iQIYI Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 22, 2024

There are 4 speakers on the call.

Operator

Thank you for standing by, and welcome to the IKEA Second Quarter 2024 Earnings Conference Call. All participants are in listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand you over to the conference to Ms. Chang Yu, IR Director of the company.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining iQIYI's Q2 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.

Speaker 1

Yu Gong, our Founder, Director and CEO Mr. Jun Wang, our CFO Mr. Xiaohui Wang, our CCO and Chief Content Officer Mr. You Chao Duan, Senior Vice President of our Membership Business and Mr. Shanghai Yang, Senior Vice President of Movies and Overseas Business.

Speaker 1

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 and 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.

Speaker 1

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 statement, except as required under applicable law. I will now pass on to Mr.

Speaker 1

Feng. Please go ahead.

Speaker 2

Hello, everyone. Thank you for joining us today. In the second quarter, we saw intense competition for top content, while we have several of diversified premium content. Certain titles did not match 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 slate performance.

Speaker 2

As a matter of fact, we view the wide brand competition within the long form video centers and constructives, which have enhanced its appeal over other entertainment formats. It also private as 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 benefits. With this in mind, our goal is to further improve the overall success rate of our content portfolio and more importantly, the visibility of content performance.

Speaker 2

In fact, as the summer season unfolds, our premium content has gained strong momentum. The release of planned titles such as interlaced scenes Touve and A Strange Tales of Town Dynasty Season 2: Control Visual Arts have boosted our key operating metrics and brought us back to the leading spot in terms of market share in the key drama category in July according to the Enlightened data. Notably, the 2nd season of Strange Tales of Tang Dynasty becomes the 14th drama to bring our popularity index score of 10,000 YYI, in addition to delivering high quality content, providing great user experience stands as another cornerstone of our business. As we remain committed in enhancing member benefits, we are also refining our content distribution 100% 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.

Speaker 2

Firstly, we are extensively applying AI to improve content creation, operational efficiency and the user experience. Secondly, we will further enhance our domestic business while expanding our footprint in broader overseas market. Thirdly, we are using Yixi content in drones and its IP portfolio to explore revenue opportunities beyond membership and advertisement, such as IP, Diverse TVs, derivatives and offline experiences. These initiatives align perfectly with our core value, 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.

Speaker 2

Our primary goal for membership services remains on driving sustainable long term revenue growth through top notch content and a superior user experience. In the Q2, membership revenue was down 9% annually, primarily due to fluctuation in our company's sales performance, causing the attrition of key title driven members and the high band effect from last year's mega hit the no part. ARM grew steadily year over year. This was partially fueled by our displaying pricing strategy as we scaled back on the overall promotions and discounts. Our enhanced member benefits also played a major role, effectively encouraged the members to sign up for a high share plan.

Speaker 2

Furthermore, we noted innovative value added services drove users willingness to pay. Notably, we launched the express package for 10 dramas in the second quarter and gathered the highest number of casual purchases. Following the success in drama category, we plan to expand the 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 loyal, sticky members.

Speaker 2

Secondly, content remains our primary driver of our membership growth. And we are in the middle of introducing more diversified premium content, which encourage other user cohorts. Furthermore, we are committed to enhancing our operational strategy to improve membership acquisition and retention. Initiatives include: 1, reaching broader demographic growth by expanding our sales channel and utilizing wider social marketing 2, improving conversation rates by launching marketing initiatives directly tied to popular content of the season, such as IP based member package, express package and countless experience program in both of 3, providing value for many services through long term and high tier plan subscribers, such as inclusive offline events. In the Q2, we opened 17 offline events and received positive member feedback, building on the strong user reception from last year.

Speaker 2

Our annual offline flagship event, the 2024 iQIYI screen guide. Zhengyao Puye is set for its comeback in December 7 this year in Macau. Pipeline. More than 40 celebrities anticipated the live streaming event and generated over 30,000,000 views. In the future, July, 17th Xi Membership Festival is set to be an annual event exclusive to our members.

Speaker 2

It is an event to discover attractive deals and enjoy exciting activities. This festival will not only underscore the substantial value we provide to our members, but we are also served as a key opportunity to boost our brand influence. Moving on to content. We are overcoming the short term fluctuation in the company's slate performance in Q2 and learned a lot from this short term setback through the in-depth analysis of the overall projects. We have gained valuable insights that are set to guide our content creation and operation in the future.

