iQIYI, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the IETE third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask questions during the session, press star 1 on your telephone. I must advise you that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Investor Relations Director of IETE, Lei Zhang. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining ITE's third quarter 2020 earnings conference call. The company's results were released earlier today and available on the company's investor relations website at ir.ite.com. On the call today are Mr. Yu Gong, our founder, director, and CEO, Mr. Xiao Dong Wang, our CFO, and Mr. Xiang Huayan, senior vice president of our membership business. Mr. Gong will give a brief overview of our company's business operations and highlights, followed by Xiaozong, who will go through the financials and guidance. After their prepared remarks, Xianghua will join Mr. Gong and Xiaozong 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 United States Private Security Litigation Reform Act After saving with customized car insurance from Liberty Mutual, I customize everything. Like Marco's backpack.

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To differ materially from our current expectations, potential risks and uncertainties include but not limited to those applied in our public filings with the ITC. ITC does not undertake any obligations to update any forward-looking statement, except as required under applicable law. With that, I will now turn the call over to Mr. Gong. Please go ahead.

Good morning. As we all know, with the elevation of the COVID-19 epidemic in this abnormal year of 2020, we see both the users' behavior and the micro-economy gradually back to normal. Despite the negative impact in the first half of the year, the content production industry is trying to catch up. third and fourth quarters, we are taking a variety of measures to speed up this recovery process and prepare for next year's growth. Now, let's go through our business segments. First, I'll talk about our membership business. As of September 30, our total subscribers reached under 4.8 million, and the paying ratio reached 99.5%. Membership services revenue grew by 7% year over year to RMB 3.98 billion. Although total subscribers remained flat this quarter, the membership revenue still increased compared with last year. There are a few factors we observed regarding membership business trends. First, there was some lack of new content on our platform due to the content release delay and the new theoretical movies shortage. The fact that fewer new movies were released in cinemas this year accordingly affected the movie supply. As a result, we launched fewer movies in Q3 compared to the same period last year. In Q4, we expected some sequential rebound of new movie supply, although still not as much as Q4 last year. Specifically, we are very happy to see that one of the most expected movies this year, the 800, just started streaming on our platform from November 1st and became hit immediately. We impact more and more theoretical movies coming online gradually for our subscribers. Second, we see the users are spending more time on short form videos. However, we also notice that larger screens such as smart TV and the desktop box also become more popular. More users prefer watching the content on the large screen for better home entertainment experience. On our platform, the time spent on TV devices is growing for the past several years. And recently, total time spent on TV surpassed that on the mobile devices. Accordingly, we will take more initiative on large screens related to business and the developed monetization ability of them. We believe with appropriate operation tactics, larger screens can be an important monetization driver for us in the mid-long term. Lastly, the summer vacation this year was shorter than usual, which leads to softer traffic and a time span on our platform compared with last year. We believe the membership growth slowdown is temporary. As content is always the key to attract a subscriber, we have high confidence in our premium original content and in-house production capabilities. Most of our over 50 in-house studios will go into full production from the second half of next year. These studios are expected to largely improve both the originality and the diversification of content on our platform and ultimately drive continued growth in our membership business. In addition, we are targeting different user groups by focusing on diversified content categories. Considering the more diverse user needs and our last group members, we have invested in a variety of content protocols and already seen some great initial results. IT Meet the Delta, which features how episode suspense dramas have been watched by over 68 million subscribers as of the launch of its finale. We are happy to see that these shorter dramas are attracting new subscribers as strong as the longer series and with even better ROI. Also, we continue to inform more money transition models.

