iQIYI, Inc. (NASDAQ:IQ) Q2 2024 Earnings Conference Call August 22, 2024 7:00 AM ET

Company Participants

Chang You - IR
Yu Gong - Founder, Director and CEO
Jun Wang - CFO
Xiaohui Wang - Chief Content Officer
Wenfeng Liu - Chief Technology Officer
Xianghua Yang - Senior Vice President of movies and overseas business
San Ha Yang - Senior VP

Conference Call Participants

Xueqing Zhang - CICC
Lincoln Kong - Goldman Sachs
Maggie Ye - CLSA
Thomas Chong - Jefferies

Operator

Thank you for standing by, and welcome to the iQIYI Second Quarter 2024 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Ms. Chang You, IR Director of the company. Please go ahead.

Chang You

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 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. Xianghua 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 not are 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 the floor to Mr. Gong. Please go ahead.

Yu Gong

Hello everyone. Thank you for joining us today. In the second quarter, we saw intense competition for top content. Well, with our sales of diversified premium content. Certain titles did not met 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 slate performance.

As a matter of fact, we build the wide range competition within the long-form video sectors and constructive which have enhanced its appeal over other entertainment formats and also private as a valuable opportunity to review and refine our tactics. 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 from it. In fact, as the summer season unfolds, our premium content has gained strong momentum. The release of acclaimed titles such as [Indiscernible] the Strange Tales of Tang Dynasty Season 2, [Indiscernible] has us set all key operating metrics and a broad aspect to the leading spot in terms of market share in the key drama category in July, according to enlightened data. Notably, the second season of Strange Tales of Tang Dynasty becomes the 14th drama to bring all popularity index score of 10,000 for IT, in addition to delivering high quality content, providing great user experience stands as another cornerstone of our business as we remain committed in enhancing a number of benefits. We are also refining our content distribution 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 offspring in broader overseas market. Thirdly, we are using our iQIYI content influence and its IP portfolio to explore revenue opportunities beyond membership and advertisement such as IP divest, derivatives and offline experiences. These initiatives align perfectly with our core value which centers on maximizing our IP value 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 superior user experience.

In the second quarter, membership revenue was down 9% annually, primarily due to fluctuation in our content slate performance, causing the attrition of key title driven members and the high base effect from last year’s mega Fitzhe [ph], the no part arm 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 high care plan. Furthermore, we have innovative value added services drove users willingness to pay. Notably, we launched the Express Package for Ten dramas in the second quarter and gathered the highest number of cash purchases.

Following the success in drama category, we plan to expand Express Package to other content categories such as variety, show and admissions. We remain confident in the long-term outlook of our membership business, which is supported by several key factors. Firstly, we have successfully built a solid foundation of loyal safety members. Secondly, content remains a primary driver of our membership growth and we are in the middle of introducing more diversified premium content. We encourage other user cohorts.

Furthermore, we are committed to enhancing our operational strategy to improve membership accreditation and retention. Initiatives include one, reaching broader demographic growth by expanding our sales channel and utilizing wide raw social marketing to improving conversation rates by launching marketing initiatives directly tied to popular content of the season such as health effect packages, Express Package and counter inheritance program in Boca. The suite providing value for many services for long-term and high tier plan subscribers such as inclusive offline events.

In the second quarter, we organized 17 offline events and received positive member feedback. Building on the strong user reception from last year, our annual offline flagship event, the 2024 iQIYI Scream Night Three, is set for its comeback in December 7 this year in Macau. The perceived value of our members was even further amplified by our very 1st July 17 iQIYI Member Festival. Through this event, we offered appealing membership discounts and hosted seven 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 of July, the 17th iQIYI membership festival is set to be an annual event inclusive to our members. It is an event to discover attractive deals and activities. This festival will not only underscore the substantial value we provide to our numbers, but will also serve as a key opportunity to boost our brand influence.

Moving on to content, we are overcome the short term fluctuation in the company, set flight performance in Q2 and learn a lot from this short term setback. Through the in-depth analysis of the overall projects, we have gained valuable insights that are set to guide all continent predictions and operations in the future. Firstly, we 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 offering 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, thereby producing content that establish a deeper connection with our audiences. We will embrace a more innovative aspect in our casting and script selection process, aiming to transcend the limits of traditional storytelling.

Secondly, regarding content scaling, we will closely monitor our user trends and adopt a dynamic scaling strategy that is guided by user engagement and net retention. This approach ensures that our content rollout is optimally timed to align with our audiences’ preferences and viewer habits.

