Participants
Chang Yu; Investor Relations; iQIYI Inc
Yu Gong; Founder, Chief Executive Officer, & Director; iQIYI Inc
Jun Wang; Chief Financial Officer; iQIYI Inc
Xiaohui Wang; Chief Content Officer; iQIYI Inc
Youqiao Duan; Senior Vice President; iQIYI Inc
Xianghua Yang; Senior Vice President; iQIYI Inc
Xueqing Zhang; Analyst; China International Capital Corporation Limited
Lincoln Kong; Analyst; Goldman Sachs Group, Inc.
Maggie Ye; Analyst; CLSA
Thomas Chong; Analyst; Jefferies LLC
Presentation
Operator
Thank you for standing by, and welcome to the iQIYI second quarter 2024 earnings conference call. (Operator Instructions) I would now like to hand over the conference to Ms. Cheng Yu, IR Director of the company. Please go ahead.
Chang Yu
Thank you, operator. Hello everyone and thank you for joining iQIYI’s second quarter 2024 earnings conference call. The company’s results were released earlier today and are available on the Company’s Investor Relations website at ir.iqiyi.com.
On the call today are Mr. Yu Gong, our Founder, Director, and CEO; Mr. Jun Wang, our CFO; Mr. Xiaohui Wang, our CCO, Chief Content Officer; Mr. Youqiao Duan, Senior Vice President of our membership business, and Mr. Xianghua Yang, Senior Vice President of movies and overseas business.
Mr. Gong will give a brief overview of the company’s business operations and highlights, followed by Jun, who will go through the financials. After the prepared remarks, the management team will participate in the Q&A session.
Before we proceed, please note that the discussion today will contain forward-looking statements, made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.
Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC. iQIYI does not undertake any obligation to update any forward-looking statement except as required under applicable law. I’ll now pass on to Mr. Gong, please go ahead.
Yu Gong
Hello everyone, thank you for joining us today. In the second quarter, we saw intense competition for top content. While we aired a series of diversified premium content, certain titles did not meet our high expectations, putting pressure on our financial results. After a great deal of hard work, we have overcome the short-term fluctuations in our content slate performance.
As a matter of fact, we view the vibrant competition within the long-form video sector as constructive, which has enhanced its appeal over other entertainment formats. It also provided us a valuable opportunity to review and refine our tactics. It helped us gain a better understanding of user preference, and improved our business for future growth.
We firmly believe that ultimately, success in the long-form video business depends on the stable supply of premium content under the ability to achieve balance in both content quality and commercial benefits. With this in mind, our goal is to further improve the overall success rate of our content portfolio, and more importantly, the stability of content performance.
In fact, as the summer season unfolds, our premium content has gained strong momentum. The release of acclaimed titles, such as Interlaced Scenes, Strange Tales of Tang Dynasty Season 2, (spoken in foreign language) has boosted our key operating metrics and brought us back to the leading spot in terms of market share in the key drama category in July, according to Enlightent data.
Notably, the second season of Strange Tales of Tang Dynasty became the 14th drama to break our popularity index score of 10,000. For iQIYI, in addition to delivering high quality content, providing great user experience stands as another cornerstone of our business.
As we remain committed in enhancing member benefits, we are also refining our content distribution algorithm to bring free users superior viewing experience, while balancing commercial performance. Looking ahead, we are investing in multiple areas to drive the company’s long-term, sustainable growth.
Firstly, we are extensively applying AI to improve content creation, operational efficiency, and user experience. Secondly, we will further enhance our domestic business, while expanding our footprint in the broader overseas market. Thirdly, we are using iQIYI’s content influence, and its IP portfolio to explore revenue opportunities beyond membership and advertisement, such as IP derivatives and offline experiences.
These initiatives align perfectly with our core value, which centers on maximizing our IP value through technical innovations and content creativity, setting the stage for an exciting future. Now let’s move on to the performance of our core business segments, starting with membership services.