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We have provided early access to premium content for extra charge to our users and launched the premium video-on-demand mode for film movies. In addition, the S-Diamond membership, Xinzang Hu Yuan, a premium membership package with plenty of privileges and high charges as well received by a part of our users since launch. Looking ahead to the rest of the year, we expect there might be some uncertainties on our membership plan. Due to our recent pricing adjustment, as you may know, we just launched our new subscription pricing plan, which was effective on November 13. Moving over to advertising. Despite all of the recent macro halvings, the domestic advertising market is recovering, while the industry remains under pressure in the second half of the year. We are already seeing some positive signs. The successful launch of our hit content, including the Wrap of China 2020, the Big Bang 2, and all of the new serials in mid-September. Coupled with a gradual recovery of advertisers' confidence during the third quarter, both our brand ads and performance ads rebounded compared with the second quarter. Our brand ads revenue was recorded a sequential increase for two consecutive days. The sequential growth The sequential growth during the third quarter was mainly attributable to the increase in the number of advertisers. In terms of industry, the revenue increase was mainly from food and beverage, online games and transportation. Besides, education and consumer electronics recovered faster sequentially. During the quarter, we continue to innovate the advertising campaigns with our shelter. The shelter has had new ideas and provided templates for advertising across shelter areas. So far, we've already attracted Volkswagen and EV, and over 30 other advertisers have also joined. As a result, Mr. Shelter has generated decent advertising revenue in addition to work of months back. In the future, we plan to launch more shelters in categories such as romance and comedy, providing advertisers more choices. Moving on to the content. During the quarter, we accurately identified our users' demand for entertainment posters in pandemic and during the summer vacation, and released a number of hit dramas, variety shows, and animations with innovative schedules. While trying to establish our self-branded content vertical, the Mr. Filter was our first trail and achieved phenomenal success. We will continue to launch other different self-branded content verticals in the coming quarters. We believe the self-branded content verticals can raise our users' dignity to our platform, rather than just to a single title. As mentioned, under the Mr. Shelter banner, we have released a total of five high-quality shots this summer. namely The Bad Kids, Crescent River, The Long Night, Because of its high quality and widespread popularity, Mr. Seltzer has drawn global attention recently. The Bad Kids became the first Chinese drama serial to win the Best Creative Award and the second Asia Content Award in the 2020 Busan International Film Festival. In addition, reunion, the sound of the provenance season two, Chongqi Dongbi Ji Xie, rapidly broke the 9,500 mark on our content popularity index after its exclusive launch on our platform. Meanwhile, we also released a number of dramas that featured a scene of a female person growth story, including Love Yourself, 她其实没有那么爱你, My Unicorn Girl, 穿盔甲的少女, and Love is Sweet, 半食蜜糖半食商, to cater the demand of female users who are contributing most on drama VOE. Besides, another original drama, The Slander, 扑平行动, has recently been honored with Outstanding Television Serials and the third China TV Golden Eagle Award, Jin Yingjia, and the 26th Shanghai TV Festival Mongolia Award, Bai Yulanjia. For our top original varieties, such as The Big Bang Season 2, The Wrapper of China 2020, and Mr. Housework Season 2, 做家务的男人, aired and performed nicely during the quarter. Also shows catering the diversified user group, such as 夏日冲浪店. For athletic people, their little desk, 亲爱的巧克桌, for parents and let's party, 非日常派对, for fans of Go Idol 9 were also well-received during the quarter. In addition, our self-produced animations, including Are You OK? , and DL Squad, , were released during the quarter and have become quite popular among ACG fans and the children. For the fourth quarter, we plan to release more high-quality dramas, including My Best Friend's Story, You Jin Sui Yue, Del Missy, Spirit Reel, Ling Yu, and the Duke of the Mountain Deer, Lu Yun Ji. Upcoming key variety shows including Ha Ha Ha Ha Ha, 4Try Season 2, Chao Liu He Huo Ren, Xipa Talk Season 7, Xipa Shuo Qi, and Dimension Nova . In conclusion, despite the unprecedented and difficult situation we and many others are facing, we have made a considerable progress with a variety of operational initiatives. Mr. Felter has been a success In the future, we will continue to innovate and develop new production and operational strategies in running our business to achieve sustainable growth over the long term. With that, I'll turn it over to Xiaodong to talk about our measures.

