduction of popular Korean dramas such as "you from the stars" has greatly increased iqiyi's revenue, traffic and membership. Iqiyi received Korean drama dividends by outsourcing copyright. Through "burning money" drainage, the user scale is rapidly expanded. In June 2017, Gong Yu, founder of iqiyi, introduced in his speech that iqiyi ranked third in the number of monthly covered devices among all apps of China Mobile Internet, and wechat and QQ ranked first and second respectively. With the peak of the industry scale, the growth of users is weak, and the number of active users tends to be stable. The marginal effect of burning money gradually disappeared. Since 2015, although the number of paying users has increased nearly 9 times, iqiyi still has a cumulative loss of more than 40 billion yuan. The industry has entered the stock age. Iqiyi, which is losing money, needs to turn more active users into paying users in order to make profits. However, the pressure on video websites comes not only from the peak of industry scale. The explosive growth of short video platforms has also joined the war, seizing users' fragment time. Short video is characterized by fragmented content, which just meets the fast-paced lifestyle of urban office workers. Tens of seconds to minutes of video content fills the fragmented time in users' lives. Daily commuting, eating time and even toilet time may be used to brush short videos. In terms of the content of the long video platform, the cost of dramas as short as tens of minutes is too high for fast-paced life. According to the autumn report of China Mobile Internet released by questmobile, in September 2021, the overall monthly live user scale of short video app reached 925 million, which has exceeded 903 million of online video app. Tiktok data show that in the three quarter of 2021, the users of quiver and Kwai were at the peak of over 130 minutes per day, far ahead of the traditional long video platform with less than 80 minutes of daily usage. Long video websites encounter double killing of user scale and use time. The snatch of user time by short video has a great impact on the operation of long video platform. Video websites that are difficult to make profits by paying content are also squeezed by short videos on the advertising side. According to the 2020 China Internet advertising data report, the revenue of short video advertising increased by 106% in 2020, far exceeding the 25% increase of long video advertising. China's online video love make complaints about the Ninth China Internet audio-visual conference held in June 2021. Sun Zhonghuai's video clip of CEO video has been distributed in a personalized video. "You like pig food and you see all pig food." Behind such fierce verbal attacks, the threat to the long video industry can be seen. 02 difficulty of copyright cost After layoffs, the price rose again. Behind iqiyi's increasing revenue and reducing expenditure is the continuous loss. From 2018 to 2020, iqiyi's revenue increased from 24.99 billion to 29.71 billion. The data on the profit side is not bright. In three years, iqiyi lost 9.11 billion, 10.32 billion and 7.038 billion respectively, with a total loss of more than 26.4 billion. In the first three quarters of 2021, iqiyi's net loss reached 4.4 billion yuan. Since 2015, iqiyi has sustained significant losses, with a cumulative loss of more than 40 billion yuan. As the leader of the domestic streaming media industry, according to questmobile data, iqiyi has 508 million monthly live users, ranking first in the industry. When the market share has peaked, the high expenditure of content cost (referring to copyright cost) is the main reason why iqiyi continues to lose money and increase revenue without increasing profit. From 2015 to 2019, iqiyi's gross profit margin was negative for five consecutive years. Coupled with large-scale operating expenses, a significant loss in net profit is the inevitable result. In 2020, iqiyi's overall gross profit margin finally turned positive to 6.14%, but because iqiyi's revenue structure also includes online advertising, content distribution and other businesses. Looking at the core business of long video website operation, the long-term upside down of content cost and member subscription income also makes iqiyi unprofitable. Source: Southwest Securities From 2015 to the first half of 2021, the expenditure of iqiyi's content cost is always greater than the member's income. This means that the growing content investment has not attracted more paying users. Under the background of the peak of the industry scale and the weak growth of the number of users, iqiyi must consider how to reduce the cost of content and produce good word-of-mouth works to attract paid subscriptions. 