iQIYI - Q2 2024

Transcript

Operator (participant)

Thank you for standing by, and welcome to the iQiyi Second Quarter 2024 Earnings Conference Call. All participants are in listen-only mode. There will be a presentation, followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I would now like to hand you over to the conference to Ms. Chang Yu, IR Director of the company. Please go ahead.

Chang Yu (Head of Investor Relations)

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. Xianghai 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 U.S. 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 statements, except as required under applicable law. I will now pass on to Mr. Gong. Please go ahead.

Yu Gong (CEO)

Hello, everyone. Thank you for joining us today. In the second quarter, we saw intense competition for top content, where we held a series of diversified streaming content. Certain titles did not meet our high expectations, putting pressure on our financial results. After a good deal of hard work, we have overcome the short-term fluctuation in our content-led performance. As a matter of fact, we believe the vibrant competition within the long-term video content ecosystem is constructive, which has enhanced its appeal over other entertainment formats. It also provides us a valuable opportunity to review and refine our tactics. It helped us, it helps us gain a better understanding of user preference and improve our business for future growth.

We firmly believe that ultimately, the success in the long-term video business depends on the stable supply of premium content and 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: Cuo Wei, and Strange Tales of Tang Dynasty II: To the West, have 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 ten thousand 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 user superior viewer 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 broader overseas market.

Thirdly, we are using iQiyi content influence and its IP portfolio to explore revenue opportunities beyond membership and advertisement, such as IP diverse activities, derivatives, and offline experiences. These initiatives align perfectly with our core values, which centered on maximizing our IP values through technical innovation 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 a superior user experience. In the second quarter, membership revenue was down 9% annually, primarily due to fluctuations in our content slate performance, causing the attrition of pre-title driven members, and the highest effect from last year's mega hit, The Knockout, grew steadily year-over-year.

This was partially fueled by our displaying 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 plans. Furthermore, we innovative value-added services drove users' willingness to pay. Notably, we launched the express package for micro dramas in the second quarter and garnered the highest number of casual purchases. Following the success in micro dramas category, we plan to expand express package to other content categories, such as the variety show and animation. We remain confident in the long-term outlook of our membership business, which is supported by several key factors. First, we have successfully built a solid foundation of loyal, sticky members.

Secondly, content remains our primary driver of our membership growth, and we are in the middle of introducing more diversified premium content to encourage broader user cohorts. Furthermore, we are committed to enhancing our operational strategy to improve membership acquisition and retention. Initiatives include, one, reaching broader demographic growth by expanding our sales channel and utilizing wider social market, marketing. Two, improving conversion rates by launching marketing initiatives directly tied to popular content of the season, such as iQiyi, a member package, express package, and contingency experience program. Third, providing value for many services to long-term and high-tier plan subscribers, such as exclusive offline events. In the second quarter, we organized seventeen offline events and received positive member feedback.

Building on the strong user reception from last year, our annual offline flagship event, the 2024 iQIYI Screen Night, is set for its comeback in December seventh this year in Macau. The perceived value of our members was even further amplified by our very first July 17 iQIYI Member Festival. Through this event, we offered premium membership discounts and hosted a 7-hour live broadcasting to promote over 530 titles in our content pipeline. More than 40 celebrities anticipated the live streaming event and generated over 30 million views. In the future, the July seventeenth 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 influence. Moving on to content. We have overcome the short-term fluctuation in the company's 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 meets 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, and thereby producing content that establish a deeper connection with our audiences. We will embrace a more innovative stance in our casting and script selection process, 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 view habits. Thirdly, in terms of managing our in-house studios, we are committed to enhancing the efficiency and effectiveness of our operational notes 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 real, reality and the suspense genres remains unchallenged. Our original drama, To the Wonder, or the Altay, perfectly demonstrated our success in blending artistic merits and the commercial benefits, generate exceptional performance across all metrics. What's more impressive is the show's remarkable long-term effect, with its influence extending well beyond the online domain, as it boosted tourism to its filming location in Xinjiang to effectively extend the vitality of the IP.

