IQIYI Inc  (NASDAQ: IQ) Q4 2019 Earnings Call Transcript

IQIYI Inc  (NASDAQ: IQ) Q4 2019 Earnings Conference Call

Final Transcript

Corporate participants:

Dahlia Wei — Investor Relations Director

Yu Gong — Founder, Chief Executive Officer and Director

Xiaodong Wang — Chief Financial Officer

Analysts:

Alicia Yap — Citi — Analyst

Eddie Leung — Bank of America Merrill Lynch — Analyst

Thomas Chong — Jefferies — Analyst

Wendy Chen — Goldman Sachs — Analyst

Ella Ji — China Renaissance — Analyst

Tian Hou — TH Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the iQIYI Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] 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 iQIYI, Dahlia Wei. Thank you. Please go ahead.

Dahlia Wei — Investor Relations Director

Thank you, operator. Hello, everyone, and thank you all for joining iQIYI’s fourth quarter and full-year 2019 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 Dr. Yu Gong, our Founder, Director and CEO; and Mr. Xiaodong Wang, our CFO. Dr. Gong will give a brief overview of company’s business operations and highlights, followed by Xiaodong who will go through the financials and guidance. After their prepared remarks, we will hold a Q&A session.

Before we proceed, please note that discussion today will contain forward-looking statements made under the safe harbor provision of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. iQIYI does not undertake any obligation to update any forward-looking statements except as required under applicable law.

With that, I will now turn the call over to Dr. Gong. Please go ahead.

Yu Gong — Founder, Chief Executive Officer and Director

Hello everyone and thank you for joining us for our fourth quarter and the full-year 2019 earnings call. We concluded the year 2019 with a solid ending. Q4 and the full-year net revenue reached RMB7.5 billion and RMB29 billion, respectively, backed just by the optimized structure of our content costs, which only grew moderately at single-digit percentage on a full year basis. We further solidified our industry leading position in terms of our user scale, user stickiness [Phonetic], and a number of subscribers. We are pleased with a set of significant progress we made in 2019, including being the first among industry peers to build 100 million subscriber milestone, consistently developing innovative original content, pioneering new advertising solutions, and making new breakthroughs in technology development.

I’ll start my review with our membership business. As of December 31, 2019, our total subscribers reached 107 million, a net addition of 19.5 million compared to year end 2018. Subscription revenues grew 36% year-over-year to RMB14.4 billion and contributed half of our full-year 2019 total revenues. This reflects our dedication in delivering best quality content to our subscribers and our various operating initiatives to expand our subscriber base. In the fourth quarter, the release of a number of high popular drama serial drove subscriber growth, namely [Indecipherable] Sword Dynasty and Spirit Sword Mountain among others. Typically, dramas serials have been the main driver of the subscriber growth, but with our portfolio of content expanding, we are beginning to see a wider range of content categories playing an increasingly important role. For example, theatrical movies, such as [Indecipherable] and The Captain, animation serials One Piece as well as premium variety show, More Than Forever, all helped to our subscriber growth.

Also if we look at full-year 2019, we saw some of our library content demonstrating long-term values. Our legacy blockbuster drama, [Indecipherable] and The Mystic Nine, which are two years and four years old, respectively, still consistently ranked among the top contributors. This reinforces our belief in the intrinsic value of premium original content, which will become classics over time and will take up an increasing share of our content library. During the fourth quarter, we introduced a value added membership service for some of our content, including Spirit Sword Mountain and [Indecipherable] whereby, subscribers can enjoy advanced access to additional episodes at a premium level of package or unit expenses. This was the first time we offer such service for our subscribers and so far, we have seen encouraging results.

Going forward, we intend to further optimize our membership system, provide premium services and entertainment experiences to subscribers who we are willing to pay for extra privilege, hence improve overall ARPU and monetization. We continued our efforts to penetrate into low tier cities. We utilized AI and big data analytics to cultivate content offerings that are more appealing to user demographics in this region. We also reached various marketing campaigns to promote brand awareness in low tier cities. Moreover, we are actively working with numerous cross industry partners to tap into local markets through a wide range of cooperation channels. These partners range from telecom operators, banks, e-commerce platform to fast food franchises and retail chain stores, among others. Leveraging their strong local presence in hundreds of low tier cities, we are able to expand our user reach and improve subscriber conversion.

