iQiyi Inc. recently disclosed its second-quarter 2026 financial results, revealing a revenue decline of over 5% and continued net losses. Following the earnings release, the company's stock price has fallen consecutively, cumulatively plunging over 30% and hitting new historical lows. What exactly has happened to the once-glorious iQiyi?

Losses are the norm, not the exception. In 2018, iQiyi debuted on Nasdaq under the halo of "China's Netflix," with its stock price once surging to $46 and its peak market value surpassing $31 billion. That was the most glorious year for long-form video, with capital chasing, user growth, and compelling narratives, leading the market to believe China would produce its own Netflix. Now, iQiyi's stock price has fallen below the $1 red line, with a cumulative decline exceeding 98% and a market value erosion of over $30 billion, equivalent to more than 200 billion RMB. From being highly anticipated to being ignored, iQiyi has taken only eight years.

The core logic behind the capital market's vote of no confidence in iQiyi is actually straightforward: this company has been loss-making most of the time, with profitability being only an occasional interlude. From 2015 to 2021, the entire long-form video industry was embroiled in a copyright arms race without gunpowder. The licensing fees for a single hit drama often reached hundreds of millions, and the prices for exclusive综艺 rights were inflated to astronomical levels. The war later spread to self-produced content, with platforms疯狂 investing in self-made dramas and variety shows, attempting to build moats with exclusive content. The result was that content costs consistently accounted for over 50% of revenue, and rigid operational costs such as bandwidth, servers, and labor made losses the industry norm. During these seven years, iQiyi posted losses every year, cumulatively exceeding 42 billion RMB.

This model of continuously burning cash to exchange for market share was inevitably unsustainable. Gong Yu applied the brakes, and in 2022, iQiyi announced a "profit-first" approach. By shrinking non-core business lines such as gaming and literature and strictly controlling content costs, the company eventually achieved significant loss reduction. In 2023, "The Knockout" emerged as a phenomenal hit, greatly improving iQiyi's operations. At the earnings call, CEO Gong Yu could hardly hide his pride, stating: "2023 marked the best annual performance in our history, with total revenue, operating profit, net profit, and cash flow all hitting record highs."

However, the good times did not last. Hits cannot be mass-produced like industrial products. After the热度 of "The Knockout" fully faded, membership numbers began to decline, iQiyi's revenue contracted, and profits turned back to losses. In the first half of 2026, iQiyi's revenue was 12.5 billion RMB, down 9.4% year-over-year and a sharp 22.5% decline compared to the same period in 2023. During the same period, net profit recorded another loss of 582 million RMB, while the full year of 2025 saw a loss of 200 million RMB. Clearly, iQiyi's decade-plus operational history has proven an awkward fact: in this track, profitability is never the norm; losses are. Brief profitability is merely a respite granted by a hit; once it is absent, losses surge back like tides.

The long-form video business model is loosening. iQiyi's business model appears to have completed a closed loop from content investment to multi-dimensional returns: first, heavily investing in self-produced or procured long-form video content, then monetizing through membership subscriptions, advertising, content distribution, and businesses like gaming and IP derivatives. Theoretically, as long as the content is good enough, users are willing to pay, advertisers are willing to spend, copyrights can be distributed二次, and IPs can be continuously monetized. But reality is more stark, and this so-called closed loop is difficult to achieve long-term, high-quality profitability in the domestic market.

The crux lies in the domestic long-form video track being fiercely competitive, with platforms lacking strong pricing power. iQiyi faces close combat against competitors like Tencent Video and Mango TV. In terms of monthly active users, according to QuestMobile, as of June 2026, Tencent Video had 319 million, iQiyi had 291 million, with the gap widening to 28 million, and Mango TV closing in from behind. In terms of drama market share, iQiyi and Tencent Video are also neck-and-neck. In this landscape, no one dares to continuously and significantly raise prices, as they risk losing users.

In contrast, Netflix has no comparable opponents in overseas markets and has pursued more thorough globalization. Its global paying subscribers exceed 325 million, and economies of scale have greatly diluted unit content costs, forming a positive profit cycle. However, a bigger shock to iQiyi comes from external forces—short videos and short dramas are fundamentally shaking the user base of long-form video. Leveraging advantages like "free, highly addictive, and fragmented," short videos and short dramas are fiercely seizing entertainment time that once belonged to long-form video. People used to spend dozens of minutes watching a TV episode; now, more are accustomed to scrolling through a few minutes of short dramas during commutes. This shift in content consumption habits is not temporary diversion but an irreversible structural change.

According to QuestMobile, as of May 2026, short drama app users' monthly per-capita usage time reached 26.9 hours and monthly per-capita usage frequency was 125.6 times, both surpassing online video platforms, and the gap continues to widen. Moreover, the micro-short drama market has exceeded 100 billion RMB in 2025. Under this zero-sum competition, the more wildly short videos and short dramas grow, the greater the impact on the long-form video ecosystem. iQiyi's original business model essentially relied on high content investment in exchange for users' willingness to pay and dwell time. But when users' attention is redistributed by short videos and short dramas, the foundation of long-form video's survival is loosened. Consequently, both membership and advertising revenue face pressure simultaneously. When membership growth stagnates, raising prices becomes the only way to maintain revenue, but raising prices triggers user churn. Advertisers, seeing shrinking user dwell time, will also reduce their willingness to invest. Clearly, this long-form video business model, once hailed as "China's Netflix," is now facing multi-pronged attacks.