Our primary goal for membership services remains on driving sustainable long-term revenue growth through top-notch content and superior user experience. In the second quarter, membership revenue was down 9% annually, primarily due to fluctuation in our content slate performance causing the attrition of hit-title driven members, and the high base effect from last year’s mega hit, The Knockout.
ARM grew steadily year over year. This was partially fueled by our disciplined pricing strategy, as we scaled back on the overall promotions and discounts. Our enhanced member benefits also played a major role, effectively encouraged the members to sign up for higher-tier plans.
Furthermore, our innovative value-added services drove users’ willingness to pay. Notably, we launched Express Package for 10 dramas in the second quarter and garnered the highest number of cash purchases. Following the success in drama category, we plan to expand Express Package to other content categories such as variety shows and animations.
We remain confident in the long-term outlook of our membership business, which is supported by several key factors. Firstly, we have successfully built a solid foundation of loyal, sticky members. Secondly, content remains a primary driver of our membership growth, and we are in the middle of introducing more diversified premium content to engage broader user cohorts.
Furthermore, we are committed to enhancing our operational strategies to improve member acquisition and retention. Initiatives include, one, reaching broader demographic groups by expanding our sales channels and utilizing viral social marketing; two, improving conversion rates by launching marketing initiatives directly tied to popular content of the season, such as IP-based member packages, Express Package, and Courtesy Experience Program; three, providing value-for-money services to long-term and high-tier plan subscribers, such as exclusive offline events.
In the second quarter, we organized 17 offline events, and received positive member feedbacks. Building on the strong user reception from last year, our annual offline flagship event, The 2024 iQIYI Scream Night is set for its comeback on December 7 this year in Macau.
The perceived value of our members was even further amplified by our very July 1 17th iQIYI Member Festival. Through this event, we offered appealing membership discounts, and hosted a seven-hour live broadcasting to promote over 130 titles in our content pipeline. More than 40 celebrities participated the live-streaming event, and generated over 30 million views.
In the future, that July, the 17th iQIYI Membership Festival is set to be an annual event exclusive to our members. It is an event to discover attractive deals and enjoy exciting activities. This festival will not only underscore the substantial value we provide to our members, but will also serve as a key opportunity to boost our brand’s influence.
Moving on to content. We have overcome the short-term fluctuations in the content slate performance in Q2, and learned a lot from this short-term setback. Through the in-depth analysis of our projects, we have gained valuable insights that are set to guide our content creation and operation in the future.
Firstly, with respect to content creation, we will craft more and higher-quality content that meet the appetite of mainstream audiences. In particular, we plan to broaden our portfolio with offerings that especially appeal to our female audience.
To maintain our edge in the constantly evolving field of content creation, we aim to further enhance our ability to tap into popular social trends, thereby producing content that establishes a deeper connection with our audiences. We will embrace a more innovative stance in our casting and script selection processes, aiming to transcend the limits of traditional storytelling.
Secondly, regarding content scheduling, we will closely monitor our user trends and adopt a dynamic scheduling strategy that is guided by user engagement and retention. This approach ensures that our content rollout is optimally timed to align with our audience’s preferences and the viewing habits. Thirdly, in terms of managing our in-house studios, we are committed to enhancing the efficiency and effectiveness of our operations at each key stage of the creative process.
Our aim is to cultivate a more proactive culture among our talent, ensure they have ample freedom to fully unleash their artistic skills, and foster an environment where creativity can thrive. Moving on to the detailed content performance in the second quarter. For dramas, our leadership in the reality and the suspense genres remains unchallenged.
Our original drama, To the Wonder (spoken in foreign language), perfectly demonstrated our success in blending artistic merits and the commercial benefits, generated exceptional performance across all metrics. What’s more impressive is the show’s remarkable long-tail effect, with its influence extending well beyond the online domain as it boosts tourism to its filming location in Xinjiang.
To effectively extend the vitality of the IP, we worked with the creative team to host an open field concert in Xinjiang in July, which was widely acclaimed by users, sponsors, and the local culture and tourism bureaus. In addition, we further solidified our position as the go-to platform for the suspense genre by launching dramas Tell No One (spoken in foreign language) and Lost in the Shadows (spoken in foreign language) under our Light On Theater brand.