Speaker 2

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 content led in growing field of content creation, we aim to further enhance our ability to tap into popular social trends, thereby producing content that establish a deeper connection with our audiences. We will embrace a more innovative success in our casting and script selection process aiming to transcend the limits of traditional story telling. Secondly, regarding content scheduling, we will closely monitor our user track and adopt a dynamic scheduling strategy that is guided by user engagement and retention. This approach ensures that our content rollout is optimized, timed to align with our audiences, preferences and view habits.

Speaker 2

Certainly, in terms of managing our in house studios, we are committed to enhancing the efficiency and effectiveness of our operational notes at each key stage of the creative process. Our aim is to cultivate a more proactive culture among our talent, ensure they have ample freedom to fully unleash their artistic skills and foster an environment where creativity can thrive. Moving on to the detailed content performance in the second quarter. For dramas, our leadership in the reality and suspense genres remains unchallenged. Our original drama to the founder was all set, perfectly demonstrated our success in blending as its merits and the commercial benefits generate exceptional performance across all metrics.

Speaker 2

What's more impressive is the short term macro long term effect with its influence extended well beyond the online domain as it boosts tourism to its filming location in Xinjiang to effectively extend the vitality of the IP. We worked with creative teams to host an open field concert in Xinjiang in July, which was widely acclaimed by users, sponsors and the local culture and tourism bureaus. In addition, we further solidified our position as the go to platform for the suspense genre by launching dramas, Hyung Dou Guan, who can't guarantee and Lost in the Shadows, Kanien, and the Shunian, under our light on shelter brand. With movies, we continued to outperform our peers according to its patented viewership data. In the Q2, we launched a total of 15 key titles in our movie channel, including multiple box office, a hit such as Article 20, VR Strong and the 2nd, PagSeg 2.

Speaker 2

In our cloud cinema, we launched 21 titles covering various various files, such as Disaster Comedy, Traumizing Future, Tianlu Haiya and Suspense Crime, Suspect, For variety shows, our 2 flagship shows returned with the new season, namely the Detective Adventure Season 4, and the Rev of China 2024, Xinghua Town, both of which continue to be well recognized by advertisers. The Rev of China 2024 also generated considerable membership revenues. For our animations, we continued to invest in original Chinese animation and began to see encouraging initial results with enhanced enhanced production capabilities. Powder Yu serves as a perfect example, as it hit multiple records for iQIYI original animation. It is our 1st original animation to break our popularity of popularity index of 5,000 as revenue and new user acquisition also reached new highs.

Speaker 2

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 appear 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 Palm Dynasty Season 2 and A Lonely Heirloom journey, Udo will owe well received by audiences. Additionally, in the suspense genre, the drama interlaced scenes for the young one, jiu wu de jianha huan, how both showcases a strong user engagement. Notably, strange tales of Tang dynasty returned for its 2nd season, showcasing remarkable quality that has led it to break iQIYI's popularity index score of 10,000.

Speaker 2

The acclaimed series has demonstrated a pronounced long tail effect. The 2nd season substantially amplifies the user content and the membership revenue generated by the 1st season, increasing them by about 6 fold and 10 fold respectively. This drama also serves as an excellent example of our serialized approach to IP's development. Encouraged by the success of the first two season, production for the 3rd season is set to begin shortly. Additionally, the IP starts to generate diverse revenue streams as its proven now expands into offline domains, including entertainment, tourism and consumer goods.

Speaker 2

In our strategy, move to capitalize on this success. We have launched IP Best. We are partners in key cities such as Beijing, Shenzhen and Xi'an. This initiative aims to broaden the impact and the presence of our original content, extending beyond traditional screens. Beyond dramas, our creativity is expanding into new categories: Tencent, a brand new original IT variety show IP, has garnered users praise for its innovative format and recorded a peak iQIYI popularity index score of over 7,000.

Speaker 2

Additionally, the team of standard company, Xiju Zhuang, market iQIYI's first exploration into standard comedy. The show has received encouraging initial feedbacks 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 productions of Asian customers, idol dramas and modern idol dramas, both targeting female audiences.

Speaker 2

Some of the much anticipated works in these genres include Go East, Shupang 1, A Moment and the love of a wide tree. In the real estate and the suspense category, audiences can anticipate the diversified content offerings, including Born 2, Be The 1, Farenge, North War, Beichuan, The Fireless Season 2, Wu Shu Weiqu Party, justifiable defense, Zhongnan Hanwei. For movies, we will release more diversified sale article hits on our platform. Additionally, self produced iQIYI, alternative fields are expected to be released in sales, including Ping, Pinout and Frozen Rain. For our variety show lineup, we For our variety show lineup, we plan to release a greater number of titles in the second half of the year compared to the first.