I want to review our key financial highlights for the September quarter. Total revenue reached RMB 7.2 billion. Membership business continues to be our largest business pillar, with revenue up 7% year-over-year, accounting for 55% of our total revenue. Our deciding business recorded notable rebound with 16% increase on a 2-over-2 basis. Our cost of revenue decreased 22% year-over-year, mainly due to 34% year-over-year decline of the content cost. SG&A expenses were only up 1% year-over-year as a result. Our operating loss margin narrowed to 17% from 38% in the same period last year. As of September 30, 2020, the company had a cash-to-cash equivalent to a straight cash-to-short-term investment of RMB $7.4 billion. For detailed financial data, please refer to our press release on our website. For the first quarter of 2020, we expect total revenue to be between RMB 7.28 billion and RMB 7.73 billion, a decrease to 3% increase year-over-year. This forecast reflects IC current preliminary views subject to change. I will now open the floor for Q&A.

Operator, I think we can open the floor for the Q&A.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and with your name to be announced. If you wish to cancel a request, please press the pound or hash key. Please state your questions in Chinese first, then translate your questions to English. To give opportunity to others, please limit to one question each time.

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Your first question comes from... Your first question comes from Eddie Leung from Bank of America, Merrill Lynch. Please ask a question.

Good morning. So my question is about what Dr. Gong just mentioned about the potential uncertainty in the subscriber number after the price hike. So just wondering if you could add some color on that, whether we are seeing some weakness in the subscriber growth after the price hike. 我的問題是關於剛才聽到你們講在提價之後可能對這個 subscriber 這個付費用戶可能有一點影響 因為你們講到可能有一些 uncertainty 不確定性 所以想請請一下是我們最近的提價就看見 這個用戶數的一個增長有一個不一樣的趨勢還是怎麼樣 So I would like to hear your thoughts. Thank you.

We are on November 13th. The policy of price adjustment is effective. This time the policy of price adjustment is only for Android mobile phones. The price has been adjusted to the same price as Apple mobile phones. That is, the price of one month from RMB19.8 per month to RMB25 per month. from RMB$15 per month to RMB$19 per month. From the current data, because there were four days in the past, we got the time of the first three days, that is, on the fifth or sixth day of the week. From the point of view of new members, there is basically no big change. Of course, the price of Android mobile phones is rising. Because the data is too short, we can't explain the problem. But usually, we think that after a period of time, one or two seasons, there may be an increase or decrease in the number of users. But according to our analysis and the experience of other companies,

Our new pricing plan was effective on November 13. And this time, the pricing plan was targeted to the Android terminal, meaning that we increased the Android terminal price balance to the IPO or IOS terminals. That the monthly subscription fee has increased from 90 points 90.8 RMB to 25 RMB per month. And auto-renewable monthly fee comes from 50 RMB per month to 90 RMB per month. Now it's only four days since we launched our new pricing plan, meaning that last Friday and Saturday and Sunday that we have three days of the data It is not long, but so far all the data shows that not much of the change on the new subscriber increasing. And the single fee for the new subscribers, of course, has increased. And there's not much of time so that we cannot say that so far whether it is positive or negative. But based on the experience from our analysis before and also our peers' experience, we will see that maybe there will be some negative impact in the coming one or two quarters. But overall, in the long-term speaking, we think the negative impact will vanish and the user behavior will come back to normal. Thank you.

Thank you.

One point added that we all know that the main motivation the user has to attract them to subscribe is the exclusive premium content, which is based on our strong original content production abilities. So if you're looking at our pipeline forward, our pipeline is quite rich. So we do believe that our rich pipeline of the self-exclusive content released will definitely help us to mandate of our negative of the meal pricing plan in the long-term and mid-term speaking that our subscriber chance will back to normal. Thank you.

Thank you. Next question, please.

Once again, thank you. Once again, please state your questions in Chinese first, then translate your questions to English. Your next question comes from Yiben Zhang from City. Please ask your question.

