iQIYI, Inc.

Thank you all for standing by and welcome to the ITE first quarter 2022 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 a question at that time, you will need to press star one on your telephone. I would now like to hand the conference over to IR director, Mrs. Chang Yu. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining ITE's first quarter 2022 earnings conference call. The company's results were released today and are 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. Tian Wang, our CFO, Mr. Xia Hui Wang, our CCO, Chief Content Officer, Mr. Wenfeng Liu, our CTO, Chief Technology Officer, Ms. Vivian Wang, our CMO, Chief Marketing Officer, Mr. Youqiao Duan, Senior Vice President of our Membership Service Business, and our 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, Xiaohui, Wenfeng, Vivian, Youqiao, Xianghua will join Mr. Gong and Jun 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 limited to, those outlined in our public filings with the SEC. ITE does not undertake any obligation 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.

Hello, everyone. We recorded quarterly non-GAAP operating profit for the very first time. This demonstrates the effectiveness of our new strategy and execution. Last quarter, we announced that our goals for this year are to reach non-GAAP operating breakeven for the full year of 2022, and to reach quarterly non-GAAP operating breakeven as early as possible. I'm very pleased to see our performance exceeded our goals. What are the driving forces on our path to profit? I will name four. First, the preeminent content, the debut of new content such as top-notch dramas solidified our market leadership and lead to healthy growth of both subscriber base and arms. The influence of these new dramas was further elevated through our creative content marketing strategy. Meanwhile, the library content also played a crucial role. We used effective operations to drive traffic to our extensive library content and enhance the user's dignity. refine our operations on content scheduling and promotion. Thirdly, increasing operation efficiency, which means delivering superior services based on an effective cost and expense control. Lastly, driving our sales performance through various initiatives to boost our monetization, our membership, and ourselves. With these four aspects, profitability is a natural result. Therefore, we believe the performance in the first quarter is replicable as we continue to execute this operational methodology in the future quarters. On premium content, we are confident about our future pipeline. On efficiency management, we will continue to focus on driving efficiency by leveraging the power of technology while maintaining the current lean corporate structure. By using the same methodologies, we will continue to achieve desired results in the future. Now let's go through the performance of our business segments in the first quarter of 2022. Let's start with memberships. For the first quarter, we continued to deliver a solid membership performance. Membership revenue was RMB 4.5 billion, up 4% annually and 9% sequentially. The average daily number of total subscribing members for Q1 was 101.4 million, a net addition of 4.4 million from the previous quarter. A monthly arm was RMB 14.69 during the quarter, up 8% annually and 4% sequentially. Q1 was the fifth consecutive quarter that we achieved 8% or above annual growth. Our premium new content and our extensive library content were the main drivers behind our positive performance. Our values for memberships, for members translate into high higher member acquisition, retention, and arm. We expect to see solid membership revenue growth on year-over-year basis for the quarters down the road. Content is king. Among the new releases during the first quarter, a lifelong journey, Ren Shijian, under the skin, Liezui Tujian, Life is a long, quiet river. Xinju, we are the out-putters, we are the out-performers. A lifelong journey becomes a blockbuster acclaimed by the whole nation, loved by the audience across all age groups and backgrounds. It tells a story of China's transformation in the past 50 years from the perspective of ordinary people. We are happy to see a lifelong journey was able to achieve world of month popularity, social value, and commercial success. It also shows our deep understanding of the industry and the ability to balance our social obligation and user appetite. Under the scheme is a detective drama focusing on social issues. It has become a dark house in the market with very high user-sickness. Life is a long, quiet river. An original drama that portrayed the daily life and the stories of Shanghai urban families also performed very well in terms of traffic and revenue. Its popularity index exceeded 9,200 MSPs. In addition, we are also seeing some of the long-term effect of premium content as they continue to generate solid view shape after serials. One of the key strategies with popular IPs is serializing production, the original live comedy, Vocation of Love Season 2, Jia Zhi Nuo Yang Yang Er, is an example of multi-season approach in which we develop new plot lines for additional seasons of our popular content. The drama Shining for One Thing, Yi Shan Yi Shan Liang Qing Xing, also become a dark house and set a new record for revenue sharing drama on our platform. To better connect with users, we also created a distinctive brand for our featured vertical content categories, namely ITCelta. In the first quarter, we launched our third vertical content filter, laugh-on filter, focusing on comedy in general. Two titles were launched in Q1, and the third title to be released soon. These comedies are good leisure and entertainment tries, and provide users a new outlet to relieve daily pressures. Now, with Meet the Shelter, Sweet Home Shelter, and Love Home Shelter, our platform successfully covered the three most loved genres by all co-users, namely suspense, romance, and comedy. Going forward, we will continue to explore other content genres and IT shelters that bring targeted and diversified experiences to users. In summary, we attract users through streaming new releases and retain users through our extensive and diversified library content. We employ various operational initiatives to increase user loyalty and brand awareness. All of this will contribute to our solid base of subscribers and lay a good foundation for future growth. We are pleased to see the value we have provided to our users was widely recognized, which translated to great monetization capability. Moving on to content, after explaining how we achieved our first quarter success, next, how do we replicate our success in the future? We focus on a systematic approach in building our content business from production to operations. Our goal is under the promise of Materia IT's overall competitiveness and leadership, which means we will acquire the most appropriate content with optimal ROI. maximize monetization with reasonable number of titles. As we continue to enhance our in-house production capabilities, enrich our premium content inventory, and refine our content operations, we will be able to expand our advantage as an integrated platform and improve our overall efficiency across various aspects. including content production, content scaling, and promotion. Meanwhile, we utilize technology to further improve our production capability and increase our efficiency. Investment in content is our biggest organizational focus. We make it the key Achieving our goal of optimizing cost and efficiency, we have placed strategic control over the full content production process. From script development, pre-production, to shorting and post-production, we also emphasize efficiency in content production, content release, and the funding utilization. As for our content reserve, we have dedicated ourselves in building our original content offering and enhancing production capability in the past few years. We have established one of the largest and the most professional team of producers in the industry. We also want to highlight that despite the recent resurgence of the COVID in some regions in China. We are relatively comfortable with our content reserve, especially in the core drama category, as we have a diversified pipeline of dramas for this year. Benefited from our solid reserve of original content and the experiences gained from operating under COVID in the past two years. Therefore, we currently expect to see limited impact from COVID in our future drama pipelines. Looking ahead to the second quarter and the full year 2022, our key focus is to improve the overall content quality. We will continue to introduce