iQIYI Inc
NASDAQ:IQ
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iQIYI Inc
Earnings Call Analysis
Q2-2024 Analysis
iQIYI Inc
In the second quarter of 2024, iQIYI acknowledged facing significant headwinds amid intense competition for top-tier content. The management described this environment as a constructive force, compelling them to elevate their content quality and diversity. Notably, despite a temporary dip in market share due to fluctuating performance, iQIYI regained leadership in the key drama category following the strong reception of titles such as 'The Strange Tales of Tang Dynasty Season 2.'.
iQIYI reported total revenues of RMB 7.4 billion, a decrease of 5% year-over-year. Membership service revenue fell by 9% to RMB 4.5 billion, largely impacted by content performance variability. Online advertisements saw a minor decline of 2%, earning RMB 1.5 billion. However, profits showed positive signs with non-GAAP operating income reaching RMB 501 million, corresponding to a 7% margin, and they reported a positive operating cash flow for nine consecutive quarters.
To drive sustainable growth, iQIYI is applying extensive AI integration to enhance operations across content creation, marketing, and user experience. This investment aims to improve overall efficiency, allowing for faster response to market demands. Additionally, the company is expanding its footprint in overseas markets, where it achieved breakeven profitability for the first time in 2023. The goal for 2024 is to boost revenues in international operations.
Membership Services experienced a downturn, attributed to the high base effect of last year's megahits and an attrition of premium members. However, the company is optimistic about its membership growth strategy, focusing on enhancing user experience and expanding demographic reach. A new 'Express Package' was launched, yielding strong cash purchases, and plans are in place to further diversify offerings across genres like variety shows and animation.
iQIYI is prioritizing high-quality content that resonates with mainstream audiences, particularly women. The success of 'Strange Tales of Tang Dynasty Season 2' highlighted the potential for long-tail revenue generation. The company is implementing a dynamic strategy for content rollout that aligns with user engagement trends to increase retention and attract new subscribers.
Recognizing the integral value of its content IP, iQIYI is exploring diverse monetization streams, including offline experiences such as virtual reality entertainment. The second quarter saw significant success in franchising, with a notable uptick in revenue from IP licensing. Moreover, exciting projects in various genres are scheduled for the second half of 2024, along with continued expansion of iQIYI's library, indicating a robust pipeline for user engagement and revenue generation.
In summary, iQIYI is focused on enhancing its long-term growth strategy through diversified premium content, advanced technology applications, and strategic partnerships. The outlook for membership remains cautiously optimistic as they aim to overcome recent challenges in the competitive landscape while leveraging their strong content library to bolster user engagement and financial performance.
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Thank you for standing by, and welcome to the iQIYI Second Quarter 2024 Earnings Conference Call. [Operator Instructions]
I would now like to hand you over to -- the conference to Ms. Chang Yu, IR Director of the company. Please go ahead.
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. 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 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.
Hello, everyone. Thank you for joining us today. In the second quarter, we saw intense competition of top content, well without serials of diversified premium content. Certain titles did not meet our high expectations, putting pressure on our financial results. After a great deal of hard work, we have overcome the short-term fluctuation in our content-led performance. As a matter of fact, we view the vibrant competition within the long-form video sectors and constructive, which have enhanced its appeal over other entertainment formats. And also private has a valuable opportunity to review and refine our tactics.
It helped 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-form video business depends on the stable supply of premium content and the ability to achieve balance in both content quality and commercial benefit. With this in mind, our goal is to further improve the overall success rate of our content portfolio and more importantly, the ability of content of performance.
In fact, after summer season and fall, our premium content has gained strong momentum, the release of our planned titles such as [indiscernible] and The Strange Tales of Tang Dynasty Season 2 [Foreign Language] have offset our key operating metrics and brought us back to the leading part 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 our popularity index score of 10,000 for iQIYI, in addition to delivering high-quality content, providing great user experience done as another cornerstone of our business. As we remain committed in enhancing member 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 our footprint in broader overseas market survey. We are using iQIYI content influence and its IP portfolio to explore revenue opportunities beyond membership and advertisement such as IP that were pivots -- derivatives and the off-line experiences. These initiatives align perfectly with our core revenue, which centered 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 related to fluctuation in our company's latest performance causing the attrition of key types of premium members and the high-base effect from last year's megahit, The Knockout.
