This article first appeared in The Edge Malaysia Weekly on November 2, 2020 - November 8, 2020

BEFORE The Story of Yanxi Palace became the most googled TV show on the planet in 2018, it never occurred to Tim Gong Yu, founder and CEO of Chinese streaming giant iQIYI Inc, that the rest of the world would be so interested in content produced primarily for the mainland Chinese audience.

While mainland China’s 1.4 billion population means that the addressable market remains ample at home for Baidu Inc-backed iQIYI — despite cut-throat competition with Alibaba Group Holding Ltd’s Youku Tudou and Tencent Video — expanding internationally made perfect sense. “The potential incremental income would be far greater than the incremental cost,” Gong tells The Edge.

In June, iQIYI hired former Netflix vice-president and managing director for Asia-Pacific and former Singapore diplomat Kuek Yu-Chuang as its vice-president of international business to oversee the setting up of the platform for iQIYI’s overseas operations.

While the original content it produces still caters primarily for the home audience, due consideration is given to raise the appeal of its content and the iQIYI brand to an international audience. An example is the appointment of Johor-born actor Lawrence Wong as its first International VIP Ambassador on his 32nd birthday on Aug 5. Wong saw his Weibo fan base jump five times to more than three million after gaining global fame from playing Hai Lan-cha, the well-liked imperial guard in the 70-episode period drama The Story of Yanxi Palace.

The term “China’s Netflix” (Gong prefers “Netflix plus” or “online Disney”) stemmed from its desire to help international investors better understand what it is that iQIYI does when the company was listed on the Nasdaq in March 2018.

Incidentally, it was in the second quarter of 2018 that Netflix, which announced plans to expand internationally in January 2016, saw international streaming revenues exceeding that from the US and Canada. Only 37.8% or 72.9 million of Netflix’s 192.9 million global subscriber base as at end-June are in the US and Canada. Asia-Pacific accounts for 11.7% or 22.5 million customers, trailing the 31.9% or 61.5 million in Europe, the Middle East and Africa and 18.7% or 36.1 million in Latin America.

As at end-June, iQIYI had 104.9 million subscribers (99.4% of whom were paying customers), down from 118.9 million as at end-March but up 4% from 100.5 million as at end-June 2019.

While like Netflix, iQIYI spends heavily on original content, the latter also has revenue streams from merchandising, mobile gaming, e-books and advertising apart from subscription income.

Even before Disney’s theme parks were hit by the Covid-19 pandemic, iQIYI was considering licensing its intellectual property (IP) to people who want to build them but not do it themselves. “It is too capital intensive. We prefer to concentrate on expanding and building up our ecosystem of content and IPs from literature to comics and games,” says Gong.

“If you like watching the drama, chances are that you would also like to read the novel. If you like the comic or webtoon, there is a good chance you would also watch a film or TV series and buy merchandise.”

The Story of Yanxi Palace, which was made from an original screenplay, for example, was later expanded into a novel. The Great Ruler, another original drama series iQIYI released earlier this year, was adapted from a popular online novel of the same name that had developed a sizeable online fan base and regularly topped Baidu’s online novel ranking. iQIYI also made a comic and animation series out of the novel.

Despite its growing pool of IPs, Gong says iQIYI still has some distance to go before its library of franchises can match that of Disney. Despite the Covid-19 woes, there is no denying The Walt Disney Company’s dominance when it comes to IP — especially following its US$71.3 billion purchase of the film and TV assets of 21st Century Fox (Aliens, Ice Age, the Simpsons) in March 2019, which reduced the number of big Hollywood studios to five (Disney, Warner Brothers, Sony, Universal and Paramount). The merger also brought National Geographic under its fold and gave Disney-owned Marvel Studios access to X-Men and Fantastic Four characters. In September 2019, Spider-Man returned to the Marvel cinematic universe after Disney struck a deal with Sony Pictures Entertainment. Disney paid US$4 billion for Lucasfilm (Star Wars and Indiana Jones) in 2012 and bought Marvel Studios in 2009. Disney, which also controls ESPN, was rumoured to be eyeing the James Bond franchise before the pandemic hit.

Gong, who founded iQIYI in 2010 and has a PhD in engineering from Tsinghua University — the Chinese equivalent of the Massachusetts Institute of Technology (MIT) in the US — is building up the group’s competitive advantage in technology. For instance, its in-house developed artificial intelligence (AI) analysis tools are already helping iQIYI significantly reduce the man-hours required on post-production work by analysing content to quickly eliminate footage that is likely to be cut. “This frees up the creative people to do more productive work,” he says, noting how live entertainment shows can use more than 50 cameras.

Algorithm-powered analysis also allows iQIYI to better tailor-make marketing solutions for potential advertisers. But there is still some way to go before AI can ensure 100% success when it comes to content.

“We can perhaps increase the chance of success or reduce the rate of failure by maybe 20% [with AI and big data], but there is no fixed formula or algorithm that can ensure that a film, comic or game garners the kind of worldwide success [that The Story of Yanxi Palace saw] — at least not in the near future,” says Gong.

Even so, the right technology platform can help raise the level of engagement and appeal of a particular IP or franchise with a larger group of people. “The streaming experience will continue to evolve with newer technology. It will take a number of years before the traditional TV screen can catch up with the new experience and viewer engagement that technology can deliver on a web-based screen or device,” he says.

It remains to be seen whether iQIYI’s renewed push overseas can significantly reduce its path to profitability, especially with its Chinese rivals also making their move in Southeast Asia. Tencent Holdings Ltd, which owns the WeTV app, just bought Iflix.

Still, Gong is convinced that consumers will be willing to pay for quality content and that iQIYI’s investment in content and technology to deliver the best experience to its viewers and customers will pay off. “We are not just advocating Chinese content outside China but Asian content,” he says, noting that iQIYI’s partnership with Astro Malaysia Holdings Bhd involves the screening of Malaysian-made content on its platform in China and other markets that the company eventually reaches.

“Our partnership with Astro is one way we are expanding in the region. We are willing to work with local players in other markets who are interested in the platform and technology.”

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