premium content to our users, increase the quality of our offering and leverage the platform's advantage to build IT content ecosystem. Meanwhile, we will both enforce our brand awareness, so making multi-season production for our launch areas and utilize our successful sales model to enforce our advantage in some vertical genres. Benefiting from our rich content reserve, we will be able to launch a series of titles in the second quarter. For drummers, the key titles we have released in Q2 include Left Light, My Sensitive Princess, The Wind Flows from Feng Xie Lu Xi and Daybreaker, A Ye Xing Zhe, all have been well received by users. For the rest of the second quarter, key dramas to be released include highly anticipated original titles, Love Never Lost, Ren Sheng Guo Ru Fu Jian, and Ordinary Way, Greatness, Jing Cha Rong Yu, The Lord of Losers, Po Shi Jing Ying, the third drama, and Laugh-On Theater will also be premiered. For this year's Speed on Theater, five new series will be launched. For variety shows, we will launch the second season for last year's hit show, The Detective Adventures. For animation and children's content, we will continue to launch new titles multi-season strategy, also we have prepared a rich and diversified slate of premium content for this year's summer season, covering all major genres that target different user cohorts. We continue to produce and release or in the movie to enrich our company ecosystem. Men on the Edge was released in theaters on April 15, and its cumulative box office was surpassed RMB 130 million. On April 1, we upgraded the online film distribution collaboration model with our partners. The revenue sharing model is now based on the user viewing time instead of views in the past. Promotional profits will be allocated based on the audience participation and content performance, such as viewing time, membership conversion rates, and user views. The new model enables high-quality films to stand out and may significantly improve our operational efficiency, providing a win-win solution for both producers and our platform. Now, I'd like to quickly talk about our progress in IP development. Premium content also translates into additional monetization opportunities As we continue to push our strategy of building our IP franchise and increasing monetization comparability, in last December, we launched the first title of the IT Chinese Historic City Universe franchise, Fengxi Luoyang. We have signed with over 20 partners to franchise this popular IP in various formats, such as twice. jewelry, apparel, food, and beverages. Moving on to advertising. For Q1, the total advertising revenue declined both annually and sequentially due to the current micro-havings. The software ad demand negatively impacted our brand ad business to some extent. Despite the challenging micro-environment, premium content contributed to drawing strong attraction from advertisers. For example, Lifelong Journey and Life is a Long, Quiet River both had very good advertising performance. The drama Lifelong Journey itself attracted 25 advertisers to our platform. For Q1, The sequential growth of our performance ad business was benefited by our growth in ad inventory, but partially offset by the weak microenvironment. IT light was contributing to the increase in ad inventory. As monthly average, DAOs reached 5 million in Q1 and surpassed 5 million starting in April. given the major manifestation methods for IT light, its performance as it effectively supplemented our ad inventory and mitigated the adverse impact of the macro environment. In Q1, we upgraded our ad placement platform, which was widely adopted by advertisers. The new version is more user-friendly and increased monetization efficiency by nearly 20% compared to the previous version. The upgraded ad placement platform helped advertisers to cover more ad slots, get more exposure for their products, and improve ROI by leveraging smart algorithms. Moving on to technology. Technology is fundamental to support our development. We continue to use AI technology to improve content production efficiency and promote the industrialization of online video industry. Technology helps us to optimize cost, promote information security and copyright protection, and improve the entertainment experience of users. In the first quarter, our proprietary AI-dubbing technology IQ dubbing was widely used in our film offerings. For our movie channel, more than 20 foreign movies used this technology to complete dubbing in Mandarin before launching on our platform, saving costs while increasing revenues for both new and elaborate films. was also used in our overseas business. For example, we launched a new field in Thailand using IQ dubbing that received a very strong user feedback and generated strong revenue performance. AI dubbing is effective in optimizing costs and driving revenue for long-tail content. The technology also safeguards our system architecture and provides data security and enables anti-piracy protection of our platform. In the culture of proprietary digital rights management solution completed in the Funcom Security Audit which is recognized worldwide as an intense measure of solution ability to protect premium content. So far, we are the only domestic streaming platform in mainland China that has completed such certification reflecting our strong ability in digital media security protection. Moving on to new business, we are also exploring growth opportunities from new business initiatives, we are delighted to see a continuous strong momentum for our overseas business and IT light. For our overseas business, driven by our continued efforts in enhanced products and user experience, the membership revenue and the advertising revenue for our overseas business both recorded solid annual growth during the first quarter. iQ-Lite is a great supplement to our main iQ app and continues to achieve strong performance across various operating metrics in the quarter. ITLite is mainly focused on the performance head monetization model, which is significantly different from the subscription center monetization model of our main app. Overall, the user demographics, monetization model, and content consumption behaviors on ITLite are largely different from our main app. The user overlap between ITLite and the main app further declined in the quarter. The DAU overlap was only around 4% in March. Meanwhile, we observed that the consumption of library content on ITLite was significantly higher than the main app, largely enhanced the realization of long-term We believe ITLite was ample potential for growth in both user scale and monetization abilities. In summary, Q1 was a brief strong quarter for the company. We delivered what we had promised, reaching non-GAF operating profit earlier than anticipated. outstanding execution, professionalism, and strong unity of everyone within IT. The encouraging first quarter results also demonstrated that the long-form video industry can generate sustainable operating profits. We have a clear value proposition for our users. Not only that, we offer the latest premium content available in the market. We also have an extensive and diversified content library that our user can find his or her favorite. This value proposition is unique, and the happiness we offer to users far exceeds exceeds the price we demand. Looking forward, the pandemic situation in Shanghai and Beijing do create additional challenges, and the time for full recovery remains unknown as of today, which could impact our Q2 performance. Regardless, we still strive to deliver another quarter of non-GAAP operating breakeven after the first quarter's success. We would like to wrap up by thanking all our stakeholders, including our shareholders, business partners, and employees who share our belief in the positive prospect of long-term revenue. We understand that many of our stakeholders follow our business development closely and pay close attention on areas such as whether blockbuster content can be delivered every quarter, or if our business would be impacted by some short-term market headwinds. Honestly, we would not worry about What will change? We focus on what will not change in the next five years or ten years. And we will invest heavily into these areas to meet user demands. That is, processing a collection of highly differential premium content and a highly effective platform that delivers sustainable value to our users. Meanwhile, we will continue to seek new opportunities from innovation and expand our values in the ever-changing market. With that, I'll hand over to Wang Jun to go through our financials. Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang Jun Wang

