China's iQiyi CEO Talks Push Into Originals, Hollywood Relationships, Netflix (Q&A)

Courtesy of iQiyi

Gong Yu says the Baidu-owned online video powerhouse wants to adapt more foreign formats and sell its originals abroad.

Chinese Internet giant Baidu's iQiyi online video service has been pushing into original content, while emerging as a key partner for Hollywood studios as it looks to continue growing the number of paying subscribers among its 500 million monthly users.

In recent months, it has struck content licensing deals with the likes of Paramount, Lionsgate and NBCUniversal and reached a multi-year extension of an agreement with Sony Pictures Television to bring even more of the company’s feature films to its users. iQiyi is also looking to build industry relationships in the U.K. and other parts of Europe.

iQiyi founder and CEO Gong Yu last week visited London to attend the U.K.-China "Creativity is Great" forum, with Prince William and Kate Middleton also among the participants, during president Xi Jinping's state visit to Britain. At the forum, Gong delivered a speech about China's online video industry and called for further collaboration.

"China's online video industry continues to develop rapidly, and there is huge potential for deeper cooperation between the U.K. and China," he said. "As an industry leader, iQiyi is looking forward to supporting our British peers and partners to better understand the Chinese market and to bring more quality international content to Chinese audiences."

During the London visit the company also unveiled a deal that saw the second season of its original reality show
 I, Supermodel air in the U.K. on Propeller TV beginning on Oct. 22, simultaneously with its run on iQiyi.

In a conversation with THR via a translator, Gong discussed iQiyi’s original content strategy, its relationships with Hollywood players and how much of a challenge the expected China launch of Netflix will provide.

Why did you strike the deal for iQiyi’s I, Supermodel with Propeller TV and how key is it?

iQiyi has usually purchased other programs, but now we have more creative ideas of our own, more original content. I, Supermodel is [one of those originals]. This is the second season, and they will film in London, because the London fashion industry is more mature compared to China, and they wanted to send the young models here.

Are there any plans to also bring the show to the U.S.?

Yes.

Anything to announce yet?

No.

iQiyi has done licensing deals with Hollywood studios. How important is that and are there other possible forms of Hollywood collaboration?

iQiyi would like to have more opportunities with the European and U.S. industries. We would like to adapt some formats and localize them with Chinese actors and actresses and reproduce their stories. We haven’t really set any deals yet. We have some Korean programs that we have managed to successfully [adapt]. Hopefully next year we will have more agreements to import programs from the U.K. or U.S. markets.

Your company has started producing original shows and films. How key is that for growing subscribers, and could you sell those abroad?

Purchasing content is expensive, so we create our own content to reduce the cost. After we achieve that first goal, we would like to consider selling our content to other countries.

How well are you managing to convert people into paying subscribers to your streaming service?

Because we have 90-second advertisements, some consumers prefer to pay for the membership and not wait. The unit cost of movies is much [higher] than that of dramas and programs, so the advertising revenue model cannot [cover] the cost, so we have to get a subscription fee from the users. We have two revenue models — advertising and subscriptions. Only about 2 percent of the users are subscribers, but in the future we think that almost half of our revenue will come from subscribers. We have 500 million unique visitors. We think maybe in the future, within three or five years, about 10 percent of the unique visitors are subscribers, about 50 million users.

Has the slower economic growth in China affected iQiyi and the broader entertainment industry?

Economic growth is getting slower, but it’s not negative. We are still growing, just a bit slower. So there is really no impact on the entertainment industry.

What differentiates iQiyi from its competitors?

There are two important things. One is the service to consumers, making consumers feel they have really good service. … Plus, iQiyi would like to have more original content.

Alibaba is planning to buy iQiyi competitor Youku Tudou. How does that affect iQiyi?

Because Alibaba used to have a 20 percent stake in Youku Tudou and is now increasing that to 100 percent, there is not much difference.

Netflix is planning to enter China. Any idea what Netflix will do? Will it be a real competitor? 

Due to China’s policies, there can’t be a foreign online video platform. One way to solve that problem is a partnership with a local company in China. Also because the Chinese market is quite different, there are cultural differences; they can’t just [offer only] Hollywood titles. There will definitely be some impact on … the Chinese entertainment industry, but it [will] be very hard for them to be one of the strongest video platforms.

Have the new rules requiring that foreign TV shows get approved by the Chinese media authorities affected your business?

It is the same issue for everyone, so there isn’t much [impact on] competitiveness.

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