While heavily investing in S-tier blockbuster dramas and embracing decentralization, can iQiyi have the best of both worlds?

On August 18, iQIYI released its financial report for the second quarter of 2026, recording a total revenue of 6.29 billion yuan, a slight quarter-on-quarter increase of 1% and a year-on-year decline of 5%; its Non-GAAP operating loss narrowed to 30.3 million yuan, and both operating cash flow and free cash flow turned positive. 

However, the most noteworthy part of this financial report is not the financial figure of narrowing loss, but a set of strategically highly tensioned choices: continuing to invest heavily in centralized S-level high-quality long dramas to consolidate the platform's basic market and brand mindshare; on the other hand, fully promoting the largest model reform since its establishment 16 years ago, shifting to a decentralized creator ecosystem, delegating production, creation and partial decision-making rights to external creators, and attempting to reconstruct the content supply logic with AI.

Two completely different content production models are operating in parallel inside iQIYI.

Centralized large dramas represent high investment, high risk and high brand value; the decentralized ecosystem pursues asset-light operation, massive supply and controllable cost.

The two sets of logic inherently have conflicts at the levels of resources, budget, traffic and user mindshare. iQIYI's attempt to combine the two is not only a self-rescue for the long-form video industry in the stock era, but also a high-stakes bet full of uncertainties.

01 S-level large dramas remain the basic market

The foundation of long-form video platforms still lies in top-tier high-quality long episodes.

In the second quarter, according to Yunhe Data, the market share of iQIYI's long episodes, films and children's content still ranks first in the industry. Works such as Legend of the Soul Ferryman · Ten Years, Low-IQ Crime and Family Heritage continuously contribute popularity and drive membership growth. Hit long dramas remain the most important leverage for membership payment and brand advertising investment.

The logic of the traditional centralized self-produced model is very clear: the platform provides funds, sets up projects, controls the whole process of script, main creative team, shooting, promotion and distribution, bears the vast majority of capital risks, holds the copyright, and relies on hits to drive multiple revenues from membership subscription, advertising investment and copyright distribution. However, this model comes at a high cost. The overall investment of top S+ episodes often reaches hundreds of millions of yuan, and the industry has long faced the realistic dilemma that "more than half of the large drama projects cannot recover their costs".

Financial data shows that iQIYI's content cost in the second quarter was 3.82 billion yuan, a slight year-on-year increase of 1%. Even if the industry repeatedly emphasizes cost reduction, the rigid investment in top high-quality content is difficult to compress rapidly.

The ideal is plump, but the reality is bony.

Even if iQIYI fully embraces the decentralized transformation, it still needs to invest heavily in centralized large dramas at present. Top high-quality episodes are the facade of the platform, which determines why users are willing to pay to open iQIYI, and is also the underlying reason for advertisers to place advertisements. Giving up heavy self-produced content is equivalent to giving up the brand cognition accumulated by the platform for a long time.

But the contradiction arises here: S-level episodes are capital-eating monsters. As long as we continue to produce top large dramas, we cannot completely get rid of the shackles of high content costs. There is a natural tug-of-war between the demand for cost reduction and the rigid investment in top content.

02 From content buyer to service provider?

The outbreak of AI technology gives long-form video platforms another solution to the problem.

Gong Yu, founder of iQIYI, put forward the "One-Two Law" of the industry in public occasions: AI promotes the cost of a single piece of content to drop by an order of magnitude, the number of creators to increase by an order of magnitude, and the number of works produced to increase by two orders of magnitude. When the threshold of content production is greatly lowered, a large number of ideas, small and medium-sized teams and individual creators pour into the market. In the past, the centralized production model that the platform took full responsibility for can no longer cope with the explosive growth of content supply, so the decentralized transformation has been pushed to the core of the strategy.

The so-called decentralization, in layman's terms, means that iQIYI no longer takes full responsibility for investing, shooting and buying out all content. The role of the platform has changed, from a "self-operated department store" to a "commercial block": the platform provides creation tools, traffic distribution and revenue sharing system, external creators make independent decisions and invest independently to produce content, and share revenue according to actual returns after the works are launched. The platform draws service revenue and no longer bears all the production capital risks.

At the product level, two major carriers undertake the mission of transformation: the upgraded iQIYI Creator Account, and the professional AI film and television creation tool Nado Pro.

iQIYI Creator Account allows creators to settle in with zero threshold, and opens upload permissions for multiple categories such as short dramas, comic dramas and medium-length dramas; Nado Pro covers the whole chain of script assistance, storyboard, AI-generated shots and post-editing. After creators complete their works, they can distribute them to the platform with one click, share revenue according to the actual income of the project, with no upper limit on revenue, and give additional incentive subsidies for AI-created content at the same time.

The ideal picture of this model is very attractive: there is no need to continuously invest huge funds to purchase copyrights, and obtain revenue by empowering tools, distributing traffic and drawing a share from revenue sharing; massive diverse content meets the needs of users in different circles, drives user duration, enriches the copyright inventory of the content distribution business, exports short drama and comic drama copyrights to the outside world, and amplifies the secondary monetization capability.

However, during the Q2 earnings conference call Q&A session, the management stated that the decentralization and AI transformation are still in the early stage, only initial results have been seen, and we should not expect a significant performance boost in the short-term financial report. The market generally believes that it is necessary to give an observation period of 1-2 years for the value release of the whole set of strategies.

03 Practical contradictions of the two content systems

Under the ideal blueprint, from an external perspective, the parallel operation of centralized high-quality content and decentralized creator ecosystem hides multiple unavoidable conflicts, which are also the biggest risk points of this transformation.

