China’s Baidu, which is often compared to Alphabet’s Google, is showing no signs of slowing down its pace of betting on video content as its core advertising unit feels the squeeze from rivals. The company’s latest financial results show its video streaming business iQiyi posted a net loss of 9.1 billion yuan or $1.3 billion in 2018, compared to just 3.74 billion yuan in 2017.
Not long ago, iQiyi announced raising $500 million in convertible notes to fuel its spending spree. The video site, which filed for a $1.5 billion U.S. IPO last February, aspires to be the “Disney of China” with a Netflix-style production house and a plan to merchandise a library of intellectual property. Baidu also felt the heat as content costs from 2018 jumped 75 percent to $3.42 billion mainly on account of iQiyi expenses.
The cash burn appears to be paying off. IQiyi added 36.6 million subscribers last year, bringing its total users to 87.4 million. 98.5 percent of them were paying, a promising ratio given Chinese users were long used to getting free content in a country with rampant online piracy. IQiyi’s most serious contender Tencent Video had 82 million users as of Q3.
2018 also turned out to be the first time Baidu has crossed the 100 billion yuan earnings mark as the firm pocketed 102.3 billion yuan ($14.88 billion) in total revenues, an increase of 28 percent from 2017.
In Q4 alone, Baidu’s total revenues grew 22 percent to $3.96 billion at a slower rate compared to the previous quarter. Online advertising from search results, news feed and video content still made up the majority of the company’s income despite the considerable resources the behemoth has poured into autonomous driving and other AI-focused efforts.
Meanwhile, Baidu’s lucrative advertising business is facing heightened competition from ByteDance, the fast-ascending new media company with a suite of news and video apps that are proven popular with marketers. The Beijing-based firm that’s also unnerved Tencent was expected to achieve $7.4 billion in revenues last year, Bloomberg reported citing sources.
To fend off attackers, Baidu has broadened its advertising inventory beyond the web to include the likes of elevators. In another move, Baidu paid $133 million in cash prizes luring users to its namesake search app on the eve of Chinese New Year. But its search service has over the years been a repeated target for criticism on issues ranging from false medical ads to more recently the subpar quality of its search results. Baidu has nonetheless held onto its commanding position in a market where Google is absent and smaller players like Bing and Sogou remain the underdogs.
On the AI front, Baidu made a total of 13 investments in 2018 that made it the most prolific corporate venture capital focused on the realm, according to a report from CB Insights. Microsoft’s M12 venture and Google Ventures followed closely behind.
Though Baidu’s AI business is far from achieving mass commercialization, the segment has scored some notable landmarks. Over 200 million devices now use DuerOS, the company’s answer to the Alexa voice assistant. Baidu’s autonomous driving open platform Apollo has accumulated 135 original equipment manufacturers (OEMs) including Volvo, which is working with its Chinese ally to deliver level four self-driving passenger vehicles that can operate on pre-mapped roads with minimum human intervention.