Moving on to our advertising business. Overall 2019 was a tough year for the broader advertising markets due to the challenging macro and competition environment. Nevertheless, we tried to mitigate the impact of these headwinds by adapting and upgrading our advertising products, better leveraging the strength of our content and expanding our advertiser base. For brand advertising, by converging our content strengths and advertising creativeness, we have launched numerous new formats of embedded ads, innovative ads, sponsorship ads and so on to better cater to advertisers need. For example in the fourth quarter, original fashion themed reality show FOURTRY attracted over 10 leading brands, including Vivo, [Indecipherable], Pepsi and the e-commerce platform aomygod.com to advertise with us which not only enhanced their brand awareness, but also boosted their sales volume. For performance ads, we saw continued revenue rebound in the first quarter although from a relatively small base. Leveraging our massive user traffic, abundant data and AI algorithms, true view ads and in feed ads continued to serve as dual engines for growth. In 2019 [Phonetic], we were flat, however, dive deeper into the more resilient and promising advertising sectors, such as e-commerce, education, finance, and Internet services to seize potential growth opportunities.

Aside from membership and advertising revenues, our other revenues on a combined basis grew 30% year-over-year and accounted for a record 13% of total revenues in 2019 compared to 11.5% in 2018. This illustrated the continued progress we are making towards building a diversified business model. Our game business performed particularly well with the launch of a number of successful new games such as The Croods and the Death of Love — and the Death of Love throughout the year, which drove strong organic revenue growth. Our new mobile game, Re: Life in a Different World from Zero-Infinity, which was adapted from a popular animation serial was launched last month and has attracted a large number of ATP users. Other smaller business that we are incubating such as live broadcasting, talent agency, digital [Indecipherable] and IP licensing, we have benefited from the significant synergies created by our content ecosystem and are natural expansion of our IP based development value chain, which leads to the next part of my discussion, our content.

During the fourth quarter, we continued to focus on delivering high quality content and achieved a number of breakthroughs in the creation of original content. According to Enlightenment, the third-party marketing survey, we outperformed industry peers once again in terms of video views for both dramas serials and variety shows during the quarter. For our full-year 2019, we released quite a number of blockbuster dramas, covering themes that vary from suspense, romance, and family life, to military, reality, and many more. The best performers of the year including The Thunder, Go Go Squid! and A Little Reunion as well as — as well as aforementioned [Indecipherable] and Spirit Sword Mountain. The popularity of these titles demonstrates our growing ability to identify and deliver a premium content across numerous verticals. We replicated the success with the recent launch of the exclusive hit drama iPartment season five, which attracted over 38 million subscribers to watch — to watch it within the first week of debut. Together with The Great Ruler, an original fantasy drama launched in late January, this popular content will help drive subscriber growth.

For variety show, in the fourth quarter, we released season six of our flagship talk show, Qipa Talk, which is our longest lasting web show in the industry. I’m proud that we now have a proven track record of consistently releasing sequels of our top variety shows, including Qipa Talk, The Rap of China, as well as highly anticipated return of Idol Producer season three, which will take place this quarter. We are continuously building strong IPs of multi-generation shows and drives significant long term value for us. On the other hand, we would like to highlight our consistent innovation around developing new things and new format of variety show content. Our 2019 new shows, The Big Band and FOURTRY have both garnered overwhelming success. Let me take FOURTRY, the star studded original fashion reality show, as an example. Leveraging its pop culture appeal and growing influence on fashion trends, we launched our old fashion brand FOURTRY and developed over 207 co-branded SKUs to embrace the new consumption trends in the market. This multi-dimensional development process will help us maximize IP commercial value and will act as an incremental driver for long-term growth.

