Membership revenue gives iQiyi Q3 boost

Leading online entertainment service provider iQiyi announced its revenue for the third quarter jumped 48 percent year-on-year to 6.9 billion yuan ($1 billion), driven mainly by the growth of membership revenue.

Membership services performed particularly well and surpassed advertising to become the company's biggest revenue contributor in the third quarter, Nasdaq-listed iQiyi said in a statement on Tuesday.

Revenue from subscription fees for online video streaming services reached 2.9 billion yuan during the third quarter, with a 78 percent increase year-on-year. IQiyi claimed the increase was primarily fueled by the robust growth of subscribing members, as the company has introduced a wide range of self-produced blockbuster titles.

As of the end of September, the company had a total of 80.7 million subscribers, among which 98 percent were paying members.

"Our library of premium content continued to excel, driving robust growth in subscriber numbers and membership revenue," said Gong Yu, founder and chief executive officer of iQiyi.

"Our record-breaking drama series The Story of Yanxi Palace turned out to be a big hit for the entire summer, demonstrating our strong capabilities and potential in producing high-quality premium content."

Co-produced by iQiyi and Huanyu Film, The Story of Yanxi Palace gained a huge following among Chines netizens in recent months. IQiyi claimed the hit drama had gained more than 15 billion online views and it is available in more than 70 markets across the globe, making it one of the most widely distributed series produced in China.

Due to higher content costs, iQiyi reported an operating loss of 2.6 billion yuan for the third quarter, compared to 1.1 billion yuan in the same period last year.

"While we faced some margin pressure during the quarter due to higher investment in content, we saw this as necessary and within our expectations as we are going through a transition period toward building an optimized and healthier content ecosystem which will position us well for the future," said Wang Xiaodong, chief financial officer of iQiyi.

Karen Chan, an equity analyst at Jefferies Group LLC, said despite its broad user reach and time share gain from TV, online video remains an under-monetized content opportunity,

"The proven capabilities of iQiyi in original content production offer great opportunities in subscriptions and potential for embedded marketing. While content costs will likely remain high, the increased offerings of original content and a slowing of licensed content cost growth pave the way for optimization," Chan added.