Now, let me walk you through our key financials for the first quarter, 2022. Starting with the revenues, in first quarter, our total revenues reached RMB 7.3 billion. We focused healthy growth on our membership services with RMB 4.5 billion, which was our largest revenue contributor. Our membership services revenue increased by 4% annually, and 9% sequentially, primarily driven by ARM, or average revenue per membership, which achieved a positive annual growth for nine quarters in a row. And our subscriber base also grew by 4.4 million, as our premium show attracted more paying members. The solid performance of membership services was partially offset by the relatively weaker advertising services revenue due to macro Halloween. Now move to the cost and expenses. The first quarter cost of revenue was RMB 6 billion representing a cost saving of RMB 1.1 billion compared with the same period last year. This leads to consistent gross margin expansion in the past three quarters from 7% in third quarter 2021 to 12% in fourth quarter 2021 and to 18% in the first quarter of 2022 of GAAP basis. In the meantime, our total operating expenses decreased 35 percent annually and 34 percent sequentially after we completed our organizational realignment second half last year. Our Q1 was also the third quarter in a row that we saw the decrease in total OPEX. The expanded gross margin and decreased expenses combined contributed to our first profitable quarter. If behind this profit, it's not a magic but a sign, as it takes us three quarters to get where we are. Our non-GAAP operating loss was RMB 1 billion two quarters ago, which shrunk to RMB 516 million last quarter, then turned to a profit of RMB $327 million in the first quarter of 2022. The trend is clear. What is driving this trend is our consistent efforts in improving our operational efficiency and scalability. We have become nimbler and more focused, which will help us in better adapting to the changing environment and best position to capture the long-term growth opportunities in the future. In March 2022, the company completed a private round of USD 285 million. At the end of first quarter, the company has cash, cash equivalent, the short-term investments of RMB 5.2 billion. We believe we have sufficient funding to satisfy our operational needs in the foreseeable future. For detailed financial data, please refer to our press release. on our website. With that, I will now open the floor for Q&A.

Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the slash key. For the benefit for participants on today's call, please limit yourself to one question. If you have more questions, you may rejoin the queue. We also ask that you state your question in Chinese first and then in English. Your first question comes from the line of Thomas Chong from Jefferies. Please ask your question.

My question is about our overall strategy. How do we execute and reflect in our financial? And in particular, we are making profitability on a quarterly basis in Q1. On the other hand, how should we think about the outlook in the next couple of quarters? Thank you.

Okay, thank you. I'm Gong Yu. Let me answer this question. There are a few measures to achieve the first-degree profit. The first measure is that we can provide a very good, high-quality head content for many years to accumulate. High-quality head content is a key. The most important thing is the drama. Secondly, it also includes variety shows and movies. Children are very interested in these contents. This is the first point, which is the content of the head. Then the second point, which is the performance related to the content, which is the performance related to the content, which is the performance related to the content, which is the performance related to the content, which is the performance related to the content, which is the performance related to the content, which is the performance related to the content, The fourth point is to improve sales capabilities, including advertising sales capabilities and member sales capabilities. Member sales capabilities include directly facing consumers and facing middlemen. The fifth point is to turn off or reduce Okay, I will translate what Mr. Gong just mentioned. They're coming from five aspects. First, we have many years of accumulation of head premium content.

For example, on the TV drama series, and also variety shows, movies, children's content, and animation. And second, we refined our operations, including content scheduling and promotion, and then to increase the overall operational efficiency. And third, we also improved the content operations in many different areas, have stringent control over the full content production process. We're also driving the sales capability and efficiency, including boosting our monetization on membership and also app sales. And five, increase the overall ROI. We will terminate a business that has poor ROI and low future potentials.

The above five measures are not for one quarter. Obviously, these five measures can continue to be carried out. This is the first one that can ensure that the company will remain in a stable state in the long term. The second point is that we are actively investing in creative industries, including overseas industries, IT and fast-tracking industries, and expect that these industries will continue to

The earlier mentioned five aspects are the continuous efforts that we'll be focusing on, and that will drive the profitability in the mid to long term. And also, we're also focusing on new business initiatives. For example, overseas business, IT light, that will help the overall development and growth of our mid to long term as well. 好,谢谢。 Thank you.