Hello, Mr. Guo. Thank you for your question. I have a question for Mr. Tian. It's also a question about the price of our membership. Because I remember Mr. Gong Bo said that we had a margin of 20 yuan before. And this time, can you also talk about the price increase? There is a calculation method behind about 25%. And if we see the future, if we do some price review, what factors will we consider here? So I translate it into English. I'm asking on behalf of Nature. So the question is also regarding subscription price hike. So notice .com previously talked about the rationale behind the R&D 19.8 price set nine years ago. So can you talk about the rationale behind the 25% rise of the new price? And in the future, when we do the periodical review of the price, what sectors will you consider? Thank you.

Thank you for the question. And Mr. Gong thinks that it's more appropriate just for Mr. Yang Xianghua, who is in charge of our membership business, to answer the question.

Thank you.

So that's the evidence that we collected for this new pricing adjustment plan. The first is the user survey we launched and we executed. Actually, we executed this user survey from the second half of 2018.

that we collected the data on the user behavior and the user income chance and also the acceptance of the new pricing. And based on this, that we think that the new price of the auto renewal from the 15 to the 19 star B per month would be quite reasonable. Thank you.

Thank you.

Next question, please.

Thank you. Your next question comes from Thomas Cho from Jefferies. Please ask a question.

Hi, good morning. Thank you, management, for taking my questions. My question is about the advertising outlook. Can management comment about how we should think about the trend coming into 2021 And also with regard to any special events that we need to pay attention for next year. Thank you. 谢谢管理层接受我的提问。 我的问题是关于广告明年的增速的。 还有就是明年的话会不会有一些special events 我们要考虑进去了就是我们的战略的方向。 谢谢。

Because this year's COVID-19 pandemic has had a huge impact on brand advertising. IT's main advertising revenue comes from brand advertising, not the advertising that comes after. So next year will definitely have a better expectation than this year. Advertising is also a must, but we are still predicting the percentage of the increase in distance. Because this year's COVID-19 is very weak, it takes more time to predict.

I think that for this year, our brand advertisement is our main driver for advertising business that was quite significant impact by the pandemic. Of course, for next year, we think along with the pandemic is largely under control globally. that the outlook of the next year would be much better than this year. But based on this year, it's really abnormal and unprecedented. So it's like all of the systematic patterns that we can trace from this year's experience. So it will take more time for us to give the more accurate prediction of the next year.

Okay. Regarding the next year's strategy for IT, there are four important jobs. The first important job is also a very long-term job, which is the original content. It is concentrated in the following categories. The first is series. The second is a variety show. The third is animation. The fourth is... This animation includes children and adults. And the last one is a movie. This movie is... Uh, yeah. Yeah. Yeah. Yeah. Yeah. In addition to the distribution of content, we also need to improve the degree of automation, improve artificial intelligence, 5G, blockchain technology applications, and so on. This is mainly applied in terms of the application of the infrastructure, but also in terms of the distribution of content and content production. This is the second point. The third point is the so-called medium-sized products. After nearly a year of trial and error, we have clearly identified ZUIK's location, that is, video, interest, and community. In the ZUIK wonderful conference a few weeks ago, the creators and their fans had a meeting, and the atmosphere was very lively. We will clearly feel that our video interest community positioning is correct. And from the numbers, it is stable and stable. This is the growth of users. But the community needs a longer time to cultivate. The fourth point is overseas business. Because of the COVID-19, overseas business this year is limited due to business trips. The development speed is slower than expected, but we have also found the positioning of overseas businesses. With China, Japan, South Korea, Asia, especially the island of East Asia, plus the local content, then in many countries, the development business is now mainly in the Southeast Asian region. There are also some attempts in other regions. I would like to explain that the number of members we have announced does not include athletes, nor does it include foreign members. However, our number of foreign members is very small, so we did not disclose the exact number, because the total number of members is less than 1%. Because we also know that our industry has acquired an overseas OTT company. After data calculation, there may be more overseas business members in their data. Our own calculation may exceed 10 million. Thank you.