Thirdly, in terms of managing our in-house studios, we are committed to enhancing the efficiency and effectiveness of our operation nodes 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 reality and suspense genres remains unchallenged. Our original drama, To the Wonder, with an ala carte [ph], perfectly demonstrated our success in blending artistic merits and commercial benefits to generate exceptional performance across all metrics. What’s more impressive is the show’s remarkable large-scale effect, with its influence extending well beyond the online domain, as it boosts 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 the go-to platform for the suspense genre by launching dramas, Tell No One and Lost in the Shadows and under our Light on Theatre brand. These movies, will continue to outperform our peers according to in-patent viewership data. In the second quarter, we launched a total of 15 key titles in our movie channel, including multiple box office hits, such as Article 20, The Argylle [ph], and Pegasus 2, Situation R.

In our Cloud Cinema, we launched 21 titles, covering the latest and most popular dialectical releases, such as The box office for Fight Against Evil 2. For original movies, we released various genres, such as disaster comedy, Traumatic Future, Qian Zhu Hai Yang, and suspense crime, Suspect, Chao Yi Chen Tan.

For variety shows, our two flagship shows returned with the new season, namely the Detective Adventure Season 4, Meng Tan, and The Rap of China 2024, Xin Shuo Chang, both of which continued to be well-recognized by advertisers. The Rap of China 2024 also generated considerable membership revenues.

For animation, we continued to invest in original Chinese animations, and began to see encouraging initial results with enhanced in-house production capabilities. How Dare You serves as a perfect example to our title, as it hit multiple records for iQIYI original animation.

It is our first original animation to break our popularity with a popularity index of 5,000. Its revenue and user acquisition also reached new highs. As we enter the summer location 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 Asian 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 the Tang Dynasty Season 2 and A Lonely Hero’s Journey have all been well-received by audiences. Additionally, in the suspense genre, the drama interlaced themes for the young ones [foreign language] have both showcased a strong user engagement.

Notably, Strange Tales of the Tang Dynasty returns for a second season showcasing remarkable quality that has led it to break iQIYI’s popularity index of 10,000. The acclaimed serials have demonstrated a pronounced long-tail effect. The second season substantially amplifies the user contact and 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 generalized approach to IP development.

Encouraged by the success of the first two seasons, 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 a strategic move to capitalize on this success, we have launched the IP-based VR development [ph] in key cities such as Beijing, Shenzhen, and Xian. This initiative aims to broaden the impact and presence of our original content extending beyond traditional screens. Beyond drama, our creativity is expanding into new categories. TenDay, a brand-new original iQIYI variety show IP, has garnered user praise for its innovative format and recorded a peak iQIYI popularity of over 7,000.

Additionally, the King of stand-up comedy [foreign language] marked IT’s first exploration into stand-up comedy. The show has received encouraging initial feedback standing out among the comedy variety offerings this summer.

Moving on to our content supply for dramas, we expect the availability of premium content supplies to be meaningfully enhanced. Meanwhile, we are fast-tracking the production of Asian-customer idol dramas and modern idol dramas, both targeting female audiences. Some of the much-anticipated works in this genre include [Foreign language].

In the realistic and suspense category, audiences can anticipate it as a diversified content offering, including [Foreign language], we will release more diversified article hits on our platform.

Original, self-produced iQIYI or digital films are expected to be released in the future, including King, Pinocchio, and A Frozen Dream, [foreign language]. For our variety show line up, 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 Tenday and the theme of the Stand-Up Comedy, we are preparing to launch more innovative shows, including The Moon is Shining, Yuan Shao Yue, which is set to release later this month.

Moving on to animation, we expect to see a third in-title during the second half of the year, with increased diversification in general. We plan to launch 8 to 14 additional seasons of key original works compared to the first half. Alongside How Dare You with Cheng He Li Tong, we have also launched the final take-home, The Legend of Kyle Law, Shenwu Tianzun, and A Moment But Forever, which shares its iQIYI with an upcoming drama series of the same name. The action-packed anime Super Q Extraordinary Chapter [foreign language] 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 offering of original content. In just the first half of 2024 alone, we have distributed about 50 drama series, reinforcing the long-tail effect of premium content. The value of our IP has been even further unleashed by exploring diversified monetization streams, for example, franchising granules from the dramas Fox Spirit, Matchmaker, Red Moon Pact, Yuechu [foreign language] which is a new hype 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 RMB1.5 billion, down 2% year-over-year. Performance apps remained as a highlight of the quarter, growing at a healthy rate year-over-year. Key sectors such as e-commerce and Internet services demonstrated solid performance, with e-commerce revenue from the June 18 shopping festival growing 80% annually, and revenue from Internet services growing 30% annually. The solid result in performance apps is also a clear reflection of our technical advancement. Through upgraded ad placement mechanism and reinforced mark-feeding algorithm, we have further enhanced the monetization efficiency of traffic and the ROI for our clients.