Thank you. Your next question comes from the line of Li Zhang from Bank of America. Please ask your question. Hi, 管理层,晚上好。谢谢接受我的提问,然后恭喜第一个季度盈利。

我的问题呢,其实是和我们的降本增效相关的,就是对PNL带来的benefits的同时,我们有没有看到公司整体降本增效的策略会不会对用户观看时长的运营指标和我们未来的收入 Thank you for taking my question and congrats on break-even. We have seen a meaningful cost saving and a break-even in fourth quarter. So wondering, do you see any impact? of our cost control barrier to our operating matrix, like user time spent and the revenue. Secondly, can you give us some updates on your content strategy going forward? Thank you.

Okay, thank you. Let me answer this question. We are currently controlling costs and fees. Our main goal is to increase efficiency. Increasing efficiency is the first priority, and not just to reduce costs. This is some information that some overseas companies have disclosed. We believe that the top line of revenue is mainly determined by the head content. So this kind of low-efficiency content determines the company's expenditure or loss to the foreign exchange market. This is a key factor. So our head content is not reduced. What is reduced is the content of low-efficiency, and the content of foreign exchange.

Okay. So for overall speaking, our control of cost and also expenses are for the purpose of increase the overall efficiency. For our business, content is our biggest cost item and also investment. So for very important premium head content, we will not lower our investment in this area at all. probably decrease our investment in the low ROI content genres and content categories. And based on our many years of internal studies, user data, and also our reference to the overseas streaming business, we can tell that the top line, the revenue upside depends on the head premium content. So for overall the low-performing content, that's really dragging our whole performance down and also creating loss. So these are the areas we will continue to put efforts on going forward.

What is the result of this strategy? We see the statistics of the third party. Although we don't take market share as our first goal, we think it is the right strategy. Okay, so even though that reaching the market number one is not our primary goal, but according to our third-party data, enlightened data,

it shows that ITE was still number one in terms of the market effective video views for top TV drama category. And then at the same time, our original content also had excellent performance for viewing time for dramas, movies, and children's content consistently grew on an annual basis.

There are two key points in the future content strategy.

The first point is that this year, Okay, so for going forward, this year are very important

key focus is to drive efficiency and then that will make us to focus on the investment in the head premium content as well as increase the overall ROI and focusing on the content that generates high ROI and then going forward to the next two years we will continue to focus on the premium head content that will bring profit and also to bring good returns to our business Thank you Thank you And then I think our CFO also has one point to add.

Okay. After each of our new headings is uploaded, it will actually flow to our library when the hotend period is over. Our library itself is a part of the maximum traffic of our users. So from this point of view, on the one hand, we are investing in the most top-notch content to increase ROI. On the other hand, the content we have selected will continue to bring additional user traffic in its entire life cycle and in the library. So on this point, we can also maintain our long-term successful and stable business model. I will just quickly translate myself. So supplementing to what Mr. Gong has shared, I would say that people care about the new releases each quarter. But on the other hand, we also need to notice that our new releases is also in the form of the investment. After the debut, it will flow into our library, which will generate lifelong traffic over time. So as a result, I think our business model in general with a combination of the new releases and library is very much defensible and manageable.

Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question.

Hi, thank you. How much space do we have left to improve our member pay rate? 然後近期因為關於上海跟其他城市的這些疫情封控,我不知道說管理層能不能跟我們分享一下,就是說近期這個會員訂閱服務其實有沒有一些明顯的一個需求的增加,還是說這個訂閱服務更多是這個內容驅動的? 謝謝。 我自己翻譯一下。 My question is related to the membership subscription business. So how does management see the future more longer-term growth trend for the membership revenue? Will that mainly be driven by the increased penetration rate for paying users, or is that increased from the R pool? And how much room we can further increase our paying ratio? In terms of near-term, can management share how has the demand for the membership service trending Given the prolonged lockdown in Shanghai and other cities, have you seen any update on the subscription from the lockdown or the membership more is driven by the content? Thank you. 我先回答第二个问题,就关于疫情和会员增长之间的关系。

The pandemic has had a major impact in the past 20 years, this year and this year. We can basically see the rules. The rule is that the growth of members in a short period of time is an economic factor, but this economic factor will disappear in a relatively short period of time. Of course, from a long-term perspective, there is a lack of this kind of offline entertainment, because when the pandemic was serious, will be reduced in terms of entertainment. In the long term, it will definitely promote the spread of entertainment. But this is for the long term. The impact of the short term is short-term. Then some other factors combined may determine the elements of member growth. For example, quality content and the increase in the penetration rate of all middle-end paid users. These factors are core factors.

