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Content Costs Double at Chinese Video Streaming Giant iQIYI

Variety logo Variety 2/23/2017 Patrick Frater
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The cost of content for Chinese video streaming platform iQIYI more than doubled in 2016, parent company Baidu has revealed.

The figures highlight the growing commitment to the entertainment business on the part of one of China’s Internet giants, as well as the costly competitive landscape.

Presenting its annual financial report for 2016, NASDAQ-listed Baidu said that content costs had ballooned from $540 million (RMB3.75 billion) in 2015 to $1.13 billion (RMB7.86 billion) in 2016, an increase of 109% in local currency terms.

Baidu, which offers a range of services built around China’s most used search engine, reported a 6% increase in revenues to $10.1 billion (RMB70.5 billion). But beset by a host of problems, Badu saw net profits down by 65% to $1.67 billion (RMB11.6 billion.)

Baidu currently owns 80.5% of iQIYI and in 2016 turned down a bid to take the unit private. Institutional shareholders said that Baidu had invested heavily in the streaming sector and that the offer undervalued iQIYI.

The battle with Alibaba’s Youku Tudou and with Tencent Video for market share is proving a costly one. This week Baidu said that it needed to raise $1.53 billion for iQIYI through the issue of commercial debt that is convertible into iQIYI shares. At 2016 pace, that figure is equivalent to 16 months of spending on content.

“iQIYI has been a quality asset and an important part of our ecosystem. With continuous support Baidu will empower it with artificial intelligence facilities in the future,” said Baidu CEO Robin Li at the time of the refinancing. Earlier this month, rival Alibaba Pictures also warned of increased losses in 2016.

iQIYI is increasingly producing and financing its own content, a move that is intended to boost recurring subscriptions. But the company does not break down its spending on acquired and self-produced content.

Content spending slowed in the fourth quarter to RMB2.57 billion, an increase of 86% compared with the last three months of 2015.

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