Western investors and media like to call iQIYI the “Netflix of China”. Beyond being streaming video providers, however, Netflix and iQIYI (pronounced “ee-chee-yee”) are quite different. Netflix is a monolith focused on global growth with little interest in fostering its users’ social engagement. By contrast, iQIYI uses its social media platform to offer China’s domestic audience a range of products and services.

Different Revenue Sources

Netflix and iQIYI Revenue Sources

The first difference between Netflix and iQIYI is the way the two companies generate their revenue. Netflix is fairly monolithic. As documented in Netflix’s 2018 annual report, almost all of its revenue comes from membership fees for streaming video. Membership fees from the remnants of Netflix’s original DVD distribution business comprise a shrinking sliver of the American company’s revenue.

Related: Why is Netflix Struggling in Asia and Who Are They Competing Against?

On the other hand, iQIYI’s 2018 annual report describes a diversified portfolio of business lines. Membership fees generate only a third of the company’s revenue. An equal amount comes from advertising sales which consist of branded ads that appear before or during a video and product placement in original programming. IQIYI’s other revenue sources include:

  • Sale of virtual items during the iQIYI Show live broadcast.
  • Online gaming and online comics.
  • Talent agency fees.
  • Providing content distribution for other companies.
  • IP licensing.
  • Other e-commerce.

Different Growth Strategies

Netflix and iQIYI Membership Growth

Since membership fees are Netflix’s only revenue source, the company must keep adding new members (or raising fees) in order to keep growing. About 84% of Americans already use Netflix, a recent survey by Lab42 Research found.

With no more room to grow domestically, Netflix is aggressively growing internationally. The number of international subscribers first surpassed the number of American subscribers in 2017. At the end of 2018, Netflix’s annual report stated, international subscribers represented 58% of its total membership.

Related: Interview with iQiYi Boss Reveals Netflix’s Limited Future in China

For iQIYI, on the other hand, the focus is on domestic growth. In a recent filing with the US Securities and Exchange Commission, iQIYI cited research showing how China’s streaming video industry is still in its early stages. The share of internet video users in the Chinese population increased from 1.2% in 2012 to an estimated 33% in 2018 and is expected to reach 40% in 2022.

In addition, iQIYI pointed out, the Chinese people are still getting used to the idea of paying subscriptions. Box office revenues in China are five times larger than streaming video subscription revenues whereas American movie ticket sales are only twice as large as streaming subscriptions.

In an interview with The Hollywood Reporter, iQIYI CEO Tim Gong Yu explained that his company is taking a cautious approach to international expansion. iQIYI has operated in Taiwan for the past three years, but Yu still referred to the Taiwan operation as a “pilot.” One factor holding the company back, Yu said, was the nature of iQIYI’s content. Almost all of it is produced for China’s domestic market rather than broader international tastes.

Different Content Strategies

Netflix and iQIYI Content Spending

Last year, iQIYI spent RMB 21 billion, about US$3 billion, on content. Netflix spent $8 billion during the same period. Both companies depend on having a catalog of content compelling enough to attract new users and retain existing users. While the two companies’ approaches to content development are similar, there are also some important differences.

Licensed Content

Both companies source content from third parties. Shows like iPartment, The Story Of MingLan, and My Love from the Star are produced by outside studios and licensed to iQIYI for a specific period. This creates some risks in the long term as Netflix is finding out with Disney’s decision to withdraw its content.

Original Content

Original content gives iQIYI and Netflix more control over their destinies. The in-house studio at iQIYI produces reality entertainment shows like The Rap of China, Idol Producer and Hot-Blood Dance Crew. The company also contracts with independent studios to produce original shows like The Lost Tomb, The Mystic Nine, and Story of Yanxi Palace.

Netflix’s original content strategy follows a similar pattern with in-house projects like House of Cards and co-produced projects like its partnership with the BBC on the upcoming adaptation of Dracula. For Netflix, original programming also serves its international expansion. Licensed content usually comes with geographical restrictions that prevent Netflix from streaming it worldwide. On the other hand, Netflix owns all of the international rights for the content it produces and most of the rights for content it co-produces. Star Trek: Discovery, for example, streams on Netflix everywhere but the United States.

iQIYI’s Long Tail Content

Yet, even here, iQIYI differs from Netflix by streaming content from outside parties. Independent professional content producers can upload their own videos to iQIYI and get a share of the advertising and membership revenue. According to iQIYI, working with these partners provides “long-tail content in order for us to capture a broader user base.”

Much like YouTube, iQIYI also relies on user-generated content to attract mobile audiences and create stronger engagement. Members can follow their favorite content creators and discover new content thanks to iQIYI’s artificial intelligence-based recommendation engine.

iQIYI as Social Media Platform

The importance of social to iQIYI’s business model may be the biggest distinction between it and Netflix. The company created iQIYI Paopao, a social media platform that lets its members follow celebrities and stay up-to-date with their favorite shows. “By strengthening the connection among fans, celebrities and content,” iQIYI explained in its annual report, “the platform enhances user engagement and stickiness, and turns iQIYI Paopao into a social media platform for fans.”

Social is more of an afterthought for Netflix. Over the past several years, Netflix stopped showing aggregated user ratings and replaced it with a simple thumbs up/down rating that nobody else can see. Sharing features are limited to Netflix’s mobile apps and are little more than links to other social media apps.

Netflix and iQIYI are their own things

The “Netflix of China” moniker is an easy shorthand analysts and reporters use. Their audiences know little about the Chinese market and the label provides quick-and-easy context. But the differences are quite real. With its diverse revenue sources and socially-driven engagement, iQIYI could be building a more robust business than Netflix’s monolithic service. Should iQIYI keep its lead in the still-developing Chinese market, the company will be a formidable competitor once it expands internationally.

Chris Casper is a former tech industry product manager who escaped from California for New Mexico. Now he writes about science and tech while searching for the perfect green chile sauce.