Okay, so based on our experiences with COVID in the past two years, the first wave came from 2020, and then the second wave came from this year. So we kind of find the pattern in terms of dealing with COVID pandemic. So in the short term, there are some uplift in terms of, you know, for the consumption of digital entertainment and digital content online. And over the long term, because there might be some impact in terms of the entertainment opportunities or entertainment choices from offline, so there might be some impact in terms of, for example, the movies to be launched, etc. And that might push the popularity and also the penetration of online media entertainment. But I think Very importantly, we think the success of our membership business really, really depends on the premium content. So that's really driving our membership growth in terms of the revenue as well as the subscriber growth. And also that coming from the more penetration or higher penetration for the paying services or paying habits, in China that will also contribute positively to our business.

OK.

So for overall long-term speaking, we're still very confident and very optimistic of the long-term growth of our membership business. I think our premium content, that's really driving the positive membership growth in terms of the subscribers and also for the revenues and also for ARN.

Our first goal is to increase the total revenue of members. We don't use a single indicator, for example,

Our main goal is really trying to keep growing our membership services revenue. So we don't set the goal in terms of really growing the absolute number of subscribers or the arm.

So I would like to first talk about Arm.

that's driving our business. So we're very happy to see that in among our industry peers, there are some price adjustments on that front as well. So they are sending really positive signals and also guiding the whole industry moving towards a positive direction.

The second factor is even more important, which is that we are becoming more and more capable of providing quality content.

And then second point is very important that I would like to raise for everyone because we think premium content is really driving the whole membership growth and also we're driving the quality of the premium content and also very stable supply and reserve, building a good reserve of premium content. And that's really supporting our future business growth for the membership services.

The third is the recognition of the value of knowledge and property rights. This degree is getting higher and higher. And then the impact of the whole society, including the government and the judiciary, is getting bigger and bigger. This is also a very positive factor for us.

And for the third point, we think the recognition from users for IP is very important for the future growth as well. We're happy to see the whole industry, as well as users, as well as government, are sending positive signals of recognizing the power of IP. And we're focusing on IP protection and really driving the anti-priority issues of the company.

The above three main factors are the main driving forces behind the rise in uptrend. Next, I will talk about the increase in membership. There are two big and relatively large spaces in the future. The first big space is user consumption. Upgrading is a key trend. Now many users watch free content, including long videos, medium videos, and short videos. uh so you want to

And also, the very first mentioned three points related to our arm growth that I talked about earlier. Now I would like to talk about from growing the users. First, we think users are upgrading the consumption behaviors If you look at the content offerings, whether it's for the long-form video or the short-form videos, for long-form videos, I think overall speaking, the content are driven by the paid content as well as long-tail content that really brings the echo of the users. And I think we're very good or very happy to see that there are more users are getting the habit of buying subscriber memberships. So that's sending a very positive sign to our business.

And another important factor that affects the number of members is that now the content of the same page is still too high. That is to say, the head content of each family's exclusive broadcast is too little. This is an important reason. And also another point to the swiper numbers is because right now we think the overall overlap or the

Overlap of content is pretty high among our peers, which means there are less number of really exclusive content for each platform. So that's kind of putting back some of the pain, willingness for the subscribers. I think if you look at the mainland China area, one user that's subscribing to multi platforms, the ratio of that is 1.2, which is lower than many of the overseas streaming businesses. . And a couple of reasons that's contributing to the high overlap of content among our competitive peers. One is from the economic aspect, because selecting content that's not really exclusive will bring lower content costs. That's the first point. And then the second point is the original content production capability is relatively low at this point among all the industry peers. So I think going forward, if we could increase the production capabilities going forward, especially the head original content, that will drive down the overlap between our content among the industry peers.

That's all. Thank you. Thank you.

Thank you. In the interest of time, I would now like to hand the conference back to management for any closing remarks.

Thank you, everyone, for participating in our call today. Feel free to reach out to the entire team if you have further questions. Thank you and see you next quarter.

Thank you.

Thank you. Bye-bye.

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