ARM grew steadily year-over-year. This was partially fulfilled by displaying pricing strategy as we scaled back on the overall promotions and discounts. Our enhanced network benefits also played a major role, effectively encourage the members to sign up for high tier. And furthermore, we do not have innovative, however, added drama users revenue to pay. Notably, we launched the Express Package for 10 dramas in the second quarter and garnered 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 animation.
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 layer ticket members. Secondly, content remains our primary driver of our membership growth. And we are in the middle of introducing more diversified premium content will 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 groups by expanding our sales channel and utilizing viral social marketing to improving conversation rates by launching marketing initiatives directly had to popular content of the season such as or key package. Express Package and [indiscernible] providing value for many services through long-term and high-tier plan subscribers such as exclusive offline events. In the second quarter, we organized 17 off-line events and received positive member feedback.
Building on the strong user reception from last year, our annual off-line flagship events, the 2024 iQIYI coincide is set for its comeback in December 7 this year in Macau. The perceived value of our members was even further exemplified by our very first July, 17 iQIYI Member Festival. Through the event, we offered appealing membership discounts and hosted 7 live broadcasting to promote over 530 titles in our content pipeline. More than 40 celebrities participated the live-streaming event and generated over 30 million views.
In the future, the 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 members, but will also serve as a key opportunity to boost or ramp influence.
Moving on to content. We are overcoming the short-term fluctuation in the company's flat 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 we expect to drive 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 traps thereby producing content that establishes a deeper connection with our audiences.
We will embrace more innovative asset in our casting and script selection process, aiming to transcend the limits of traditional storytelling.
Secondly, regarding common scaling, we will closely monitor our user trends and adopt a dynamic gathering strategy that is guided by user engagement and retention. This approach ensures that our content rollout is often tended to align with our audiences' preferences and viewing 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 talents, ensure they have ample freedom to fully unleash their artistic skills, and foster an environment where creativity can swipe.
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 ala carte demonstrated our success in blending artistic merits and the commercial benefits generated exceptional performance across all metrics. What's more impressive is show's remarkable large-scale effect with its influence expanding well beyond the online demand as it boosts tourism to its filming location in Xinjiang to effectively extend the vitality of the IP, we worked with creative team 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 genere by launching dramas, Tell No One [Foreign Language] and Lost in the Shadows [Foreign Language] under our Light On Theatre brand.
These movies, they continued 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 Argyll and Pegasus 2, Situation R.
In our Cloud Cinema, we launched 21 titles, covering the latest and most popular article releases such as box office for [indiscernible]. For original movies, we released various genres, such as disaster comedy, You from the Future, Qian Zhu Hai Yang, and suspense crime, Suspect, Chao Yi Chen Tan.
For variety shows, our 2 flagship shows returned with the new season, namely the Detective Adventure Season 4, Wan Peng 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 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, [Foreign Language], as it hit multiple platforms for iQIYI original animation. It is our first original animation to break off popularity index of 5,000 its 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 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 Tang Dynasty Season 2 and A Lonely Hero's Journey were all well-received by audiences. Additionally, in the suspense genre, the drama, intellect scenes For The Young One, [Foreign Language] both showcases a strong user engagement. Notably, Strange Tales of Tang Dynasty returned for a second season, showcasing remarkable quality that has led us to great iQIYI's popularity index score of 10,000. The acclaimed serial has demonstrated a pronounced long-tail effect. The second season substantially are clicked by the user consent 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 generalized approach to IP development.
Encouraged by the success of the first 2 seasons, production for the third season is set to begin shortly. Additionally, the IP stats to generate that worst revenue stream as its influence now expands into off-line domain, including entertainment, tourism and consumer tools.
In our strategy, move to capitalize on this success, we have launched the IP vendors, VR development in key business such as Beijing, Shenzhen and Xian. This initiative aims to broaden the impact and the presence of our original content expanding beyond traditional screens.