Speaker 2

Building on the momentum of 10 days and the team of the standard accommodates. We are preparing to launch more innovative shows, including The Moon and Shining Nian Xiaoyou Yuan, which is set to release later this month. Moving on to animation. We expect to see a surge in titles during the second half of the year, with increased diversification in general, we plan to launch 8 to 14 additional seasons of key original works compared to the first half. Alongside How Dare You, Wei, Chen Leitong, we have also launched the final take call, The Legend of Kai Lord, Shenwu Keng Zeng and A Moment But Forever, which shares its IP with an upcoming drama series of the same name, The Action Packet, Enemy, Super Kill, Extraordinary Chapter, Chou Fanpian, is also set to release soon.

Speaker 2

On a separate note, iQIYI has become one of the key content sources for traditional TV media, covering offlends such as CCTV, satellite TV and regional TV stations, thanks to our enhanced offerings of original content. In just the first half of twenty twenty four alone, we have distributed to about 50 drama series, reinforcing the long tail effect of premium content. The value of our IP has been even further unleashed by exploring diversified monetization streams. For example, from chasing revenue from the dramas, Fox Spirit, Matchmaker, Red Moon Pack, reached a new high for iqiyi, original dramas. Moving on to the advertising business.

Speaker 2

In the Q2, total revenue was RMB1.5 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 18th shopping festival growing 80% annually and revenue from Internet services growing 30% annually. The solid result in performance is also a fair reflection of our technical advancement. Through upgraded ad placement mechanism and reinforced smart bidding algorithm, we have further enhanced the monetization efficiency of traffic and the ROI for our clients.

Speaker 2

Additionally, our AI tools now cover broader industries, enabling more efficient ad production and driving AI power revenue by 150% sequentially. For brand ad revenue was down annually, mainly due to fewer variety shows launched. Besides that, our premium content continued to attract brand advertisers, with 59% of the revenue stemming from content targeted ads. In particular, our major dramas achieved notably double digit annual growth in revenue. The performance of the June 18th shopping festival was also in line with our expectations.

Speaker 2

Moving on to technology and the 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 gyros. This quarter marked an exciting breakthrough as we successfully expanded its application into a new territory, deploying it facing the reality same drama for the first time. We have also made meaningful progress with our in house pre virtualization technology.

Speaker 2

This tool allows for the rapid design and virtualization of scenes and the shots 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 Yinkao IT Content Management System has been in operation for over 2 years. This sophisticated, data driven system provides substantial power to management team and the producers in project managing effectively elevates content quality and success rate.

Speaker 2

Now this management system has covered all our projects in drama, movie and animation. Another high efficient system is our intelligent production management system, which is widely used by production crews for that works on-site attacks, equipping them with front line production tool and production management capabilities. In the Q2 alone, 21 drummers adopted the system today. To date, this system has been used in 67 IT dramas and gained widespread recognition for its effectiveness. In addition, we have expanded the use of AI across various aspects, covering projects, assessments, creativity, marketing and distribution.

Speaker 2

This broad application has meaningfully enhanced content production and operational efficiencies. For example, AI has supported revenue forecasting and the decision making during initial phase of product development. AI also drives our advertising innovation for Focus Spirit Mudmaker Red Moon Pack. We integrated virtual character and the scenes into ad materials substantially, increasing ad custom outcomes. This new ad format will be welcomed by advertisers and opened up ample possibility.

Speaker 2

For content marketing, we have employed AI among model models to analyze, upload information and generate key marketing points to improve marketing efficiency. Finally, for our business outperform our performance in regions outside of Mainland China. Over the Q2, we sustained solid performance in our overseas business with both total revenues and membership revenue continuing to grow annually and sequentially. The influence from C Drama and IT's original content continued to strengthen evidence by the 30% annual increase in membership revenue from top C dramas during the quarter. Our localization our localization attempts have also started to be able to accumulate accumulated number of views of our Honorable Thai drama, My Son Zeng Ying.

Speaker 2

Xueya Kishan ranked 1st in a number of markets, including the U. S, Canada and the UK. We have also made solid progress in animations. How dare you have attained remarkable viewership and revenue on our overseas set, which are historical high among all IT or 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.