Gong Yu is well aware of these changes. The real difficulty lies in the fact that iQiyi has operated around long-form video for over a decade, from content procurement and self-production systems to membership business models and organizational structures, all built on the logic of long-form content. This means that when user attention suddenly shifts towards short dramas and short videos, iQiyi's challenge is not simply adding a new product, but how to turn a ship that has sailed for over ten years. In 2022, Gong Yu's "profit-first" approach addressed the endless cash burn of long-form video. Today, he faces a much harder problem: when the growth space of long-form video itself is challenged, where will iQiyi's next round of growth come from?

The uncertainty of the AI transformation. Facing the growth bottleneck of long-form video and the comprehensive impact of short dramas, iQiyi has to make changes: on one hand, quickly entering the short drama track with AI; on the other hand, transitioning towards a non-centralized social media platform. In September 2024, it launched "Short Theater" and "Micro Theater"; in 2025, it upgraded the "iQiyi Micro Short Drama" standalone app; in April 2026, it commercially launched the AI film and TV production platform Nadou Pro at its World Conference; and in August, at its Creator Conference, it introduced new revenue-sharing policies and opened a large number of proprietary IPs for creators to adapt.

In fact, Gong Yu had long been alert to the major changes coming to the video entertainment industry. As early as 2023, Gong Yu publicly stated that AIGC was "disrupting every aspect of film and entertainment" and predicted that within three to five years, film production methods, cost structures, and staffing would undergo enormous changes. By 2026, his assessment became even more aggressive. On April 20, at the iQiyi Conference, Gong Yu stated that 100% real physical works might become intangible cultural heritage in the future. In this year's second-quarter earnings report, Gong Yu set the tone with "All in AI" as one of the company's two major strategies, alongside "transitioning to a non-centralized social media platform," becoming the dual engines for iQiyi's next phase. This signifies that AI is no longer just a cost-reduction and efficiency tool for iQiyi, but a strategic bet by Gong Yu to reshape the company's business model.

Overall, iQiyi's transformation actions are undeniably swift, but whether they can achieve favorable transformation results remains uncertain. Starting from 2026, the short drama track has seemingly entered an arms race. Throughout April, major platforms' total investment in support plans exceeded 3 billion RMB, with participants including Hongguo, Douyin, China Literature, and Taobao Short Drama. This is a major showdown competing on capital, traffic, IPs, and algorithms. Undeniably, Hongguo Short Drama is the strongest dark horse in the short drama track. Leveraging ByteDance's complete ecosystem synergy—with Tomato Novel upstream supplying web novel IPs, Douyin midstream providing traffic (early on, over 60% of new users came from Douyin), and downstream monetization through free, ad-supported models—it has formed a complete business closed loop. According to QuestMobile data, as of June 2026, Hongguo Short Drama had 368 million monthly active users, a year-over-year increase of 73.7%, achieving a dominant lead in user scale. Looking at the entire online video industry, it has surpassed Tencent Video and iQiyi to top the list for monthly active users of mobile video apps in China.

Hongguo's rapid ascent is inseparable from the ByteDance ecosystem's traffic pool and extensive support. Other key competitors also have varying degrees of resource transfusion from their parent companies. For instance, China Literature holds China's largest web novel IP library, and Taobao is linked to Alibaba's e-commerce and payment ecosystems. In contrast, iQiyi's position is somewhat awkward, as its major shareholder does not provide a traffic pool or other large-scale resources for empowerment. As competitors疯狂 invest and expand territory in the short drama track, with its own operational fatigue, how likely is iQiyi to keep pace with the industry's rhythm and succeed?

More troublesome is that Hongguo has already upgraded its playbook in 2026: investing 500 million RMB in real-person short dramas, removing 1,718 AI short dramas violating regulations in the first quarter, and another 3,522 low-quality contents in a single week, while launching the "Guoran Plan" to bring in seasoned industry professionals like Tang Guoqiang and Li Lianjie. It's not just Hongguo. From June to July this year, six key platforms collectively invested at least 6 billion RMB to start an arms race in real-person short dramas. What are these platforms betting on? From our perspective, they are betting that the emotional value of real-person short dramas is becoming increasingly irreplaceable. In the first half of 2026, Douyin alone saw 221,900 newly added AI-produced dramas and comics, yet the hit rate (over 100 million views) for AI short dramas was only 0.47%. Meanwhile, real-person short dramas, which accounted for only 5% of new productions, took the vast majority of platform revenue share. This indicates that while AI short dramas use industrial tools to ramp up production capacity, audiences are increasingly craving content with flesh and blood. This aligns with the statement made by the chief editor of Hongguo Short Drama at this year's online audiovisual conference: real-person short dramas represent the ongoing and future direction of high-quality industry development. Hongguo is betting that users will ultimately gravitate towards real people, while iQiyi is betting AI can subvert film and TV production. One goes left, the other right. Who stands on the correct side?

Overall, iQiyi entering the short drama space does not guarantee it can reap the benefits. "All in AI" does not necessarily mean it can turn the tide and reverse the weakness of long-form video overnight; everything is fraught with uncertainty. Given the negative performance in the capital markets, iQiyi's transformation path is unlikely to be smooth.