With movies, we continued to outperform our peers according to Enlightent’s viewership share data. In the second quarter, we launched a total of 15 key titles in our movie channel, including multiple box office hits such as Article 20 (spoken in foreign language) and Pegasus 2 (spoken in foreign language).
In our cloud cinema, we launched 21 titles, covering the latest and most popular theatrical releases such as the box office top-grossing YOLO (spoken in foreign language). For original movies, we released various genres, such as disaster comedy A Promising Future (spoken in foreign language) and suspense crime, Suspect (spoken in foreign language).
For variety shows, our two flagship shows returned with the new season, namely The Detectives Adventures Season 4 (spoken in foreign language) and The Rap of China 2024 (spoken in foreign language), both of which continued to be well recognized by advertisers.
The Rap of China 2024 also generated considerable membership revenues. For animations, we continued to invest in original Chinese animations and began to see encouraging initial results with enhanced in-house production capabilities.
How Dare You (spoken in foreign language) serves as a perfect example, as it hit multiple records for iQIYI original animations. It is our first original animation to break our popularity index of 5,000, its revenue and new user acquisition also reached new highs.
As we enter the summer vacation season, which is a critical broadcasting window for online video platforms, we are excited that our premium content has helped us regain market leadership. We rolled out premium content in both ancient and the modern genres, to appeal to a wide audience, with a particular focus on young viewers who have more free time to enjoy our offerings during their holiday.
So far, Strange Tales of Tang Dynasty Season 2 (spoken in foreign language) and A Lonely Hero’s Journey (spoken in foreign language) were all well-received by audiences. Additionally, in the suspense genre, the dramas Interlaced Scenes (spoken in foreign language) and For the Young Ones (spoken in foreign language) have both showcased strong user engagements.
Notably, Strange Tales of Tang Dynasty returned for its second season, showcasing remarkable quality that has led it to break iQIYI’s popularity index score of 10,000. The acclaimed series has demonstrated a pronounced long-tail effect.
The second season substantially amplified the user time spent and the membership revenue generated by the first season, increasing them by about sixfold and tenfold, respectively. This drama also serves as an excellent example of our serialized approach to IP development.
Encouraged by the success of the first two seasons, production for the third season is set to begin shortly. Additionally, the IP starts to generate diverse revenue streams, as its influence now expands into offline domains, including entertainment, tourism, and the consumer goods.
In a strategic move to capitalize on this success, we have launched IP-based VR theaters in key cities such as Beijing, Shenzhen, and Xi’an. This initiative aims to broaden the impact and the presence of our original content, extending beyond traditional screens.
Beyond dramas, our creativity is expanding into new categories. Tenday, a brand-new original iQIYI variety show IP, has garnered users’ praise for its innovative format, and recorded a peak iQIYI popularity index score of over 7,000.
Additionally, The King of Stand-up Comedy (spoken in foreign language) marked iQIYI’s first exploration into stand-up comedy. The show has received encouraging initial feedbacks, standing out among the comedy variety offerings this summer.
Moving on to our content pipeline. For dramas, we expect the stability of premium content supply to be meaningfully enhanced. Meanwhile, we are fast-tracking the productions of ancient costume idol dramas and modern idol dramas, both targeting female audiences.
Some of the much anticipated works in this genre include Go East (spoken in foreign language), A Moment But Forever (spoken in foreign language), Love Song in Winter (spoken in foreign language), Snowy Night Timeless Love (spoken in foreign language), Fangs of Fortune (spoken in foreign language), Moon Embracer (spoken in foreign language), and the Love of the Divine Tree (spoken in foreign language).
In the reality and suspense category, audiences can anticipate a diversified content offerings, including Born to be the One (spoken in foreign language), Northward (spoken in foreign language), The Fearless season 2 (spoken in foreign language), and Justifiable Defense (spoken in foreign language).