We worked with creative teams 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 a go-to platform for the suspense genre by launching Dramas, Jiang He Zhi Shang, découpage, and Lost in the Shadows, under our Light On Theater brand. These movies, we continued to outperform our peers, according to Enlightent viewership share data. In the second quarter, we launched a total of fifteen key titles in our movie channel, including multiple box office hits, such as Article 20, We Are Strong, and the second, Pegasus 2, Situation R. In our Cloud Cinema, we launched 21 titles covering the latest and most popular theatrical releases, such as a box office, browsing, Yolo.

For original movies, we released various genres, such as disaster comedy, You From The Future, and the suspense crime, The Pact. For variety shows, our two flagship shows returned with the new season, namely, The Detectives' Adventures Season Four, Meng Tan, and The Rap of China 2024, 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 animation, and began to see encouraging initial results with enhanced in-house production capabilities. How Dare You serves as a perfect example, as it hit multiple records for iQiyi original animations. It is our first original animation to break our popularity. A popularity index of five thousand as revenue and the new user acquisition also reached new highs.

As we enter the summer vacation season, which is a critical broadcasting window for online video platform, we are excited that our premium content has helped us regain market leadership. We roll out premium content in both ancient and modern genres to appeal to a wide audience, with a particular focus on young viewers, who have more free time to enjoy our offering during their holiday. So far, Strange Tales of Tang Dynasty, Season Two, and A Lonely Heroine's Journey, although well received by audiences. Additionally, in the suspense genre, the drama Interlaced Scenes and The Young Ones are both showcases a strong user engagement. 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 has 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 season, 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 consumer goods. In our strategy move to capitalize on this success, we have launched IP-based VR theaters in key cities such as Beijing, Shenzhen, and Xian. 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. Ten Days, a brand new original IP variety show IP, has garnered users praise for its innovative format and recorded a peak IP popularity index score of over seven thousand. Additionally, The King of Stand-up Comedy 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 supply 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, 四 方 馆, A Moment But Forever, 念 无 双, Last Song in Winter, 冬 至, Snowy Night: Timeless Love, 七 夜 雪, Fangs of Fortune, 大 梦 归 离, Moonlight Mystique, 白 月 繁 星, and Love of the Divine Tree, 仙 台 有 树. In the reality and the suspense category, audiences can anticipate a diversified content offerings, including Born to Be the One, 凡 人 歌, Northward, 北 上, The Fearless Season Two, 无 所 谓 区 二, Justifiable Defense, 正 当 防 卫. For movies, we will release more diversified theatrical hits on our platform.

Additionally, self-produced iQiyi original films are expected to be released in theater, including King, 棋王, and A Broken Wing, 忆雪前耻. For our variety shows 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 Ten Days and The King of Stand-up Comedy, we are preparing to launch more innovative shows, including The Moon is Shining, 颜超月, which is set to release later this month. Moving on to animation, we expect to see a surge in titles during the second half of the year, with increased diversification in general. We plan to launch eight to 14 additional seasons of key original works compared to the first half. Alongside, How Dare You!

We have also launched the fantasy called The Legend of Sky Lord, 神武天尊, 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, 超能立方超凡篇, 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 serials, reinforcing the long-tail effect of premium content. The value of our IP have been even further unleashed by exploring diversified monetization streams.

For example, from franchising revenue from the dramas, Fox Spirit Matchmaker: Red-Moon Pact, 狐 妖 小 红 娘 月 红 篇, 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 revenue was RMB 1.5 billion, down 2% year-over-year. Performance Ads remained as a highlight of the quarter, growing at a healthy rate of year-over-year. Key sectors such as e-commerce and internet services demonstrated solid performance, with e-commerce revenue from the June eighteenth Shopping Festival growing 80% annually, and the revenue from internet services growing 30% annually. The solid result in performance ads is also a fair reflection of our technical advancement.