The first one is the tug-of-war between budget and resources, that is, how to allocate money and energy.

Enterprise resources are limited. On the one hand, it is necessary to continuously invest hundreds of millions of yuan to maintain the output of S-level long dramas and consolidate the basic market of the industry; on the other hand, it is necessary to invest R&D resources to iterate Nado Pro tools, operate a huge creator ecosystem, and give creators subsidies and traffic support.

If resources are excessively tilted to the decentralized ecosystem, and the investment in S-level top projects shrinks, the direct consequence is the lack of hit long dramas to drive membership and advertising, which will damage the core basic market of the platform; if a large amount of budget is still invested in centralized self-production, the supporting resources of the decentralized ecosystem will be diluted, and the creator ecosystem will be difficult to grow rapidly.

The two cannot be simply added, and there will inevitably be resource game inside. The long-form video industry has tried revenue sharing content for many times in the past — online big movies and early short dramas were once very popular, but they have never been able to shake the core position of top self-produced content. The core difficulty is that the balance of resource allocation is extremely difficult to grasp.

In addition, how to allocate traffic is also a challenging problem.

Platform traffic is a scarce asset. S-level self-produced large dramas need to be given core resource positions on the home page to ignite popularity, drive membership and advertising; a large number of short dramas, comic dramas and AI works produced by external creators also need traffic to survive.

If traffic continues to tilt towards the platform's self-produced S-level large dramas, external creators cannot get exposure, the revenue sharing income is limited, and the ecosystem is difficult to prosper; if a large amount of traffic is given to external small and medium-sized creators, the promotion potential of S-level large dramas will be weakened, and the top projects heavily invested by the platform will not achieve the expected commercial returns.

At the same time, there is also the conflict of user mindshare: for many years, iQIYI has been labeled as a high-quality long drama platform in the hearts of users. When a large number of AI-generated, formulaic short drama content flood into the platform and massive low-threshold works are launched, will it dilute the high-quality mindshare that the platform has established for a long time? Paying members open the platform expecting high-quality top episodes, not assembly-line mass-produced short dramas. Once the content tone deviates, it may backfire on members' willingness to pay.

Finally, all strategies serve business. At present, the two monetization logics are difficult to connect simply.

Centralized S-level large dramas can obtain threefold revenue from membership subscription, brand advertising implantation and copyright distribution at the same time, and are the core placement carriers for large advertising clients. While short dramas and AI comic dramas produced by external creators mostly rely on revenue sharing, small-scale advertisements and user payment, and it is difficult for them to undertake large client brand advertisements.

This leads to a practical dilemma: the decentralized ecosystem can increase user duration and enrich content supply, but it is difficult to directly drive high-value brand advertising revenue. Advertisers recognize top large dramas rather than massive small and medium-sized short dramas. That is to say, the decentralized ecosystem can optimize the cost structure, but it is difficult to fill the growth gap of the advertising business in the short term.

In addition, the copyright and ethical risks brought by AI creation are also hanging over the head. Nado Pro calls IP assets and artist materials for creators to use, how to avoid copyright disputes and portrait right risks, and review a large number of externally uploaded contents will bring huge operational pressure. Once a content accident occurs, the platform needs to bear the responsibility at the regulatory level.

04 Exploration of the whole industry model

Many external interpretations simply equate iQIYI's transformation with "increasing investment in short dramas", which is only a superficial interpretation.

Short dramas are only one type of carrier in the decentralized ecosystem. The real reform is the reconstruction of platform power: in the past, the platform was the decision-maker and the largest investor of content; in the future, the platform will turn to an enabler, returning part of the rights of creation and investment to external creators, and AI tools are the base to realize this model.

Looking at the entire long-form video industry, all platforms are facing the same dilemma: the ceiling of domestic paying users has arrived, and the old model of simply purchasing and self-producing top content has reached the top of growth space. Tencent Video increases investment in short dramas and AI tools, Mango TV relies on the basic market of variety show IP, Youku continues to shrink content investment, and all players are looking for outlets outside their main business. iQIYI's dual-track strategy is the epitome of the whole industry's dilemma.

Financial data also confirms the actual situation: in the second quarter, membership revenue was 4.01 billion yuan, advertising revenue was 1.25 billion yuan, and the two traditional main businesses are still under pressure; the truly impressive growth comes from content distribution, which surged 56% year-on-year. In essence, it is the secondary monetization of stock copyright assets, which belongs to a highly flexible business and does not mean that endogenous growth has been fully opened. Overseas membership revenue increased by 40% year-on-year, but the base is still small, and it cannot hedge domestic pressure in the short term.

Centralized S-level large dramas are responsible for guarding the current basic market, stabilizing membership, advertising and brand reputation; the decentralized creator ecosystem bets on the future of the AI era, pursues asset-light operation and massive supply, and looks for the possibility of second growth. One guards the present, the other bets on the future.

The advantage of the dual-track parallel model is that it leaves room for advance and retreat, instead of fully betting on a single path; the cost is that internal resources, traffic and mindshare all have to bear the tug-of-war. Centralization and decentralization are not a simple either-or choice, nor a simple addition. In the next 1-2 years, the biggest highlight of this strategy is not how many AI short dramas are produced, but whether the two contradictory systems can truly form synergy instead of consuming each other.

The long-form video industry has bid farewell to the era of rapid expansion. In essence, all transformations are to find solutions for survival in the stock era. The outcome of iQIYI's dual-track high-stakes bet remains to be verified by time.

This article is from the WeChat official account "Unicorn Observation", author: Unicorn Observation, published with authorization from 36Kr.