For movies, we will release more diversified theatrical hits on our platform. Additionally, self-produced iQIYI original films are expected to be released in theaters, including Skin (spoken in foreign language), and A Frozen Rage (spoken in foreign language).
For our variety show lineup, we plan to release a greater number of titles in the second half of the year compared to the first. Building on the momentum of Tenday and The King of Stand-up Comedy, we are preparing to launch more innovative shows, including The Moon is Shining (spoken in foreign language), which is set to release later this month.
Moving on to animations, we expect to see a surge in titles during the second half of the year, with increased diversification in genre. We plan to launch 8 to 14 additional seasons of key original works compared to the first half. Alongside How Dare You, we have also launched the fantastical The Legend of Sky Lord (spoken in foreign language), and A Moment But Forever, which shares its IP with an upcoming drama series of the same name.
The action-packed anime Super Cube: Extraordinary Chapter (spoken in foreign language) is also set to release soon. On a separate note, iQIYI has become one of the key content sources for traditional TV media, covering outlets such as CCTV, satellite TV, and regional TV stations, thanks to our enhanced offerings of original content.
In just the first half of 2024 alone, we have distributed about 50 drama series, reinforcing the long-tail effect of premium content. The value of our IP has been even further unleashed by exploring diversified monetization streams. For example, franchising revenue from the drama Fox Spirit Matchmaker: Red-Moon Pact (spoken in foreign language) reached a new high for iQIYI original dramas.
We have also worked with established toy brands for IP licensing, joint product customization, and marketing.
Moving on to the advertising business. In the second quarter, total ad revenue was RMB1.5 billion, down 2% year over year. Performance ads remained as the highlight of the quarter, growing at a healthy rate year over year. Key sectors such as e-commerce and internet services demonstrated solid performance, with e-commerce revenue from the June 18 shopping festival growing 80% annually, and revenue from Internet services growing 30% annually.
The solid results in performance ads is also a clear reflection of our technical advancements. Through upgraded ad placement mechanism and reinforced smart bidding algorithms, we have further enhanced the monetization efficiency of traffic and the ROI for our clients.
Additionally, our AI tools now cover broader industries, enabling more efficient ad production and driving AI-powered ad revenue up by 150% sequentially. For brand ad, revenue was down annually, mainly due to fewer variety shows launched.
Despite that, our premier content continued to attract brand advertisers, with 59% of revenue stemming from content-targeted ads. In particular, our major dramas achieved notable double-digit annual growth in revenue. The performance of the June 18 shopping festival was also in line with our expectations.
Moving on to technology and products. We remain committed in advancing technology innovation, as it’s crucial in improving content production, user experience, and operational efficiency. For example, our virtual production technology used to be limited to fantasy genres.
This quarter marked an exciting breakthrough as we successfully extended its application into new territory, deploying it within the reality-themed drama for the first time. We have also made meaningful progress with our in-house pre-visualization technology.
This tool allows for the rapid design and visualization of scenes and shots before actual filming begins. We have applied this across multiple flagship projects, and it has led to a large increase in production efficiency. Our in-house developed platforms continued to demonstrate its power.
Our in-house iQIYI content management system, has been in operation for over two years. This sophisticated data-driven system provides substantial support to management team and producers in project managing, effectively elevates content quality and success rate. Now this management system has covered all our projects in drama, movies and animations.
Another highly efficient system is our intelligent production management system, which is widely used by production crews for diverse on-site tasks, equipping them with front-line production tools and production management capabilities. In the second quarter alone, 21 dramas adopted the system.
To date, this system has been used in 67 iQIYI dramas and gained widespread recognition for its effectiveness. In addition, we have expanded the use of AI across various aspects, covering project assessment, creativity, marketing, and distribution.
This broadened application has meaningfully enhanced content production and operational efficiencies. For example, AI has supported revenue forecasting and the decision-making during the initial phases of project development.
AI also drives our advertising innovation. For Fox Spirit Matchmaker: Red-Moon Pact, we integrated virtual characters and scenes into ad materials, substantially enhancing ad outcomes. This new ad format was welcomed by advertisers and opened up ample possibilities.