Through upgraded ad placement mechanism and reinforced smart bidding algorithm, 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 by 150% sequentially. For brand ads, revenue was down annually, mainly due to fewer variety shows launched. Besides that, our premier content continued to attract brand advertisers with 59% of the revenue stemming from content-targeted ads. In particular, our major dramas achieved notably 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 the products, we remain committed in advancing technology innovation as it's crucial 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, applying it within the reality-themed drama for the first time. We have also made meaningful progress with our in-house pre-virtualization technology. This tool allows for the rapid design and virtualization 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 developer platform continued to demonstrate its power. Our in-house iQIYI content management system has been in operation for over two years. This, the sophisticated data-driven system provides substantial support to management team and the producers in projects managing, effectively elevates content quality and the success rate.

Now, this management system has covered all our projects in drama, movie, and animation. Another highly efficient system is our intelligent production management system, which is widely used by our production crews for that works on site tasks, equipping them with frontline production tool 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 assessments, creativity, marketing, and distribution. This broader application has meaningfully enhanced the content production and the operational efficiencies. For example, AI has supported revenue forecasting and decision-making during initial phase of product development. AI also drives our advertising innovation.

For Fox Spirit Matchmaker: Red-Moon Pact, we integrated virtual character and scene into ad materials, substantially increasing ad customization outcomes. This new ad format were welcomed by advertisers and opened up ample possibility. For content marketing, we have employed AI and multimodal models to analyze and plot information and generate key marketing points to improve marketing efficiency. Finally, for our business outperformance 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, ranked first in a number of markets, including the U.S., Canada, and the U.K. We have also made solid progress in animation. How Dare You! has attained remarkable viewership and revenue on our overseas site, which are historical high among all iQIYI original Chinese animations, and even outperformed top Chinese Japanese animations in several countries. Leveraging our premium content, we have expanded local partnership to boost global penetration and monetization. Our efforts include deepening collaboration with telecom operators in overseas markets to enrich bundled products and strengthening promotion activities. For example, we have partnered with Etisalat, one of the largest telecom companies in the Middle East and North Africa market, to stream iQIYI's content on their OTT platform, E-Vision.

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 CPOP 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 diverse, 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 content ecosystem will drive our long-term growth. Now, let me pass on to Jun to go through our financial performance.

Jun Wang (CFO)

Thanks, Mr. Gong, and hello, everyone. Let me walk you through the key numbers. In the second quarter, the total revenues were RMB 7.4 billion, down 5% annually. The membership services revenue reached RMB 4.5 billion, down 9% annually, primarily due to fluctuations in the current sleep performance, as previously discussed. For online advertising, revenues decreased by 2% year-over-year to RMB 1.5 billion. This was primarily due to the decrease in brand ad businesses, which, again, is due to the decrease of the variety shows we had during the quarter. But the results was partially offset by the healthy growth of the performance ad businesses. Content distribution revenue reached RMB 698 million, and it grew 2% annually.

Other revenues increased by 16% annually to RMB 784 million, partially driven by the increase of revenue deriving from the talent agency services and the third-party cooperation. Moving on to costs and expenses. Content cost was RMB 4.1 billion, down 2% annually. Total operating expenses were RMB 1.4 billion, flat annually. This was in line with our disciplined marketing spending strategy. Turning to profits and cash flow, the non-GAAP operating income was RMB 501 million, and its corresponding margin was 7%. The operating cash flow totaled RMB 411 million, and remained positive for nine consecutive quarters. As of the end of the second quarter, we had a cash, cash equivalent, short-term investments, and a long-term restricted cash included in the prepayment and other assets, totaling of RMB 8.6 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 have completed the repurchase rights offer for our convertible notes due 2026. An aggregate principal amount of $395 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.

Operator (participant)

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Please limit your questions to one at a time. If you wish to have follow-up questions, please rejoin the queue. Your first question comes from Xueqing Zhang with CICC.

Maggie Ye (Analyst)

Hey, thanks, management, for taking my question. My question is about competition landscape. We noticed that other platforms have some blockbusters here, and our market share, which has been leading recent years, has also fluctuated. How does management view the current competition landscape for long videos, and what's your strategy? Thank you.

Yu Gong (CEO)

Oh, this one question on-

Jun Wang (CFO)

We will invite our CCO, Xiaohui, to answer this question.