Additionally, our AI tools now cover browser industries, enabling more efficient ad production and driving AI power app revenue by 150% sequentially. For brand apps, revenue was down annually, mainly due to fewer variety shows launched. Besides that, our premium content continued to attract brand advertisers, with 59% of the revenue stemming from content-targeted apps. 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 products, we remain committed in advancing technology innovation as it’s crucial in 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 a new territory, deploying 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 lack in grace in production efficiency. Our enhanced developed platform continues to demonstrate its power. Our enhanced iQIYI content management system has been in operation for over two years. This decade data driven system provides substantial support to management team and producers in project management effectively elevates content quality and the success rate.

Now this management system has covered all our projects in drama, movie and animation. Another high efficiency system is of intelligent protection management system which is widely used by production crews for diverse onsite text, 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 assessment, creativity, marketing and distribution. This broadened application has meaningfully enhanced content production and operational efficiency. For example, AI has supported revenue forecasting and the decision-making during initial phase of project development.

AI also drives our advertising innovation for focus-grade mark-maker Red Moon Pet. We integrated virtual character and theme into ad materials, substantially increasing ad outcome. This new ad format was welcomed by advertisers and opened up ample possibilities. For content marketing, we have employed AI among -- modules to analyze cloud 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 revenues continuing to grow annually and sequentially. The influence from C-dramas on iQIYI’s original content continues to strengthen, evidenced by the 30% annual increase in membership revenue from top C-dramas during the quarter. Our localization attempt has also started to bear fruit.

The accumulated number of views of our original Thai dramas [Indiscernible] ranked first in a number of markets, including the U.S., Canada, and U.K. We have also made solid progress in animation. How Dare You has attained remarkable viewership and revenue on our overseas set, which are historically high among all iQIYI original Chinese animations, and even outperformed top Japanese animations in several countries.

Leveraging our premium content, we have expanded local partnerships to boost global penetration and monetization. Our efforts include deepening collaboration with telecom operators in overseas markets to enrich fundamental products and strengthen promotion activities.

For example, we have partnered with Ooredoo Select, one of the largest telecom companies in the Middle Eastern and North African markets, to stream iQIYI’s content on their OTT platform. This partnership will further enhance the influence of C-drama VR beyond Asian markets. In the future, we will continue to enhance the influence of the iQIYI brand overseas with premium C-pop 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 goals with a sustainable approach. We will grow out more 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 the IT content ecosystem will drive our long-term goals.

Now, let me pass on to Jun to go through our financial performance.

Jun Wang

Thanks Mr. Gong, and hello everyone. Let me walk you through the key numbers. In the second quarter, the total revenues were RMB7.4 billion, down 5% annually. The membership services revenue reached RMB4.5 billion, down 9% annually, primarily due to fluctuations in accountancy [ph] performance as previously discussed.

For online advertising, revenues decreased by 2% year-over-year to RMB1.5 billion. This was primarily due to the decrease in brand ad businesses, which again is due to the decrease of the variety of shows we had during the quarter. But the result was partially offset by the healthy growth of the performance ad businesses. Content distribution revenue reached RMB698 million and grew 2% annually.

Other revenues increased by 16% annually to RMB784 million, partially driven by the increase of revenue derived from the patent agency services and third-party cooperation. Moving on to costs and expenses. Content cost was RMB4.1 billion, down 2% annually. Total operating expenses were RMB1.4 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 RMB501 million and its corresponding margin was 7%. The operating cash flow totalled RMB411 million and remained positive for nine consecutive quarters. As of the end of the second quarter, we had cash equivalents, short-term investments and long-term restricted cash included in prepayments and other assets, totalling RMB8.6 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 right offer for our convertible notes in 2026. An aggregate principal amount of US$395 million was validly surrendered and repurchased, and only 157,000 aggregate principal amounts of the notes remained outstanding. For detailed financial data, please refer to our press release on our IR website.

I will now open the floor for Q&A.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from Xueqing Zhang with CICC.

Xueqing Zhang

[Foreign Language]

Thanks management, for taking my question. My question is about the competition landscape. We noticed that other platforms had some blockbusters this year, and our market share, which has been leading in recent years, has also fluctuated. How does management view the current competition landscape for long videos, and what are your strategies? Thank you.

Chang You

[Foreign Language] We will invite our CCO, Xiaohui, to answer this question.

Xiaohui Wang

[Foreign Language]

Chang You

The intense competition within the industry has always been present. And this conversation actually helps us to improve the overall quality and the richness the industry’s content, enhancing the competitiveness of the long-form video sector compared to other forms of entertainment, such as we often mentioned 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

[Foreign Language]

Chang You

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 position in drama category market share.