For content marketing, we have employed AI multimodal models to analyze plot information and generate key marketing points to improve marketing efficiency. Finally, for our business performance in regions outside of Mainland China, over the second quarter, we sustained solid performance in our overseas business, with both total revenues and membership revenue continuing to grow annually and sequentially.
The influence from C-drama and iQIYI’s original content continued to strengthen, evidenced by the 30% annual increase in membership revenue from top C-dramas during the quarter. Our localization attempts have also started to bear fruit. The accumulated number of views of our original Thai drama, My Stand-in (spoken in foreign language) ranked first in a number of markets including the US, Canada, and UK.
We have also made solid progress in animations. How Dare You has attained remarkable viewership and revenue on our overseas site, reached a historical high among all iQIYI original Chinese animations, and even outperformed top Japanese animations in several countries.
Leveraging our premium content, we have expanded local partnerships to boost global penetration and monetization. Our efforts include deepening collaboration with telecom operators in overseas markets to enrich, bundle products and strengthen promotional activities.
For example, we have partnered with Etisalat, one of the largest telecom companies in the Middle Eastern and North Africa market, to stream iQIYI’s content on their OTT platform StarzON. This partnership will further enhance the influence of C-drama beyond Asian market.
In the future, we will continue to enhance the influence of the iQIYI brand overseas with premium C-pop content in key markets, accelerate production of local content, and explore diversified IP monetization opportunities.
In summary, looking ahead, we are dedicated to pursuing our long-term growth with a sustainable approach. We will roll out more diversified, premium content, apply innovative technologies more extensively, and continue to enhance our team’s creativity and execution capabilities. With that, we believe the flywheel effect of iQIYI’s content ecosystem will drive our long-term growth. Now, let me pass it on to Jun to go through our financial performance.
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Jun Wang
Thanks Mr. Gong, and hello everyone. Let me walk you through the key numbers. In the second quarter, total revenues were RMB7.4 billion, down 5% annually. The membership services revenue reached RMB4.5 billion, down 9% annually, primarily due to fluctuations in the content slate performance, as previously discussed.
For online advertising, revenue decreased by 2% year over year to RMB1.5 billion. This was primarily due to the decrease in brand ad business, which is again due to the decrease of the variety shows we had during the quarter. That was partially offset by the healthy growth of the performance ad businesses. Content distribution revenue reached RMB698 million and grew 2% annually.
Other revenues increased by 16% annually to RMB784 million, partially driven by the increase of revenue derived from talent agency services and the third-party cooperation.
Moving on to costs and expenses. Content cost was RMB4.1 billion, down 2% annually. Total operating expenses were RMB1.4 billion, flat annually. This was in line with our disciplined marketing spending strategy.
Turning to profits and cash flows. The non-GAAP operating income was RMB501 million and its corresponding margin was 7%.
The operating cash flow totaled RMB411 million has remained positive for nine consecutive quarters. As of the end of the second quarter, we had cash, cash equivalents, short-term investments, and long-term restricted cash included in prepayments and other assets of RMB8.6 billion. We have prudently managed our financial resources, striving to improve the overall health of our business and to optimize the financial leverage of our balance sheet.
In August, we’ve completed the repurchase rights offer for our convertible notes in 2026. An aggregate principal amount of USD395 million was validly surrendered and repurchased, and only $157,000 aggregate principal amount of the notes remains outstanding. For detailed financial data, please refer to our press release on our IR website. I will now open the floor for Q&A.
Question and Answer Session
Operator
(Operator Instructions) Xueqing Zhang, CICC.
Xueqing Zhang
(spoken in foreign language)
Thank you management for taking my question. My question is about competition landscape. We noticed that other. Platforms has some blockbusters here and our market share which has been made in recent years has also fluctuated. How does management view the current competition landscape for long videos and what’s your strategy? Thank you.
Chang Yu
(interpreted) We will invite our CCO, Xiaohui Wang, to answer this question.