Looking ahead to 2020, we have forged a robust pipeline of premium content, including over 100 major dramas, over 30 variety shows as well as 20 original animations and comics. This top line not only covers highly popular mainstream shows, but also expands to various new content runways that appeal to even more diversified user growth. Content innovation is at the core of our strategy and the talent is key to a content creation. In 2019, we entered into partnership with highly specialized academic institutions, including Beijing Film Academy and Shanghai Theater Academy. among others to cooperate on educational programs, which will expand our talent reserves and nurture their creativity. And at present, we have over 40 internal studios focused on different content [Indecipherable] and are also contributing to the industry content production ecosystem.

Moving on to the technology. Technological innovation has always been a cornerstone for our business. Driven by AI-based technologies, we are able to continually enhance our user oriented entertainment service platform and explore new and innovative ways to improve content creation, distribution and monetization. In the fourth quarter, we launched an innovative AI application called AI+VR, which supports the real time recognition and as search of information from video images and also provide users with an interactive feature to directly buy a products while watching a video. This technology has been applied to various content across our platform, including fashion show FOURTRY this quarter. Cyber security continues to be very important for leading digital entertainment companies like us. We are committed to ensuring robust user data protection. Recently, our user information security management and privacy protection technology was recognized by leading international authorities with the grant of verification certificate ISO 27001 and ISO 29151.

With growing user demand for diverse entertainment formats, we plan to launch a YouTube-mode app named Suike. To date, the YouTube model has not grown to scale in China due to a mixture of complex factors, but we believe that with the growing deployment of 5G and AI technology, the market potential for a similar app will grow significant in the next two years to three years. In order to capitalize on this opportunity, we have started to make initial efforts and investments into building this mode to scale — model to building — into building this model to scale. To lead this new and important initiatives, we are pleased that we have [Indecipherable] on board, who brings with him extensive experience in technology and management. [Indecipherable] has held key positions in industry-leading companies, such as Facebook and Airbnb. He received his Master’s Degree in Computer Science from Yale University and his Bachelor’s Degree in Computer Science and Technology from Tsinghua University.

In conclusion, 2019 was challenged yet a fruitful year. We further strengthened our IP center content ecosystem while growing and diversifying our revenue stream. I’m proud of what we have achieved during the year and then look forward to 2020, which marks 11th year since our founding.

As 2020 unfolds, we believe the industry will continue to trend towards a healthier and more mission rationalized competition landscape, with increasingly newer and richer format of video content emerging in the market. We now have more than 40 [Phonetic] in-house studios that are dedicated to content production of drama, variety show, animation, children’s content and many more, allowing us to provide more exclusive and original content for iQIYI user going award. The rising willingness of Chinese users to pay more for a premiums content creates significant potential for our business. Following of initial steps in overseas expansion last year, we are planning to add more local — local contents and international contents this year. All-in-all, we are more confident than ever in our future growth prospects.

Before I conclude my prepared remarks, I would like to quickly comment on the recent outbreak of coronavirus. During the outbreak, we prioritized the health of our employees by taking care of their needs and offering flexibility to work from home. So far, there’s zero infection among all of our employees around the country. In addition, we have always been committed to maintain high standards of corporate social responsibility. We produced a various relevant video content that have increased public awareness and support nation fight — fight the outbreak. We are also the very first online entertainment company that invited over 200 celebrities to shoot for music videos for the charity song, Let the world be filled with love, which were released on our platform, various TV stations and many other media platform. We believe we will eventually overcome the coronavirus and get back to our path towards future growth prospects, which remains intact.

With that, I will turn the call over to Xiaodong to go through the financials.