We think that there are four factors that drive our business. The first one is definitely the original content production abilities. For the next year and even more in the future, we will focus on the drama series production, variety show, and animation, including animation for adults and animation for kids. And also the movies. The movies we talk about is not only internet movies, but also the theatrical movies, which the budget is higher. And also how to drive this development of the content production ability that we are going to take measures to increase our self-studio productionality and numbers. We also will improve our cooperation with our content partners. And secondly, that we will invest more on the technology and executed applied new technology on the content distribution and also the content production. We will leverage the 5G artificial intelligence and even the blockchain technologies into our content production and distribution process. And the third one is that we definitely will develop and invest more on our mid-form video platform Seike. So that after one year trial of Seike, we find out the business position of our Seike platform that it is that we will build up a video interest community for the video creators and fans that a few weeks before that we have held a Seike event that gathered around the creators and fans that was quite received very well. by our fans and customers. That also further strength our confidence to build up our video interest community. And the fourth one is definitely that we will develop our overseas business. And with that, the content for the overseas business is definitely to be focused on the Asian-oriented content, which including that the Chinese content and Korean content and the Japanese content and so on. and the overseas business will be based on the Southeast Asian and maybe explore globally. And so just for the overseas membership, to be emphasized that the subscriber numbers that we announced does not include our sports members, but definitely include our business overseas members. Overseas members is not as much to mention as compared to our domestic members number. It is less than 1% of our overall subscriber numbers. But all of our overseas subscription members comes from the organic growth and driven by our Asian-oriented content we released. And we think that it is our approach to drive this as subscribers organically and not as unlike as our peers to improve the subscriber numbers and take the expressive and extreme members such as acquisition and just to increase the subscriber numbers quite rapidly. Thank you. Next question, please.

Once again, please state your questions in Chinese first, then in English. Your next question comes from Gary Yu from Morgan Stanley. Please ask your question.

or in the number of users or market share, we can see a change in the number of membership users in the next few years. The second question is, we also see Baidu has just acquired YY, a Chinese business. I would like to hear if the management team thinks there is any special co-efficiency with IT in this regard? Thank you. I have two questions. The first question is related to competition. So after a recent announcement of price changes, do we expect our competitors or other players in the market to and how should we look at membership versus market share ? And that question relates to the recent announcement of Baidu on acquisition of YY Domestic Business, and how should we look at the potential synergy with IT business? Thank you.

As for other companies' pricing policies, we don't know. Their plans are not easy to evaluate. But from the perspective of the entire industry development trend, China's online video market, the cost of content and the price of members are extremely unreasonable. At the last financial conference, I have already said that the current price was confirmed nine years ago, but the rise in prices, the rise in content costs, and other factors, the price has not changed in the past nine years. So this situation is unreasonable. So from the perspective of the entire industry, this price must be adjusted. Second, regarding the acquisition of Baidu, from a business logic point of view, it may be that the business with IT is relatively distant and has no obvious direct impact on us. Thank you.

For the pricing plan for our peers that we don't know, we have no idea about their plans, about their pricing plan. But we also not in the position to provide any predictions on other peers, their plans. But based on the overview of the whole industry, Clearly, as I mentioned from our last earnings call, that after nine years, the original price, the subscription fee, there's a big gap between the content supply cost and the subscription fee in China. So we think that it's quite unreasonable to keep the situation as it used to be. So they're looking at the overall industry. We think that the adjusted pricing plan is quite reasonable for our business. And for the second question, that regarding the business acquisition from Baidu, we think that the wildlife business is quite different from our business, from its nature. So that is no direct or significant influence on IT. Thank you.

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Next question, please.

Thank you. Your next question comes from Alexia from Credit Suisse. Please ask your question.

Good morning. Thank you for giving me the opportunity. I have two questions. The first question is about the cost of content. We can see that the cost of content of this system is still decreasing. I would like to ask you about the future of the cost of content of several systems. Thank you, Nelson, for taking my questions. My first question was about content cost. So the content cost Just a quick quarter-over-quarter. What's your view on the outlook of accounting costs in the next quarters? And the second question is about the Leased Theater. So you mentioned the Leased Theater series received quite good feedback from customers. So what's the impact on the subscriber growth for Leased Theater? And how do you compare the ROI with previous original dramas and original variety shows. Thank you.