Xiaohui Wang
(interpreted) The intense competition within the industry has always been present, and this competition actually helps us to improve the overall quality and the richness of the industries, our content, enhancing the competitiveness of the long form video sector compared to other forms of entertainment such as we often mentioned short-form video.
At the same time, it also motivates us to continually improve content quality in the future. We’ve always emphasized that the ultimate goal in the long-form video competition is to sustain a high quality, diverse content supply, and achieve a win-win situation between the content, quality and the commercial benefits.
Looking at our long-term market share performance, iQIYI has actually maintained a leading position in the four categories of drama and film for a long period of time.
Although we experienced some fluctuation in our drama market share in Q2, but after a thorough review and a targeted optimization, we’ve overcome the short-term difficulties and returned to the number one position in drama category market share.
In balancing the content quality and commercial returns, iQIYI’s performance continues to lead the drama series To The Wonder and the Strange Tales of Tang Dynasty Season 2 are great examples and we believe this advantage will further enhance in the future.
Going forward, we will remain dedicated to creating high quality content tailored for mainstream and female audiences, enhancing our social insights and innovation, optimizing content scheduling strategies, and strengthening the management in every facet of our in-house studios. And we believe these initiatives are all aimed at improving the stability of our high quality diverse content supply.
Our current drama reserve accommodates the viewing demand of the mainstream audience. We have a relatively ample reserve specifically for the core genre of ancient costume dramas aimed at female audiences as well as for the mystery suspense and the reality themed dramas.
We will also continue to strengthen our capabilities for IP serialization development. For example, the Strange Tale of Tang Dynasty Season 2, which launched in Q2, is a successful case of serialized content development and the third season will soon be in production. In the future, the well-loved series such as The Fearless and the Skin will also launch their second seasons and The Ingenious One Season 2 is also in preparation. Thank you.
Operator
Lincoln Kong, Goldman Sachs.
Lincoln Kong
(spoken in foreign language)
So thank you, management for taking my questions. My questions about the membership business. How should we think about the prospects of membership growth in future, especially subscribers as well as the [ARPU] growth? Thank you.
Chang Yu
(interpreted) We’ll invite our Senior VP of membership business, Youqiao Duan to answer this question.
Youqiao Duan
(interpreted) From the perspective of membership structure, our cornerstone members represent the stable base of our subscribers and have remained steady. Fluctuations actually mainly come from the members who are attracted by new and popular content. As the summer season arrived, our counter offerings have positively influenced the return of these hit driven users and retention of long standing members.
In Q2, our ARM, which is the average revenue per member, maintain a solid year-over-year growth. The current level of ARM provides us with flexibilities in terms of operational tactics. In the near future, our focus will be on expanding the scale of our membership, but the ultimate goal remains to maximize membership revenue.
In the future, we’ll also plan to implement more proactive measures to optimize account sharing and compact privacy, thereby supporting the long term healthy growth of our membership business. We will share the specific plans with every one of the progresses made. Thank you.
Operator
Maggie Ye, CLSA.
Maggie Ye
(spoken in foreign language)
Good evening and thanks for the chance to ask questions. Regarding our overseas business, we’ve seen very decent revenue growth in past quarters by high quality local production in addition to distribution of our premium Mandarin content. As iQIYI International site celebrates its five year anniversary, can management share your latest thoughts on business strategy and plan for our overseas business? Thank you.
Chang Yu
(interpreted) We’ll invite our Senior VP, Xianghua Yang, who is responsible for the overseas business to answer this question.
Xianghua Yang
(interpreted) We started expanding into the overseas market in 2019 and have achieved initial success in 2023. Our overseas operations actually reached full year operating. Even a goal for 2024 is to boost revenue growth, while continuing to increase profit. And for Q2 this year, the total revenues for overseas and also membership revenue both maintain healthy year over year and also quarter-over-quarter growth.
In terms of content, we have discovered an optimal content mix suitable for our overseas market and we aim to further increase content offerings through different measures.
For example, the popularity for Chinese language content overseas has significantly increased, becoming a major source of our top content for our overseas platform.