Xiaodong Wang — Chief Financial Officer

Good morning everyone. Let me go through our financial highlights. For the fourth quarter of 2019, iQIYI total revenue was RMB7.5 billion, up 7% year-over-year. Total revenue in 2019 were RMB29 billion, up 16% year-over-year. Membership service revenue for the fourth quarter were RMB3.9 billion, up 21% year-over-year. Membership service revenue in 2019 was RMB14.4 billion, up 36% year-over-year. The increase was primarily driven by the growth in a number of subscribing members. Online advertising service revenue for the fourth quarter was RMB1.9 billion, down 15% year-over-year, primarily due to the challenging macroeconomic environment in China. Online advertising service revenue in 2019 was RMB8.3 billion, down 11% year-over-year, primarily due to the macro headwinds, the uncertainty of certain content scheduling, and the intensified competition in advertising business.

Content distribution revenue for the fourth quarter was RMB878 million, up 68% year-over-year, driven by high volume and the contractual price of the titles we distributed in the quarter. Content distribution revenue in 2019 was RMB2.5 billion, up 18% year-over-year, driven by a number of premium content titles that we distributed during the year. Other revenue for the fourth quarter were RMB874.4 million, down 21% year-over-year, primarily due to the soft performance of certain business lines, partially offset by strong growth in game business. Other revenue in 2019 were RMB3.7 billion, up 30% from 2018, driven by the growth of number of business verticals, especially robust growth of our games business after the acquisition of Skymoons.

Moving on to the cost of revenues. Our cost of revenue for the fourth quarter were RMB7.9 billion, down 7% year-over-year, primarily due to the low content cost, partially offset by the increase of other cost items. Content costs for the fourth quarter were RMB5.7 billion, down 13% year-over-year. This was a combined result of certain legal titles being launched later in the quarter as well as the less expenses recorded related to the original content. Cost of revenues in 2019 was RMB30.3 billion, up 12% from 2018, primarily driven by the high content costs and other cost items. Content cost in 2019 were RMB22.2 billion, up 6% year-over-year due to our continued investment in our comprehensive and diversified content library.

Turning to operating expenses. SG&A expenses in the fourth quarter were RMB1.4 billion, up 15% year-over-year. SG&A expenses in 2019 were RMB5.2 billion, up 26% from year 2018. This was primarily due to the increased sales of marketing expenses related to iQIYI apps and our game business. The full year expenses was also due to the higher share-based and personnel-related compensation expenses. Our R&D expenses in the fourth quarter was RMB711.3 million, up 17% year-over-year. Research and development expenses in 2019 were RMB2.7 billion, up 34% from the year 2018. The increase was primarily due to our continued investment in R&D staff. Operating loss in the fourth quarter was RMB2.5 billion compared with the operating loss of RMB3.3 billion in the same period of 2018. The operating loss margin for the fourth quarter was 34% compared to that of 47% in the same period of year 2018. Operating loss in 2019 was RMB9.3 billion compared to an operating loss of RMB 8.3 billion in 2018. Operating loss margin in 2019 was 32%, compared to 33% in 2018.

Total other income in the fourth quarter were RMB75.3 million compared with the total other expenses of RMB34.8 million during the same period year of year ’18. The year-over-year variance was a combined result of foreign exchange gain due to the exchange rate fluctuation between RMB and the US dollar, increased interest expenses associated with our financing activities, as well as the impairment losses for certain capital investments. Total other expenses in 2019 were RMB967.1 million compared to a total other expense of RMB676.2 million during 2018. The full-year variance was due to the increased interest expenses, foreign exchange fluctuations as well as the impairment loss and lower fair value gain for private company investment.

Loss before income tax for the fourth quarter was RMB2.5 billion compared with a loss of RMB3.4 [Phonetic] billion during the same period of 2018. Loss before income tax in 2019 was RMB10.2 billion compared to a loss of RMB9 billion in 2018. Income tax expenses for the fourth quarter was RMB22.6 million compared to income tax expense of RMB79.5 million during the same period in 2018. Income tax expenses in 2019 was RMB51.9 million compared to income tax expense of RMB78.8 million in 2018.