Beyond dramas, our creativity is expanding into new categories and then a brand-new original iQIYI Variety Show, iQIYI has garnered user praise for its innovative format and recorded a peak iQIYI popularity index score of over 7,000.
Additionally, the King of Standup Comedy [Foreign Language] market IT's first exploration into standup comedy. The show has received an encouraging initial feedback and 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 production of Asian customers idol dramas and the modern idol dramas, both targeting female audiences. Some of the much anticipated works in this genre includes Go East [Foreign Language] A Moment But Forever [Foreign Language].
In the realistic and the suspense category, audiences can anticipate it as a diversified content offering, including Born to be the One, [Foreign Language]. For movies, we will release more diversified article hits on our platform. Original self-produced iQIYI or digital films are expected to be released in future including King, Pinocchio and A Frozen Dream [Foreign Language].
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 10 Days and The King of Standup Comedy, we are preparing to launch more innovative shows, including The Moon is Shining, [Foreign Language], 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. We've 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, [Foreign Language] we have also launched the [indiscernible] The Legend of Sky Lord [Foreign Language] A Moment But Forever, which shows it's a series of continent drama serials of the same name.
The action package 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 offline such as CCTV, satellite TV and regional TV stations, thanks to our enhanced offerings of original content.
In just the first half of 2024, 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, franchising revenue from the dramas Fox Spirit Matchmaker: Red-Moon Pact [Foreign Language] reached a new high for iQIYI original dramas. We have also worked with established toys brands for IP licensing and joint product for 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 has 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 for 30% annually.
The solid results and performance is also a fair reflection of our technical advancement. So 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 part revenue by 150% sequentially.
For brand app, revenue was down annually, mainly due to fewer variety shows launched in the past that our premier 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 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 implemented its application into new territories, deploying and squeezing the relative same drama for the first half.
We have made meaningful progress with our in-house previrtualization technology. This tool allows for the rapid decline in the virtualization of things on the shelf before actual filming begins. We have applied this across multiple flagship projects, and it has led to a large increase in production efficiency.
Our enhanced developed platform continues to demonstrate its power. Our enhanced iQIYI content management system has been in operation for over 2 years. This ticketed data-driven system provides substantial cost of management team and the producers in projects managing effectively of its content quality and success rate. Now this management system has covered all our projects in drama, movie and animation.
Another high efficient system is of intelligent production management system, which is widely used by production crews for -- that works on-site equipping them with frontline production tool and production management capabilities.
In the second quarter alone, 21 dramas adopted the system. Today -- to date, this 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 broadened application has meaningfully enhanced the content production on the operational efficiencies.
For example, AI has supported revenue forecasting and decision-making during natural fit of product development. AI also drives our advertising innovation for Fox Spirit Matchmaker: Red-Moon Pact. We integrated virtual culture and the theme into ad materials, substantially increasing ad outcomes, these new app formats were welcomed by advertisers and opened up ample possibility.
For content marketing, we have implied AI among all those models to analyze cloud information and generate key marketing points to improve marketing efficiency.
Finally, for our business, our performance 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 continue to grow annually and sequentially. The influence from C-drama and iQIYI's original content continues to strengthen evidence that by the 30% annual increase in membership revenue from C-dramas during the quarter.
Our location -- our localization attempts have also started to bear fruit. The accumulated number of views of our original Thai drama [indiscernible] 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 set, which is historical high among all iQIYI all-Chinese animation, and even outperformed top Japanese animation 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 products and strengthening promotional activities.
For example, we have partnered with Ooredoo Select, one of the largest telecom companies in the Middle Eastern and the North African market to stream iQIYI's content on their OTT platform. 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 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 growth with a sustainable approach. We will rule out more diversified premium content, apply innovative technologies more extensively and continue to enhance our team creativity and execution capabilities. With that, we believe the flywheel effect of IT content ecosystem will drive our long-term growth.
Now, let me pass on to Jun to go through our financial performance.
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, 9% annually, primarily due to fluctuations in content performance as previously discussed.