In fact, over the past three years, over half of the 20 most popular shows in iQIYI Overseas were Chinese dramas, most of which were iQIYI Chinese dramas. This demonstrates the influence of Chinese language content and the strength of our original offerings.
And in the future, we will continue to use Chinese dramas as the foundation of our overseas content offerings and actively explore opportunities to increase production of local or regional content. And also from the technologies perspective, we will utilize the technology to empower different aspects of the long-form video industry, enhancing the production efficiency of iQIYI’s localized original content overseas.
Regarding our local partnerships, we have already established deep connection and cooperation with local telecom operators in certain regions. And going forward, we aim to expand our partnerships to telecom operators in additional countries and to increase our collaboration with local partners.
And we believe these will enhance our brand awareness and the content influence overseas. And our long-term objective is to make iQIYI’s overseas platform the home of beloved Asian content, expanding the influence of Chinese language content, while also increasing the coverage of local content and continue to explore diversified iQIYI monetization models.
And our CFO, Jun Wang, just added to this and he mentioned that in 2023, our overseas business actually reached full year operating break even. This is based on the fact that from the management accounting perspective.
And this is based on iQIYI’s management account.
Xianghua Yang
(interpreted) Correct, correct. And that this is a very healthy trend that has developed over the past year. Thank you.
Operator
Thomas Chong, Jefferies.
Thomas Chong
(spoken in foreign language)
Hi, good evening. Thanks management for taking my question. As iQIYI has a lot of good IP, can management share your strategy of unlocking the IP potential in different areas other than membership and advertising? Thank you.
Yu Gong
(spoken in foreign language)
Chang Yu
Our CEO is answering this question. He mentioned that content IP poor asset of our company promoting the monetization of content IP in various forms including offering business is an important and sustained effort that is key to enhancing our long-term value and our competitiveness.
We actually describe this IP based business model with a metaphor called eating a fish in multiple ways, which actually emphasize our ability to transform each piece of our content IP into numerous prospects for revenue. Thereby, we believe this will maximize its value across different markets and platforms.
Yu Gong
(interpreted) With our many years of focus on producing original content, actually the value of our company’s IP assets has grown significantly. For instance, two years ago in Q2 2022, our original dramas have accounted for over half of our quarterly new release, key dramas and this proportion now has stabilized at around 70% and also leading high quality, high original dramas have not only found success during their initial broadcasting period, but also have demonstrated a sustainable long tail effect, which maintained popularity over an extended period of time.
We actually hope that the offline experience business will become our second growth curve in the future and we also notice the shift in consumer behavior change in domestic offline commerce and cultural tourism sectors.
Where the premium content IP actually plays an increasingly important role in creating engaging experiences, for example, our vast library of high quality video content, IP’s actually serve as our core strength in this area.
For example, we leverage the IP from the recent hit drama title called The Strange Tale of Tang Dynasty, beyond its online presence, successfully introducing an immersive VR experience. In cities like Beijing and Xi’an, these are key cities in China. In addition, we’ve developed new derivative products such as card games designed to appeal to the younger demographic, further extending the iQIYI’s reach and impact.
And for the operational model, actually we actually favor a light asset approach, which has a promising prospect for incremental revenue under limited cost. Actually, based on our experiences, this approach has actually been validated in terms of offline experiences, and this model is now being able to be replicated and scaling.
In addition to what I just mentioned, the VR theater experiences that I mentioned earlier, we are also exploring further initiatives centered around our IPs. For example, our (inaudible), which is the IP merchandise stores, now also QiBubble Park, which is a theme park designed for children.
And these initiatives are actually developing in collaboration with our partners similar to what I just mentioned, our light asset approach and the aim is to provide users with a very comprehensive and engaging entertainment experience. Thank you.
Operator
There are no further questions at this time. I’ll now hand back to management for closing remarks.
Chang Yu
Thank you everyone for participating in the call. And if you have. Further questions, please don’t hesitate to contact us. Thank you.
Operator
That does conclude our conference for today. Thank you for participating. You may now disconnect.
Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the company sponsoring this event.