Net loss attributable to iQIYI for the fourth quarter was RMB2.5 billion compared with a loss of RMB3.5 billion during the same period of 2018. Diluted net loss attributed to iQIYI per ADS for the fourth quarter was RMB3.43 compared to a diluted net loss attributed to iQIYI per ADS of RMB4.83 in the same period of 2018. Net loss attributable to iQIYI in 2019 was RMB10.3 billion, compared to a net loss of RMB9.1 billion in 2018. Diluted net loss attributable to iQIYI per ADS were RMB14.14 for 2019, compared to a diluted net loss attributable to iQIYI per ADS of RMB17.01 in 2018. As of December 31, 2019, the company had a cash, cash equivalents, restricted cash and short-term investment of RMB11.5 billion.

Turning to our first quarter 2020 guidance. We expect total revenue to be between RMB7.10 billion and RMB7.52 billion, representing an increase of 2% to 8% year-over-year. This forecast reflects iQIYI’s current and preliminary view, subject to change.

This concludes our prepared remarks. I will now turn the call to the operator and open to Q&A.

Questions and Answers:

Operator

Thank you Xiaodong. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Alicia Yap from Citigroup. Please ask your question.

Alicia Yap — Citi — Analyst

Hi. Thank you. [Foreign Speech] So understood that you mentioned earlier in the prepared remarks, the competition seems more rational, but just wondering with one competitor surprisingly leverage the closure of the movie theater to get the license of a new movie broadcast during the Chinese New Year. So how do you see the competitive landscape to evolve? Do you think that will have a disruption to the pricing for any licensing content in the coming future? And then in light of these various impact and the macro outlook, do you think you still have plans to increase the listing price for the member subscription. Thank you.

Yu Gong — Founder, Chief Executive Officer and Director

[Foreign Speech] I will first comment on the [Indecipherable] landscape. I think in terms of user traffic or advertising or membership in terms of the three metrics, our soft and content video and YouTube — sorry, Youku all together combined, we already take up 80% plus to 90% plus of the overall market share. This landscape has been very stable, and we didn’t see any sign of major change to this basket. So I think that’s my comment on that.

And secondly, on the question of movie that are licensed by [Indecipherable]. Yes, they licensed a top quality movie during the Chinese New Year, but in our view, the three models are putting very top movies ready to watch on your platform and trying to make it back by purely advertising. I think that’s not a very healthy or sustainable model going forward. Because the cost per minute for movie content is much more expensive, it could be several times or two dozen time higher than cost per minute for a drama series or any other content. So that’s not a normal model but in terms, if you want to use movie to — as a user acquisition approach or for marketing purposes, that’s okay, but it will not cause major model change for industry. Thank you.

Operator

Your next question comes from Eddie Leung from Bank of America Merrill Lynch. Please ask the question.

Eddie Leung — Bank of America Merrill Lynch — Analyst

Sure. [Foreign Speech] My question is about soft video or mini video app. I remember in the past, we already had a couple of short video apps from iQIYI. So just wondering going forward, what’s the strategy? Are we going to maintain a multi-app strategy or are we going to develop a super app? And where and how much we are going to invest? Thanks.

Yu Gong — Founder, Chief Executive Officer and Director

[Foreign Speech] There are currently two forms of video app in China, one is a long form video platform like our self. This is benchmark to domestic model in the US. And the other one is what we call mini video, which are mainly combines of the very short, which is shorter than 60 seconds long-haul video content such as [Indecipherable] and some other apps. Of that, those apps are already reached a DAU of 200 million to 300 million for the entire industry. But if you take a look at the [Indecipherable] video, which is 7 minutes to 8 minutes or 10 minutes longer, which is more similar to the future model, this kind of app is quite more in China, I would think that only last 100 million of DAU currently, but the YouTube model, by far is the biggest is the number one in terms of handsets around the globe. So I think there’s a lot of opportunity over there, and we are developing a new app called the Suike. It’s currently undergoing product testing and we have seen some encouraging data points so far and we will trying to build that app. Thank you.

Eddie Leung — Bank of America Merrill Lynch — Analyst

[Foreign Speech] Thank you.

Operator

Your next question comes from Thomas Chong from Jefferies. Please ask your question.