The first reason is related to the impact of COVID-19 on production. The second reason is due to the need for content review. Because of the need for content review, some content is delayed. This is the first reason. The second reason is that if you remember clearly, in August 2018, the price of the entire industry began to drop. That's it. I mean, he can't be. I mean, he can't be. I mean, he can't be. I mean, he can't be. But these high-priced dramas are basically sold out. So this is the second important reason for the decline in content. From a long-term point of view, there are some accidental reasons for the decline in content. There are also some trend reasons. But from a long-term point of view, it will not continue to decline significantly. It should be in a fluctuating state.

So there are two reasons behind the content cost decreasing for the recent 102 quarters. The first one is simply that the content release delay caused by the first pandemic influence, and the second one is lead time for the regulation audit. So the second one is that the the Thai toast we purchased only at the high end on the first half of the 2018 are gradually released. That's from the 2018 and to the second half of the 2019 and even the first half of this year. So after that, they gradually release on the high price of the Thai toast and that's the content cost is also gradually decreasing from this year. In a long-term speaking, we don't think that it will be sharp decrease on the content cost, but it may have the fluctuation for the content cost-wise. Thank you. 关于剧场的影响是这样,就是迷雾剧场是12集一剧的,我们叫短剧组成的。

This kind of short drama is a supplement to the original Chinese series drama market. It is not a substitute, it is a supplement. Chinese TV dramas are originally very long, mainly for many reasons. There are two important reasons. One is that Chinese TV stations are all free, relying on advertising income, accounting for most of the income. So the longer a drama is, the more ads it creates. Theoretically, its advertising revenue should be more. Second, the production and platform of Chinese TV shows is measured by the amount of money per episode. So the more episodes, the higher the total revenue for the production team. So they tend to make the show longer and longer. For example, in 2009, every Chinese TV series had an average of 35 episodes. In 2018, the number of episodes has increased to 45 episodes. The number of episodes has increased to 10 episodes. However, the advertising revenue of our current website is ranked second. The first one is the number of members. Therefore, high-quality content, attracting new members, or keeping old members is our goal. China China China China China

Our theater consists of five theories of the 12-episode short drama. While we call it short, you have to look at the experience of our old television period of the drama series. It used to be long episodes, meaning the average episode for each title increased from 38 to 45 per title. It is because, first, the television, their revenue was driving by the advertising. The advertising is driving by the user time. So the longer there are, the television station will derive more money. And of course, the content producers, they are also intentionally to produce dramas to be longer, to also earn more money, because their trading pattern is based on the cost per episode. The more episodes they produce, the more money you earn. It's quite different for the internet platform like us, So we are key on the subscription business that our main driver and more attraction to our users is our content. And we derived our subscription mantle from the user attraction and the stickiness. that also considering the tight schedule of the modern people, they have less time on the entertainment and they make much more favor on the short dramas. It's maybe only 12 episodes for this month that they feel verified and attracted by the one title, and the next month they will find new drama titles that is quite interesting to them. They will also keep their subscription service on. So that is my driver for us. And so if we will develop more shock dramas with the total cost is quite low, but with quite our list of much better ROI, that is very wise strategy for us. So we definitely will produce more shock dramas. Got it.

Thank you. Next question.

Thank you.

Your next question comes from Zhijing Liu from UBS. Please ask your question.

My question is, as we see that the focus media has seen some very good recovery in the past two quarters, so can we see that blinded advertising is still very attractive for many advertisers? Thank you.

As for the brand advertising method for the domestic internet platform, the first one is the content target. Advertising is targeted to the one single specific content.

Because of the pandemic, the content released, some of the content released were delayed, and definitely that influenced our brand advertising. And also another one is auto-distributed. But considering that the content delay is quite recovering after the pandemic is controlled, and also that our advertising supply is quite abandoned, So we keep very positive on the trend and outlook for our brand of the housing. Thank you.

Thank you.

Next question, please.