Speaker 2

Our efforts include deepening collaboration with telecom operators in overseas markets to enrich bongzong products and strengthen promotion activity. For example, we have partnered with IT Select, one of the largest telecom companies in the Middle Eastern and North Africa market, to stream IT's content on their OTT platform, Stas 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 Cpop content in key markets, accelerate production of local content and then 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's creativity and execution capabilities.

Speaker 2

With that, we believe the flywheel effect of iQIYI content ecosystem will drive our long term growth. Now let me pass on to Jun to go through our financial performance.

Speaker 3

Thanks, Mr. Gong, and hello, everyone. Let me walk you through the key numbers. In the Q2, the total revenues were RMB 7,400,000,000, down 5% annually. The membership services revenue reached RMB 4,500,000,000, down 9% annually, primarily due to fluctuations in the current slate performance as previously discussed.

Speaker 3

For online advertising, revenue decreased by 2% year over year to RMB 1,500,000. 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 quarter. But the results were partially offset by the healthy growth of the performance ad businesses. GaN's distribution revenue reached RMB 698,000,000 and grew 2% annually. Other revenues increased by 16% annually to rmb784 1,000,000, partially driven by the increase of revenue derived from the payment agency services and the 3rd party cooperation.

Speaker 3

Moving on to costs and expenses. Government cost was RMB 4,100,000,000, down 2% annually. Total operating expenses were RMB 1,400,000,000, flat annually. This was in line with our disciplined marketing spending strategy. Turning to profits and cash flow.

Speaker 3

The non GAAP operating income was RMB501 1,000,000 and its corresponding margin was 7%. The operating cash flow totaled RMB 411 1,000,000 and remained positive for 9 consecutive quarters. As of the end of the second quarter, we had cash, cash equivalents, short term investments and a long term restricted cash included in prepayments and other assets totaling of RMB 8,600,000,000. 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 a repurchase rights offer for our convertible notes in 2026.

Speaker 3

An aggregate principal amount of US395 million dollars was validly surrendered and repurchased and only 157,000 amortized 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 and A.

Operator

Thank Your first question comes from Zhuqing Zhang with CICC. Thanks management for taking my question. My question is about competition landscape. We noticed that other platforms had some blockbuster this year and our market share, which has been leading recent years, has also fluctuated. How does management view the current competition landscape for long videos?

Operator

And what's your strategy? Thank you.

Speaker 1

We'll invite our CCO, Xiaohui, to answer this question. The intense competition within the industry has always been present, and this competition actually helps us to improve the overall quality and the richness of the industry's content, enhancing the competitiveness of the long form video sector compared to other forms of entertainment, such as we often mentioned short form video. At the same time, it also motivates us to continually improve content quality in the future. We've always emphasized that the ultimate goal in the long form video competition is to sustain a high quality, diverse content supply and achieve a win win situation between the content quality and the commercial benefit. 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.

Speaker 1

Although we experienced some fluctuation in our drama market share in Q2, but after a thorough review and a targeted optimization, we've overcome the short term difficulties and returned to the number one position in drama category market share. In balancing the content quality and commercial returns, iQIYI's performance continues to lead. The drama series To the Wonder and The Strange Tales of Tang Dynasty Season 2 are great examples, and we believe this advantage will further enhance in the future. Going forward, we will remain dedicated to creating high quality content tailored for mainstream and female audiences, enhancing our social insights and innovation, optimizing content scheduling strategies and strengthening the management in every facet of our in house studios. And we believe these initiatives are all aimed at improving the stability of our high quality diverse content

Speaker 2

supply. Our

Speaker 1

current drama reserve accommodates the viewing demand of the mainstream audience. We have a relatively ample reserve specifically for the core genres of ancient costume dramas aimed at female audiences, as well as for the mystery suspense and reality themed dramas. We will also continue to strengthen our capabilities for IP serialization development. For example, the strange tale of Tang Dynasty Season 2, which launched in Q2, is a successful case of serialized content development, and the 3rd season will soon be in production. In the future, the well loved series such as The Fearless and Under the Skin, but also launched their 2nd season.

Speaker 1

And the Ingenious 1, Season 2 is also in preparation. Thank you.

Operator

Your next question comes from Lincoln Kong with Goldman Sachs. So thank you management for taking my questions. My question is about the membership business. How should we think about the prospects of membership growth in future, especially on subscribers as well as the ARPU growth? Thank you.