Thomas Chong — Jefferies — Analyst

Hi. Thanks management for taking my questions. I have a question about the membership business. Can management comment about how we should think about the net add in 2020 as well as the ARPU trend? [Foreign Speech]

Yu Gong — Founder, Chief Executive Officer and Director

[Foreign Speech] Okay. I would like to comment on the impact of the coronavirus, which obviously have been over a month now. And because a lot of people stay at home, we have observed some big traffic hike, as well as some beneficial effect on our membership and acquisition. However, with a lot of companies and a lot of people gradually getting back to work, we think there will be some slowdown in the trend and even some setback in the future. So that trend is just temporary. And how that will trend over to Q2, Q3, and Q4, that view is — needs to be observed. So far we cannot give you a guidance for the full year net addition, but we will continue to enhance in our content offerings and improve our user experiences at wide offering more and more convenient to our paying massive — people — for our users to grow our membership business.

And another point to your question is we do launch a new product for advanced viewing in the fourth quarter. We have applied that model to several content including TV and [Indecipherable] and something of that service, which enables users who are already our members to pay some actual fees to get more advanced and quicker access to the episodes, which as of now I think so far has been seeing good results. And we will make this model into a routine practice in our membership service going forward, but because this kind of advanced viewing content only account for a small percentage of total content offerings, so the revenue contribution is not material in Q4. And also the ARPU contribution is not that significant in Q1 I would say. In the future we think, in addition to this advance viewing, we believe we’ll have some other initiatives, including narrow down the discounts. And our list price is 19.8 for Android users and 25 per month for Apple users, but because of some discount and the promotions, our effective ARPU is only 10 plus so that — we will narrow that income. And also after the coronavirus, we were looking to some other initiatives, including offering some higher priced packages or looking into some potential increase of list price value after the coronavirus. Thank you.

Thomas Chong — Jefferies — Analyst

[Foreign Speech]

Operator

Your next question comes from Wendy Chen from Goldman Sachs. Please ask your question.

Wendy Chen — Goldman Sachs — Analyst

[Foreign Speech] Thanks management for taking my question and I wish everybody good health and safety. So my question is about content costs. And we see that in the past year, content costs as a percentage of revenue has been well controlled with good improvement. And I was wondering for outlook into 2020, are we seeing the decrease the price of license content will help to further control the content cost? And what is our ideal content cost as a percentage of revenue cost overall? Thanks.

Xiaodong Wang — Chief Financial Officer

Good morning, Wendy. This is Xiaodong Wang. I think the general trend of content costs will continue to be optimize in the next few years. You will continue to see as a percentage of revenue and the content costs will continue to decrease in the next few years. I don’t see any net drivers now that content cost will go in other directions. No matter the price of licensed copyrights, the quality and the monetization ability of our original content. So the answer is yes, definitely, we’ll see a positive return of content cost structuring in the next few years. Thank you.

Operator

Thank you. Your next question comes from Ella Ji from China Renaissance. Please ask your question.

Ella Ji — China Renaissance — Analyst

[Foreign Speech] So, my question is — my first question is regarding the newly added subs [Phonetic] during 1Q. I’m just wondering how many are brand new users to you and how many are other users who have subscribed and stopped and now back to you? And do you see the opportunities — this is an opportunity to expand to the lower tier cities that you didn’t have a chance to touch in previously? Second question is about the new net less video app Suike, I’m wondering what would be the content format. Is it more PGC oriented or is it more UGC oriented? And the last question is about content cost. I just wonder if you can help us understand the quarterly volatility in the content cost as a dollar amount level? Thank you very much.

Xiaodong Wang — Chief Financial Officer

Hello. This is Xiaodong. I will comment on your first question and then let Dr. Gong comment on your second one. First, about the membership business in the first quarter because specifically Q4’s financial release, so I will just briefly comment on a recent update. Definitely you are right, most of the new subscribers that we acquired in the first quarter last year not 100% in new subscribers because the majority of those news subscribers had been our membership business users in the past few years. As I commented before, in the past two years, three years, we accumulated over 300 — near 300 million paying subscribers. So, the base is quite big for both of them as they are come from the paid users once before. But definitely, the recently new content and the entire environment will have penetrated to those areas, which are less active in that before including low-tier cities, that’s true definitely, it will have.