Your next question comes from Bo Pei from Oppenheimer. Please ask your question.

Good morning, Manager Chen. Thank you for accepting my question. Then I have two questions I want to ask. The first one is that we just mentioned in the Preparation Remark that there are more and more users on the short video platform now. They don't just watch short videos, they sometimes watch this long video clip or movie. I want to ask, from our point of view, they can help us promote, but on the other hand, they have left some users who may have become our paid members. Is the overall impact good or bad? And how do we deal with the copyright issue and the short-stream platform? Are there any relevant regulations? In addition, I want to ask, We now have more and more of this theater mode, including this short drama, 12-level short drama, and now the mud theater, including the future to go on this field insect theater, and some other new theater. I would like to ask, in the long term, our short drama mode can stand up to our kind of continuous drama ratio, what kind of situation can stand up to, and then if it can reach this ratio, does it mean that our content production cost can be reduced further because And then I'll translate for myself. So first question on the short video platforms. We noticed there are many people watching dramas and movies on short video platforms now. And I was just wondering, what is the net impact on us? Because on one side, they serve as a promotional channel, but on the other side, they actually attract some potential paying users for us? And then so on a net basis, is this impact good or bad for us? And is there any licensing views or how do we handle the copyright on short video platforms? And then the second question is about our theater model. So in the long term, what percentage of drummers can come from these theater models? And then does that mean if we achieve this percentage, does it mean we can further lower our content cost even if the total number of episodes will decrease? Thank you very much.

There is a lot of the clicks of the long-form videos on the short-form video platform. It has a huge negative impact on the long-form video platform. We are imposing legal actions and negotiations with the short-form videos. And also, yes, there are some positive impacts such as the attraction of new users, like you said. But overall, we think that the negative impact definitely supports the positive ones. Thank you.

I mentioned the advantages of short-term dramas. I would like to mention the advantages of the theater. Because in the past, after a drama's brand was released, it gradually became cold. And then the next new play, the play that was broadcast before, the impact of the next play, the positive impact, the audience today, and so on, this kind of impact is very small. But with the theater, the audience cares more about the theater. For example, the first part of the maze theater, we broadcast the game, the second part, the maze corner. So when the third part is broadcast, the audience is extremely concerned about all the plays that are broadcast in the maze theater. So in terms of marketing costs, It has been greatly reduced in many ways, and the number of users has been accumulated in the theater, rather than in each play. This theater belongs to the platform, so its value is very high. For the future, we hope that the value of the members will be half for long-term and short-term plays, or maybe half for each play. However, the number of views and short-term plays will definitely be lower Yes, so that's the after thing about the very good things about the short form, short episode drama. I want to talk about advantages of the theater.

So that's normally that after a title was fully released, that the audience passion will also go away with that. But with the theater, as our paying users, our audience, that will key more on the theater. And the only users accumulated and was attracted and sticked to the theater, not just to address the single title. In another word, they will stick to our platform instead. So that we will see that the theater definitely is a very good way for us to maintain our paying users. In the future, I think that roughly speaking, we may have half and half between the short episodes to dramas, to long dramas. And of course, the waiting time of the long dramas will be longer. So we are seeing that right now that the average waiting times per title is dropping down on our platform recently because of the short dramas. But definitely that the short drama is the right way approach to improve both the monetization and the user's dignity to our platform.

Thank you.

Thank you very much. Operator, I think that's enough for today. No? Okay, it's okay that we don't have another question. That's the last one.

Thank you. Our final question comes from Binnie Wong from HSBC. Please ask a question.