03 difficulties of self-made content mode Netflix, a streaming media giant, is the world's largest paid video website. Naifei's success may give iqiyi, who is still in deep loss, a reference path. As a global streaming media giant, Naifei's moat is its high-quality self-made drama. Through a large number of high-quality self-made content on the platform, on the one hand, Naifei has reduced the cost of content, on the other hand, the exclusive broadcast of word-of-mouth self-made dramas has attracted users to subscribe to Naifei members. Under the joint action of the two aspects, Naifei's profitability is gradually enhanced. From 2015 to 2020, the proportion of Naifei's self-made drama platform increased significantly from 1.4% to more than 40%. The gross profit margin increased from 32.27% to 38.89%. In the first three quarters of 2021, Naifei's gross profit margin reached an all-time high of 45%. In the past five years, Netflix's net profit has increased from US $123 million to US $2.761 billion, a sharp increase of 21 times. A large number of high-quality exclusive self-made dramas with low investment cost not only increased Naifei's gross profit margin, but also attracted more users to pay for viewing, pushing up Naifei's profitability. The popular "out of circle" episodes that appear periodically can bring incremental subscription to Naifei. In the second half of 2021, the Korean self-made drama squid game produced by Naifei has been popular since it was launched, and the on-demand volume has soared all the way. According to Naifei's estimation, "squid game" has more than 132 million viewers worldwide within 23 days of broadcasting. In less than a month, "squid game" has become the most watched drama in the history of Naifei platform. According to Naifei's estimate, squid game has created about $891 million in "impact value". The production cost of this play is only US $21.4 million, about US $2.4 million per episode, which is much lower than that of other large-scale plays by Naifei. After the fire of squid game, Naifei increased the membership fee in South Korea, and the benchmark fee of two person online and four person online increased by 12.5% and 17.2% respectively. The online popularity effect of squid game has brought great return on investment to Naifei. Naifei can often get out of the circle by making popular self-made dramas to enhance its attraction and increase subscribers. Obviously, iqiyi also recognizes the profit potential of high-quality self-made content. Theater mode is iqiyi's strategy to create self-made content ecology. Iqiyi's fog theater officially made its debut last summer. Fog theater is a suspense theater launched by iqiyi in the second quarter of 2020. It contains a number of suspense themed short dramas to improve users' viewing experience by benchmarking the high-quality content of American dramas and a new theater operation mode. Fog theater is also a new upgrade of suspense theater by iqiyi after the launch of suspense theater in 2018. In the first year of its launch, the online dramas "secret corner" and "silent truth" produced by misty theater quickly became popular and became popular. They scored 8.8 points and 9.1 points respectively in Douban, which was considered by the market as "the leader of domestic suspense dramas". On October 7, 2021, iqiyi won the "best original streaming media Drama Award" in the third "Asian content Award" of 2021 Busan International Film Festival by virtue of the original drama "the truth of silence" of fog theater, which stood out from many high score masterpieces such as Alice in the dying country, taboo Girl 2 and I'm a relic arranger from Naifei. This is also the second "Asian content Award" for "hidden corners" last year. Iqiyi won this award for two consecutive years. Subsequently, iqiyi fog theater released a trailer for the return of the new play, and boarded the microblog hot search, quickly raising the audience's expectations for the new play in 21 years. However, after the launch of the show, the powerful actors Duan Yihong and Hao Lei's "mystery fog in the octagonal pavilion" and the young actors Wen Qi and fan Chengcheng's "fatal wish" both had a "rollover" in terms of public praise. The former scored 5.7 points and the latter scored 4.2 points, far less than the works of fog theater in the same period last year. On December 5, 2021, iqiyi launched who is the murderer again. As the last play of the fog theater this year, Douban has a score of 7.0 and has a good reputation, which has also saved the reputation of the fog theater this year to a certain extent. Naifei's self-made content model gives iqiyi a seemingly reproducible development path, and iqiyi has begun to work on the self-made content end. According to the financial report, the proportion of iqiyi's self-made content has rapidly increased to 66.7%, but the self-made content still seems large but not strong. Although misty theater has a good reputation, as a self-made drama platform established for only more than one year, the number of works accumulated is small, and the reputation of drama quality is unstable. Iqiyi wants to make a profit by relying on the cost of content. I'm afraid it's difficult to support it only by relying on the fog theater. 04 iqiyi's future Naifei's successful development process has given a profit path for domestic video platforms. And iqiyi is catching up on this road. By 2020, iqiyi has increased the proportion of self-made content to 66.7%. At the same time, iqiyi's gross profit margin became positive to 6.14% for the first time in six years