For the third question about the volatility of content cost between quarters. Yes, you will see that volatility in the next few years because as I commented before, it’s not only because of the seasonality, but also it has something to do with the like say the production schedule of the play, the approval process, a lot of effect will be high. I also comment once before, it’s very important to understand is actually the content investment that not necessary has something to do with revenue in that quarter, it will have a lag effect. For example, most of the effect of content costs on the membership business will be reflected in the quarter after or even two or three quarters later. So basically, it’s not a short-term business, so that’s why I encouraging you guys to look at a longer period than individual quarters. And that’s my thoughts.

I will let you, Dr. Gong, to comment on the second one.

Yu Gong — Founder, Chief Executive Officer and Director

[Foreign Speech] For a sequel, we have basically two types of content. One, we call it PUGC, professional user-generated content and other from IPN or individuals or professional institution who upload their content, then we list on revenue share, either advertising or pay view for them. So that will not increase our fixed content cost. On the other hand, we also offer some long form video content from our main app. So basically, this will become an additional distribution channel for our content and also improve our monetization, and we will help to dilute our content overall content costs.

And I also want to comment on — because the YouTube, since three years YouTube have developed very fast and become the big — the number one highest content all over the world. But in China, that haven’t really taken up — taken off in China, because of cultural backgrounds and then also technology reasons. But why we are starting to look at this model is because things have changed now. We have seen improving 5G technology. Because if you look back, when the 3G came, it makes the [Indecipherable] rich app become a lite app. And then in the 3G to 4G era, those mini video become a lite app in users view. And now the 5G is coming, and we believe that several minutes long video app will become a less — lite app for the audiences. And also, apart from the 5G, the AI is also developing very quickly, and that will help the trend that enables people to view the new app as a very light application. Thank you. Sorry, I want to add, the last one is, that will happen that, this recur incubation will take several years we will not be dumping material this year or next year. That’s all, thank you.

Operator

We still got time for one last question. Our final question comes from Tian Hou from TH Capital. Please ask the question.

Tian Hou — TH Capital — Analyst

[Foreign Speech] So during this outbreak the production of the content, most of them have been soft. So what is the content supply in the next several quarters is going to look like? Also for iQIYI, what is our status in terms of a content inventory? Thank you.

Yu Gong — Founder, Chief Executive Officer and Director

[Foreign Speech] There are several type of content for dramas, which contributed more traffic as well as that additional product. I think because the production cycle for this drama content usually are very long. So the coronavirus caused a couple of months of delays that will not be a big problem, because we also have a lot of reserves in our content inventory. For some variety show content, not only for us, but also for some TV show, the overall impact will be two weeks, three weeks that will be near-term impact of that.

And also for a movie content for most of the theatrical movies, there are several window period of viewing, first movie in the box office launch but because of the virus, most of the theatrical movies have been delayed their window periods. And the second window will be our platform. We have seen some — a few of those theatrical movies for example, enter into the Trans Dragon that’s the movie we and Tencent will pro-launch on our platform on the pay-per-view basis, which have been a very satisfactory result for us. But most of the other movie we’ll do, waiting for a delayed window for the box office launch. Luckily, the movie content is a very more part of our overall content offering, so it is not a big impact.

Thank you for your question. And I wish all the participants and their families healthy — for everybody. Thank you.

Operator

I would now like to hand the conference back to management. Please continue.

Dahlia Wei — Investor Relations Director

Okay. Thank you, again. And if you have any other questions, please do feel free to contact us. Thank you.

Xiaodong Wang — Chief Financial Officer

Thank you.

Yu Gong — Founder, Chief Executive Officer and Director

[Foreign Speech]

Operator

[Operator Closing Remarks]

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