MEDIA MASTERMIND KEYNOTE - DR. GONG YU, FOUNDER & CEO, IQIYI - MIPCOM 2018

Good afternoon, ladies and gentlemen. I'm co-founder and CEO of iQIYI, an internet video streaming and entertainment service in China. Today I'm going to talk about how technology is transforming the entertainment industry. Traditional entertainment covers TVs, newspapers, movie theaters, and so on. Online entertainment includes online video streaming, online gaming, online music, online comics, online literature, online broadcasting, etc., all of which can be digitally stored, transformed, and played on the internet. The entertainment formats between online and offline are O2O, or online to offline. For example, in China, over 80% of movie tickets are sold over the internet. O2O services can still function offline, for example, audiences can still buy movie tickets from ticket offices. However, OMO cannot function on just the online or offline basis. Our long technology in the past three years and the innovation of AI technology in the past five years have greatly enriched the content environment. In the meantime, technological innovations make interaction between humans and machines more effective and powerful. Monthly subscription fees and pay-per-view mode are key. Additionally, technological innovations allow machines to accurately deliver personalized content to users more effectively. The online entertainment players are all competing for users' time. In China, people spend the most time per month on communications apps, closely followed by online videos. The third most used app category is utilities. China resembles an oligopoly market. iQIYI, the leading online video service, and the other two players have over 80% of the total market share, and this continues to grow. Like the TV market in the US, the online video industry will not become a one-player market because content producers and advertisers will not favor a market with only one online content distribution platform. On the other hand, there is a large diversity of content. The market is more fragmented, and many providers will not survive the high costs of content, technology, and user base. For online video providers, revenues are mainly generated from advertisement and membership services, both of which are highly reliant on premium content. Currently, most premium content is licensed content. In the future, more and more premium content will come from original content. Original content has three key benefits: one, more differentiated content offering among competitors; two, production of original content can facilitate a more natural viewing experience; three, original content also has long-term value as it can be broadcasted and monetized in multiple periods over its lifetime. We can generate revenues from subscription fees in the first window and from advertising in the second window for all users. During the serving, we can cover the content cost and convert the account to paying content to return the investment. From 2016 to 2018, the market grew from $403 billion to $18 billion, implying a CAGR of 18%. User behavior will continue to change with online and offline marketing. Online entertainment penetration as a percentage of China's total entertainment industry is expected to grow from 15% in 2016 to 25% by 2022. More people are migrating to online entertainment. The ratio of paying users is expected to reach 40% in 2020, nearly tripling that in 2016. We believe iQIYI is well-positioned to capture more of this huge entertainment market. Firstly, iQIYI has already achieved a leading position in this market with a vast content library and continuous production of blockbuster content, faster content acquisition, and efficient investment in content. Secondly, iQIYI is well-positioned with China's overall entertainment industry. Online video has the most expressive form among other entertainment forms such as music and pictures. It has high distribution efficiency compared to other formats such as TV and radio, and its market is increasingly owned by only a few players, giving economies of scale and entry barriers. Technology-based entertainment brings fun and enjoyment to people and their families. Since its launch in 2010, iQIYI has actively promoted innovations in products, technologies, content, and marketing to provide Chinese users with a rich, diverse, smooth, and high-definition video streaming experience. According to third-party reports, iQIYI is the number one internet video streaming service in China in terms of monthly active users on mobile apps, with over 300 million MAUs. Now, let's turn to the business model. We have a model similar to Netflix plus a powerful IT platform driven by technology. It is the foundation on which we deliver high-quality content. It has three major functions: firstly, it supports video coding; secondly, professional and high-quality content providers can distribute their content effectively and monetize their offerings sooner. We offer a massive content library consisting mainly of video content. At the top of the pyramid is our premium content such as box office movies or high-quality dramas released in the first window. This type of content is primarily the driver of user engagement. We have a massive user base with tremendous user engagement who view video content from various ways. We cross-sell these users with other types of content and services. We also offer an abundance of non-video services for them to enjoy, including online literature, online games, live broadcasting, online comics, light novels, online movie ticket purchases, and iQIYI's IP ecosystem. This illustrates our IP development chain. We primarily develop IPs from novels, comics, or light novels into drama series, variety shows, and movies, and then sublicense them into other manifestations such as commercial products, services, and games. In addition to licensing content, we also adapt certain games into dramas or movies, or adapt original video content back into other forms. Talents are equal in importance. The way of working, even though our characters might be different due to the nature of their work, their stress might be applicable only to their work. However, with inclusivity and mutual respect, our corporate culture combines creative talent with technology, fostering an environment for continuous innovation and the production of blockbuster content. iQIYI always places great importance on producing original content and has established a track record of releasing shows and movies. Please play the video.

More fun and fulfilling dreams for our consumers. Thank you.

We have developed a diversified monetization model to capture multiple opportunities in the online entertainment industry in China. We generate revenues through membership services, online advertising, and a suite of IP-related monetization measures including talent agency, virtual tipping, and more. Over the years, the Internet has transformed the entertainment industry. Traditionally, a media brand or company serves one type of viewer, but nowadays an internet platform collects large amounts of information to serve a large user base. Users can easily find the content they want by searching and browsing. In the AI-enabled era, it's as if each user has a smart personal assistant that provides personalized recommendations and even bespoke content using machine learning. AI can do much more than the internet did over the past three decades. AI technology can be applied to many aspects of the online video industry, including content production, content creation, content distribution, viewing, monetization, and customer service. The entertainment industry is one full of imagination because of the widespread use of the internet. The online entertainment industry is full of opportunities. Thank you very much.

The AI that you are aware of maybe includes AlphaGo, robots, or autonomous driving. However, in the context of entertainment, we call it iQIYI AI. iQIYI AI is a powerful risk calculator for producers. It leverages multi-dimensional machine learning to evaluate the commercial value of a screenplay. iQIYI AI serves as a casting consultant for directors. It analyzes actors and character roles, assigning tags across emotion and behavior to allow editors to work more effectively. AI automatically recognizes exciting shots and produces a large number of video clips every day. iQIYI AI is an accurate predictor of online views and box office, assisting with marketing plans and content acquisition. iQIYI AI is the guardian of IP. It identifies audio and video fingerprints to establish a copyright database in order to filter out and warn against unauthorized content. It also helps reduce user interruption rates. iQIYI AI creates the coolest viewing experience. iQIYI AI instantly gives users what they want with smoother, higher-definition streaming. iQIYI AI is increasingly being applied in the entertainment realm and is poised to revolutionize the entertainment experience for everyone in ways faster than one can imagine. More joy and better entertainment with iQIYI AI.