Hi, Dr. Gong, Dr. Wang, good morning. There are two questions I would like to ask. As we can see in the news, they say that in the next three years, from the spending of the content, they will also double the investment of 100 billion yuan in the next three years. Compared to the last three years, it was 510 billion yuan. So we want to understand How will the investment in content affect you? Will it have a certain impact on your investment in content? Next, I would like to hear about how small is the proportion of our financial content and our outsourcing content? And what is my future goal? The last thing I would like to ask is about advertising. Although our advertising may be a little slow this quarter, But we see that in the past three seasons, there has been a lot of decline. But we see, for example, on the side of Tencent, its media advertising has actually started to go more flat, from a double-digit. So, I would like to ask, we are at a time point, should we see that the trend in the advertising industry has started to improve? So, our outlook can be used as a reference to see. So, just quickly translate. So, I guess the first question here is that if you look at the content spent, right? Tencent has announced that in the next 3 years, they are going to step up to 100 billion in the next 3 years versus 50 billion in the last 3 years in terms of content spent. So, how does this affect our IT content strategy? And then in terms of the mix, versus like in the split in terms of self-production, licensing. How do we see the split now? And then what is our optimal structure? Can you remind us that? And then very lastly, it's just that on the advertising growth, it's still on a double-digit decline. But then if we look at, say, Tencent, the media advertising, in terms of the magnitude of that decline has narrowed down from a double-digit in the last several quarters down to almost like a flat-ish type of growth. It's only down like 1%. I just want to understand is it just a matter of timing for iQIYI and then down the road we should probably be able to see a better advertising growth or there's something structural in our advertising business that we should be reminded of. Thank you, management.

Thank you. Regarding the content investment, content investment is definitely the biggest investment for iQIYI. Through 2019, 2020, and the IT investment that has been announced, we can estimate that in the next three years, or in the next few years, you can easily see the total amount. Because we are now in a press conference, not a conference for news reporters or netizens. So I can't simply say, for example, a thousand yuan coin, use this kind of news story description to describe a story. So I think everyone is very professional. In addition, you should know the approximate investment. The gap is not too big. In the long term, content creation will definitely be higher and higher. Now the proportion of specific content creation is very different depending on the category. For example, almost all of the investment in variety shows is in self-produced variety shows. The proportion of purchasing variety shows is very low. As for the amount of contracts, the amount of contracts is more than half, not only more than half. Most of them are self-proclaimed contracts, and a few of them are digital copyrights. Of course, the digital copyrights released this year are still not low in terms of content cost. The film industry is relatively small. Now, the film industry mainly focuses on avant-garde films. There are very few self-produced films. We have only released one self-produced film this year. There is a certain distance between the best avant-garde films and the best self-produced films. Of course, there are different categories of films.

Yes, when talking about the total content spending, it definitely will be our main and the biggest investment in the coming years. If you look at it in the coming three years, you can easily calculate it based on the spending for our past experiences. So today is the earnings call. It's not a news press or that we can tell the stories like the millions or the billions of the spending. This is not a news story. So I think that we really want to remember we should look at the spending for the past few years. It will not much of a big change. And we will take about the ratio between original content or where should the licensed content In general speaking, we definitely see the trend on the increasing for our original content. If you talk about the detail ratios, that is quite different based on the content categories. You look at the variety shows that almost most of the content cost goes to the original variety shows and our self-produced ones. And if you look at the dramas, if you look at the contracts or that the future titles we are about to produce or are producing, that over half are original content. But if you look at the release time of this year, the license content cost may be higher. And if you talk about the movies, that definitely that almost all the movies, the theatrical movies or the licensed movies are still take the lead. And for this year, we only launched the one self-produced movies and also the quality and the investment scale is still have a distance to the mainstream movies. Thank you.

Our team used our advertising team to make a comparison between this type of advertising and the comparable advertising in the same industry. The numbers given by our team are slightly higher than the growth rate in the same industry. Although the gap is not very big, it is still a little higher. In short, this year's advertising industry We did some internal analysis or research about our advertisers and our peers' advertisers that we think is comparable to our business.

And we see a bit higher or better recovery of our advertiser business. And for the overall industries, we think that the worst time has already passed. And definitely this year is quite tough. And we think that it will get better. Thank you.

Thank you.

Thank you. I think that is all for us today.

Thank you. Ladies and gentlemen, we have reached the end of our conference call. Thank you for participating. You may all disconnect.

Thank you very much. Have a good day. Bye-bye.