Xiaohui Wang

[Foreign Language]

Chang You

In balancing the content quality and commercial returns, iQIYI’s performance continues to lead. The drama series To the Winter and The Strange Tales of Tang Dynasty Season 2 are great examples, and we believe this advantage will further enhance in the future.

Xiaohui Wang

[Foreign Language]

Chang You

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

Xiaohui Wang

[Foreign Language]

Chang You

Our current drama reserve accommodates the viewing demand of the mainstream audience. We have a relatively ample reserve specifically for the core genres of ancient costume dramas aimed at female audiences as well as for the mystery suspense and the reality themed dramas.

Xiaohui Wang

[Foreign Language]

Chang You

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

Operator

Your next question comes from Lincoln Kong with Goldman Sachs.

Lincoln Kong

[Foreign Language] 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 the future, especially for our subscribers, as well as the ARPU growth? Thank you.

Chang You

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

Youqiao Duan

[Foreign Language]

Chang You

From a perspective of membership structure, our cornerstone members represent a 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 the heterogeneous users and retention of long-standing numbers.

Youqiao Duan

[Foreign Language]

Chang You

In Q2, our ARM, which is the average revenue per member, maintained a solid year-over-year growth. The current level of ARM provides us with flexibilities 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

[Foreign Language]

Chang You

In the future, we also plan to implement more proactive measures to optimize account sharing and combat piracy, thereby supporting the long-term healthy growth of our membership business. We’ll share specific plans with every one of the progress that’s made. Thank you.

Operator

Your next question comes from Maggie Ye with CLSA.

Maggie Ye

[Foreign Language]

Chang You

Good evening, and thanks for the chance to ask questions. 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 mentoring [ph] content. As iQIYI international celebrates its 5-year anniversary, can management share your latest thoughts on business strategy and plan for our overseas business? Thank you.

Yu Gong

[Foreign Language]

Chang You

We’ll invite our senior VP, San Ha Yang, who is responsible for the overseas business, to answer this question.

San Ha Yang

[Foreign Language]

Chang You

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

San Ha Yang

[Foreign Language]

Chang You

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 IP 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’ll continue to use Chinese dramas as the foundation of our overseas content offerings and actively explore opportunities to increase production of local original content. And also, from the technology perspective, we will utilize AI technology to empower the different aspects of the long-form video industry, enhancing the production efficiency of iQIYI’s localized original content overseas.

San Ha Yang

[Foreign Language]

Chang You

Regarding our local partnerships, we have already established deep connection and cooperation both with telecom operators in certain regions. And going forward, we aim to expand our partnerships to telecom operators in additional countries and to increase our collaboration with local partners. And we believe these will enhance our brand awareness and content influence overseas. And for our long-term objectives 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

[Foreign Language]

Chang You

And our CFO, Wang Jun, 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.

Jun Wang

This is based on the views from the management account.

Chang You

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

Operator

Your next question comes from Thomas Chong with Jefferies.

Thomas Chong

[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 rather than membership and advertising? Thank you.

Yu Gong

[Foreign Language]

Chang You

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 off-line 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 emphasize 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

[Foreign Language]

Chang You

With many years of focus 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 has accounted for over half of our quarterly new release key dramas. And this proportion now has stabilized at around 70%. And also leading high-quality, high original dramas have not only found success during their initial broadcasting period, but also have demonstrated a sustainable long tail effect, which maintained popularity over an extended period of time.

Yu Gong

[Foreign Language]

Chang You

We actually hope that the off-line experience business will become our second growth curve in the future. And we also noted the shift in consumer behaviour change in domestic offline commerce and cultural tourism sectors, where the premium content IP actually plays an increasingly important look 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 leveraged 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 car games designed to appeal to the taste of a younger demographic, further extending the IP’s reach and impact.

Yu Gong

[Foreign Language]

Chang You

And this operating -- for the operational model, actually, we actually favoured a light asset approach which has a promising prospect for incremental revenue under limited cost.

Yu Gong

[Foreign Language]

Chang You

Actually based on our experiences this approach has actually been validated in terms of off-line experiences. And this model is now being able to be replicated and scaling.

Yu Gong

[Foreign Language]

Chang You

In addition to what I just mentioned, the VR experiences that I mentioned earlier, we’re also exploring further initiatives similar around our IP. For example, our [Foreign Language] which is the IP merchandise stores, now also QiBubble 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, the light-asset approach. And the aim is to provide users with a very comprehensive and engaged entertainment experience. Thank you.

Operator

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

Chang You

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

Thank you. Bye-bye.

Operator

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