Uh,

Mm-hmm.

Xiaohui Wang (Chief Content Officer)

[Foreign language]

Chang Yu (Head of Investor Relations)

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 industry's content, enhancing the competitiveness of the long-form video sector compared to other forms of entertainment, such as we often mention the 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 benefit.

Xiaohui Wang (Chief Content Officer)

[Foreign language]

Chang Yu (Head of Investor Relations)

Looking at our long-term market share performance, iQiyi has actually maintained a leading position in the core 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, number one position in drama category market share.

Xiaohui Wang (Chief Content Officer)

[Foreign language]

Chang Yu (Head of Investor Relations)

In balancing the content quality and commercial returns, iQiyi's performance continues to lead. The drama series To the Wonder and Strange Tales of Tang Dynasty Season Two are great examples, and we believe this advantage will further enhance in the future.

Xiaohui Wang (Chief Content Officer)

[Foreign language]

Chang Yu (Head of Investor Relations)

Going forward, we will remain dedicated to creating high-quality content tailored for mainstream and female audiences, enhancing our social insight and innovation, optimizing content track, scheduling strategies, and strengthening the management in every phases of our in-house studios. We believe these initiatives are all aimed at improving the stability of our high quality, diverse content supply.

Xiaohui Wang (Chief Content Officer)

[Foreign language]

Chang Yu (Head of Investor Relations)

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 reality theme genres.

Xiaohui Wang (Chief Content Officer)

[Foreign language]

Chang Yu (Head of Investor Relations)

We will also continue to strengthen our capabilities for IP serialization development. For example, Strange Tales of Tang Dynasty Season 2, which launched in Q2, is a successful case of serialized content development, and the 3rd season will soon be in production. In the future, the well-loved series, such as The Fearless and Under the Skin, will also launch their second seasons, and The Ingenious One, Season 2, is also in preparation. Thank you!

Operator (participant)

Your next question comes from Lincoln Kong with Goldman Sachs.

Maggie Ye (Analyst)

Thank you, management, for taking my questions. My question is about the membership business. How should we think about the prospects of membership growth in future, especially on subscribers as well as the ARM growth? Thank you.

Xiaohui Wang (Chief Content Officer)

Please, Xiaohui Wang.

Chang Yu (Head of Investor Relations)

We'll invite our Senior VP of Membership Business, Youqiao Duan, to answer this question.

Youqiao Duan (Senior VP of Membership Business)

[Foreign language]

Chang Yu (Head of Investor Relations)

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 arrives, our content offerings have positively influenced the return of these key driven users, and retention of long-standing members.

Youqiao Duan (Senior VP of Membership Business)

[Foreign language]

Chang Yu (Head of Investor Relations)

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 flexibility 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.

Youqiao Duan (Senior VP of Membership Business)

[Foreign language]

Chang Yu (Head of Investor Relations)

In the future, we'll also plan to implement more practice measures to optimize account sharing and combat piracy, thereby supporting the long-term healthy growth of our membership business. We will share the specific plans with everyone as the progress is made. Thank you.

Operator (participant)

Your next question comes from Maggie Ye with CLSA.

Maggie Ye (Analyst)

[Foreign language] Good evening, uh, and thanks for the chance to ask a question 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 side celebrates its five-year anniversary, can management share your latest thoughts on business strategy and plan for our overseas business? Thank you.

Xianghua Yang (SVP of Movies and Overseas Business)

[Foreign language]

Chang Yu (Head of Investor Relations)

We invite our Senior VP Xianghai Yang, who is responsible for the overseas business, to answer this question.

Xianghua Yang (SVP of Movies and Overseas Business)

[Foreign language]

Chang Yu (Head of Investor Relations)

We started expanding into the overseas market in 2019 and have achieved initial success. In 2023, our overseas operations actually reached full year operating EBIT. Our goal for 2024 is to boost revenue growth while continuing to increase profits, and for Q2 this year, the total revenues for overseas, and also membership revenue both maintain a healthy year-over-year and also quarter-over-quarter growth.