For online advertising, revenue 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 quarters. That result was partially offset by the healthy growth of the performance ad businesses.
Content distribution revenue reached RMB 698 million and 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 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 profit and cash flow. The non-GAAP operating income was RMB 501 million, and the corresponding margin 7%. The operating cash flow totaled RMB 411 million, has remained positive for 9 consecutive quarters. As of the end of the second quarter, we had a cash, cash equivalents, short-term investments and long-term restricted cash included in prepayments 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 in 2026. An aggregate principal amount of USD 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 Instructions] 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. [Operator Instructions]
Your first question comes from Xueqing Zhang with CICC.
[Foreign Language] My question is about competition landscape. We noticed that other platforms had some blockbusters here and our market share, which has been leading over the years has also fluctuated. How does management view the current competition landscape for long videos? And what's your strategy?
[Foreign Language]
[Interpreted] We will invite our CCO, Xiaohui, to answer this question.
[Foreign Language]
[Interpreted] The intense competition within the industry has always been present. And this competition 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 gold 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.
[Foreign Language]
[Interpreted] 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 #1 position in drama category market share.
[Foreign Language]
[Interpreted] 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.
[Foreign Language]
[Interpreted] Going forward, we will remain dedicated to creating high-quality content tailored for mainstreams 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.
[Foreign Language]
[Interpreted] 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 costing dramas aimed at female audiences as well as for the mystery suspense and the reality themed dramas.
[Foreign Language]
[Interpreted] 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.
Your next question comes from Lincoln Kong with Goldman Sachs.
[Foreign Language] My question is about the membership business. How should we think about the prospects of membership growth in the future, especially subscribers as well as the ARPU growth?
[Foreign Language]
[Interpreted] We will invite our Senior VP of Membership Business, Youqiao Duan to answer this question.
[Foreign Language]
[Interpreted] 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 offering has positively influenced the return of the hit-driven users and retention of long-standing numbers.
[Foreign Language]
[Interpreted] 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.
[Foreign Language]
[Interpreted] In the future, we'll 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.
Your next question comes from Maggie Ye with CLSA.
[Foreign Language] 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 celebrates its 5-year anniversary, can management share your latest thoughts on business strategy and plan for our overseas business?
[Foreign Language]
[Interpreted] We'll invite our Senior VP, Youqiao Duan, who is responsible for the overseas business to answer this question.
[Foreign Language]
[Interpreted] We started expanding into the overseas market in 2019 and have achieved initial success. In 2023, our overseas operations actually reached earlier 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.
[Foreign Language]
[Interpreted] 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 3 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's 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.
[Foreign Language]
[Interpreted] Regarding our local partnerships, we have already established deep connection and cooperation with -- 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.
[Foreign Language]
[Interpreted] 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.
Yes, this is based on the management account.
Correct. And then this is a very healthy trend that has developed over the past year.
Your next question comes from Thomas Chong with Jefferies.
[Foreign Language] 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?
[Foreign Language]
[Interpreted] 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 its competitiveness. We actually described this IP-based business model with a metaphor called eating a fish in multiple ways, which actually emphasized 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.
[Foreign Language]
[Interpreted] Our many years of focus producing original content, actually, the value of our company's IP assets has grown significantly. For instance, 2 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.
[Foreign Language]
[Interpreted] 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 behavior change in domestic offline commerce and cultural tourism sectors, where the premium 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 leveraged the IP from the recent hit drama title called The Strange Tale 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.
[Foreign Language]
[Interpreted] And this operating -- for the operational model, actually, we actually favor a light asset approach, which has a promising prospect for incremental revenue under limited cost.
[Foreign Language]
[Interpreted] 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.
[Foreign Language]
[Interpreted] In addition to what I just mentioned, the VR virtual 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 its users with a very comprehensive and engaged entertainment experience.
There are no further questions at this time. I'll now hand back to management for closing remarks.
Thank you, everyone, for participating in the call. And if you have further questions, please don't hesitate to contact us. Thank you.
Thank you. Bye-bye.
That does conclude our conference for today. Thank you for participating. You may now disconnect.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]