Speaker 1

We'll invite our Senior VP of the membership business, Joao Taiao, to answer this

Speaker 2

question.

Speaker 1

From the perspective of membership structure, our cornerstone members represent a stable base of our subscribers and have remained steady. Fluctuations actually mainly come from the members who are attracted by new and popular content. As the summer season arrives, our content offerings have positively influenced the return of these hit driven users and retention of long standing members. 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 flexibility in terms of operational tactics.

Speaker 1

In the near future, our focus will be on expanding the scale of our membership, but the ultimate goal remains to maximize membership revenue. In the future, we'll also plan to implement more proactive measures to optimize account sharing and combat priority, thereby supporting the long term healthy growth of our membership business. We'll share the specific plans with everyone as the progress is made. Thank you.

Operator

Your next question comes from Maggie Yi with CLSA. Good evening and thanks for the chance to ask questions. Regarding our overseas business, we've seen very decent revenue growth in past quarters by high quality local production in addition to distribution of our premium Mandarin content. As iQIYI International site celebrates its 5 year anniversary, can management share your latest thoughts on business strategy and plan for our overseas business? Thank you.

Speaker 1

We'll invite our Senior VP, Ms. Han Hu, who's responsible for the overseas business, to answer this question. We started expanding into the overseas market in 2019 and have achieved initial success. In 2023, our overseas operations actually reached full year operating EBIT. Our goal for 2024 is to boost revenue growth while continuing to increase profit.

Speaker 1

And for Q2 this year, the total revenues for overseas and also membership revenue both maintain healthy year over year and also quarter over quarter growth. In terms of content, we have discovered an optimal content mix suitable for our overseas market, 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 iQIYI 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.

Speaker 1

And in the future, we'll continue to use Chinese dramas as the foundation of our overseas content offerings and actively explore opportunities to increase production of local original content. And also, from the technology perspective, we will utilize AI technology to empower different aspects of the long form video industry, enhancing the production efficiency of iQIYI's localized original content overseas. Regarding our local partnerships, we have already established deep connection and cooperation with local 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 the content influence over these.

Speaker 1

And for our long term objective is to make IP'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 IT monetization models. And our CFO, Wang Ping, 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

Speaker 3

Yes, this is based on the BU's management account.

Speaker 1

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

Operator

Your next question comes from Thomas Chong with Jefferies.

Speaker 1

I

Speaker 2

Hi, good evening. Thanks management for taking my question. As ITE has a lot of good IP, can management share your strategy of unlocking the IP potential in different areas other than membership and advertising? Thank you.

Speaker 1

Our CEO is answering this question. He mentioned that Content IP is the core asset of our company. Promoting the monetization of Content IP in various forms, including off line business, is an important and sustained effort that is key to enhancing our long term value and competitiveness. We actually described this IP based business model with a metaphor called eating a fish in multiple ways, which actually emphasize our ability to transform each piece of our content IP into numerous prospects for revenue. Thereby, we believe this will maximize its value across different markets and platforms.

Speaker 1

With our many years of focus on producing original content, actually, the value of our company's IP assets has grown significantly. For instance, 2 years ago in Q222, our original dramas have accounted for over half of our quarterly new released key dramas. And this proportion now has stabilized at around 70%. And also, these 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 maintain a popularity over an extended period of time. We actually hope that the offline experience business will become our 2nd growth curve in the future.

Speaker 1

And we also noticed 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 leverage 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 Xi'an, these are key cities in China. In addition, we've developed new derivative products, such as card games, designed to appeal to the taste of younger demographics, further extending the IP's reach and impact.

Speaker 1

And this operating for the operational model, actually, we actually favors a light asset approach, which has a promising prospect for incremental revenue under limited cost. Actually, based on our experiences, this approach has actually been validated in terms of offline experiences. And this model is now being able to be replicated and scaling. In addition to what I just mentioned, the VR theater experiences that I mentioned earlier, we're also exploring further initiatives centered around our IPs. For example, our which is the IP merchandise stores and also, which is a theme park designed for children.

Speaker 1

And these initiatives are actually developing in collaboration with our partners, similar to what I just mentioned, the light asset approach. And the aim is to provide users with a very comprehensive and engaging entertainment experience. Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 1

Thank you, everyone, for participating in the call. And if you have further questions, please don't hesitate to contact us. Thank you.

Speaker 2

Thank you. Bye bye.

Operator

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

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