Xianghua Yang (SVP of Movies and Overseas Business)

[Foreign language]

Chang Yu (Head of Investor Relations)

In terms of content, we have discovered an optimal content mix suitable for our overseas markets, 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 on iQiyi overseas were Chinese dramas, most of which were iQiyi originals. 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 original content.

Also, from the technology perspective, we will utilize AI technology to empower different aspects of the long form video industry, enhancing the production efficiency of iQiyi's localized original content overseas.

Xianghua Yang (SVP of Movies and Overseas Business)

[Foreign language]

Yu Gong (CEO)

[Foreign language]

Chang Yu (Head of Investor Relations)

Regarding our local partnerships, we have already established deep connection, and cooperation with local telecom operators in certain regions. Going forward, we aim to expand our partnerships to telecom operators in additional countries, and then to increase our collaboration with local partners. We believe these will enhance our brand awareness and content influence overseas. 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 IP monetization models.

Jun Wang (CFO)

[Foreign language] encouraging。

Chang Yu (Head of Investor Relations)

Our CFO Jun Wang just added to this, and he mentioned that in 2023, our overseas business actually reached full-year operating breakeven. This is based on the fact that from a management accounting perspective.

Yu Gong (CEO)

Yeah, this is based on the BU's management account.

Chang Yu (Head of Investor Relations)

Correct. Correct, and then this is a very healthy trend that has developed over the past year. Thank you.

Yu Gong (CEO)

Thank you。

Operator (participant)

Your next question comes from Thomas Chong with Jefferies.

Thomas Chong (Regional Head of Internet & Media)

[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 (CEO)

[Foreign language]

Chang Yu (Head of Investor Relations)

Our CEO is answering this question. He mentioned that content IP is the core asset of our company. Promoting the monetization of content IP in various forms, including offline business, is an important and sustained effort that is key to enhancing our long-term value and competitiveness. We actually describe this IP-based business model with a metaphor called eating a fish in multiple ways, which actually emphasizes 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 (CEO)

[Foreign language]

Chang Yu (Head of Investor Relations)

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 released key dramas, and this proportion now has stabilized at around 70%. Also, these leading high quality original dramas have not only found success during their initial broadcasting period, but also have demonstrated a sustainable long tail effect, which maintain a popularity over an extended period of time.

Yu Gong (CEO)

[Foreign language]

Chang Yu (Head of Investor Relations)

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 IP content IP actually plays an increasingly important role in creating engaging experiences. For example, our vast library of high quality video content IPs actually serve as our core strength in this area. For example, we leverage the IP from the recent hit drama title called The Strange Tales of Tang Dynasty. Beyond its online presence, successfully introducing an immersive VR experience in cities like Beijing and Xian. These are key cities in China.

In addition, we've developed new derivative products, such as card games, designed to appeal to the taste of a younger demographic, further extending the IP's reach and impact.

Yu Gong (CEO)

[Foreign language]

Chang Yu (Head of Investor Relations)

This operational model, actually, we actually favors a light asset approach, which has a promising prospect for incremental revenue under limited cost.

Yu Gong (CEO)

[Foreign language]

Chang Yu (Head of Investor Relations)

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.

Yu Gong (CEO)

[Foreign language]

Chang Yu (Head of Investor Relations)

In addition to what I just mentioned, the VR virtual theater experiences that I mentioned earlier, we're also exploring further initiatives centered around our IPs. For example, our Qi Xiaobei, which is the IP merchandise stores. Now, also, Qi Bubble 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, with the light asset approach. And the aim is to provide the users with a very comprehensive and engaging entertainment experience. Thank you.

Thomas Chong (Regional Head of Internet & Media)

Thank you.

Operator (participant)

There are no further questions at this time. I'll now hand back to management for closing remarks.

Chang Yu (Head of Investor Relations)

Thank you everyone for participating in the call, and if you have further questions, please don't hesitate to contact us. Thank you.

Yu Gong (CEO)

Thank you. Bye-bye.

Operator (participant)

That does conclude our conference for today. Thank you for participating. You may now disconnect.