Q3 2023 iQIYI Inc Earnings Call
Participants
Chang Yu; IR Director; iQIYI, Inc.
Jun Wang; CFO; iQIYI, Inc.
Tim Gong Yu; Founder, CEO & Director; iQIYI, Inc.
Wenfeng Liu; CTO; iQIYI, Inc.
Xianghua Yang; Senior VP and President of Membership & Overseas Business Group; iQIYI, Inc.
Xiaohui Wang; Chief Content Officer; iQIYI, Inc.
Youqiao Duan; SVP of Intelligent Device Business; iQIYI, Inc.
Lincoln Kong; Equity Analyst; Goldman Sachs Group, Inc., Research Division
Qi Chen; Research Analyst; JPMorgan Chase & Co, Research Division
Thomas Chong; Equity Analyst; Jefferies LLC, Research Division
Xueqing Zhang; Analyst; China International Capital Corporation Limited, Research Division
Yifan Ye; Research Analyst; CLSA Limited, Research Division
Presentation
Operator
Thank you for standing by, and welcome to the iQIYI Third Quarter 2023 Earnings Conference Call. (Operator Instructions) I would now like to hand the conference over to Chang Yu, Investor Relations Director of iQIYI. Please go ahead.
Chang Yu
Thank you, operator. Hello, everyone, and thank you for joining iQIYI's Third Quarter 2023 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: Mr. Yu Gong, our Founder, Director and CEO; Mr. Jun Wang, our CFO; Mr. Xiaohui Wang, our CCO, Chief Content Officer; Mr. Wenfeng Liu, our CTO; Mr. Youqiao Duan, Senior Vice President of our Membership business; and Mr. Xianghua Yang, Senior Vice President of Movies and Overseas business.
Mr. Gong will give a brief overview of company's business operations and highlights, followed by Jun, who will go through the financials. After the prepared remarks, the management team will participate in the Q&A session.
Before we proceed, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our 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.
I will now pass on to Mr. Gong. Please go ahead.
Tim Gong Yu
Hello, everyone. Thank you for joining us today. Our focus of the quarter remains firmly on generating high-quality growth, achieving strong results in both revenues and profits.
Our total revenues grew 7% year-on-year while profit performance was far more remarkable. Gross profit and the non-GAAP operating profit had annual growth of 23% and 71%, respectively. The impressive financial results demonstrate the strength of our robust operating leverage anchored by our exceptional content, which serves as our core competitive advantage.
iQIYI is a signature brand for top-tier content. According to Enlightent data, we have been leading the industry in drama viewership share for 7 consecutive quarters. Our original dramas remained as the key driver for content supply and revenue contribution. Meanwhile, a diverse array of high-quality titles premiered were highly acclaimed by users. Notably, The Lotus Casebook was the 10th drama in our history to break the 10,000 popularity index score.
During the quarter, membership services revenue grew by 19% annually, mainly driven by a 12% annual increase in ARM. Two key factors contributed to the revenue growth. Firstly, empowered by the high appeal of our exclusive content, we have reduced the discounts provided for membership purchases via direct and channel sales. Our content is compelling enough to drive purchasing decisions in its own. Secondly, we have upgraded our member benefits and services, resulting in increased value perception among our members and boosted membership retention rate.
The enhanced member benefits encompass a wide range of upgrades. For example, optimizing the viewing experience from mobile devices to large-screen TVs, members can now enjoy content in stunning 4K, 8K and even indulge in our proprietary eXave MAX to enjoy theater-quality audiovisual experience. The audio experience is equally enhanced with a shift from ordinary stereo sound to the immersive and captivating proprietary, industry-leading IQHimero Sound.
And our member perks don't stop there. We go beyond the online realm, extending our offerings to exciting offline experiences such as exclusive concerts. These upgrades have transformed entertainment, providing users a diversified, personalized and an immersive entertainment experiences. We are very pleased to see users' appreciation for our content and services translate into ARM growth.
Alongside membership services, advertising revenue was our second growth driver during the quarter. Our premium content and enhanced marketing capabilities drove up advertising revenue by 34% annually and 12% sequentially. Both brand ads and the performance ads booked annual and sequential growth. Entering into Q4, we are cautiously monitoring the macro environment's impact on the advertising market, where we will upgrade our marketing capabilities to weather potential challenges as we continue to seek out new growth opportunities in the future.
Now let's dive deeper into the performance of our core business segments, starting with membership services. In the third quarter, membership services revenue exceeded RMB 5 billion for the second time in our history, representing a strong annual increase of 19%, driven primarily by ARM growth.
We would like to reiterate that the primary goal for our membership services is to drive long-term and sustainable revenue growth. Membership revenue is driven by three components, namely ARM, subscriber lifetime and subscriber base. ARM and subscriber lifetime are our current key focus in driving the long-term economic value of membership services.
In the third quarter, ARM reached RMB 15.54, up 12% annually and 5% sequentially. The average daily subscriber increased by 6% annually to 107.5 million. The current ARM level in our view is still very affordable compared with the price of other consumer products. We will continue to drive sustainable ARM growth over the long term backed by several factors.
First, as we just mentioned, membership purchase decisions are increasingly being made based on content and the membership -- and member benefits rather than discounts. Very importantly, our ability in consistently delivering high-quality premium content will be further improved.
Second, our member experience offers compelling value for the money. We will continue enhancing our offering with new value-added services that increase members' value perception and willingness to pay, such as Express, Packages, concerts and merchandise offers. Finally, we see significant potential to further upgrade existing Gold members to Platinum and Star Diamond membership tiers, which command a higher price yet offer more privileges.
Our member privileges and benefits have proven highly attractive. And we expect their appeal to remain strong. For example, the Express Packages is one of the content privileges we have developed for members, which enable subscribers to redeem their member points to unlock early access to finale episodes of hit drama series. This model was applied to two hit dramas in the third quarter, attracted over 10 million participating members, demonstrating the significant value perception attached to these benefits.
In line with our strategy to foster deeper connections between our loyal members and our premium content through IP derivatives, cloud concerts are another important component of membership offering. We held the Mysterious Lotus Casebook-themed concert, which created immersive excitement. Lastly, we have developed a dedicated e-commerce platform for merchandise related to our IPs. Members can use their member points to pay for these goods in full or in part.
As discussed repeatedly, our primary focus is on enhancing member loyalty, retention and the lifetime value through our membership privileges and benefits. Our loyalty program is closely tied to the duration of membership. And we strive to improve the service experience and value perception, especially for our long-term members.
For instance, users who opt to auto-renewal, choose long-term plans or become premium members are granted elevated benefits, including faster accumulation of member points that can be redeemed for content-related perks and merchandise. As a result, we observed meaningful year-over-year growth in both the quantity and proportion of annual plan subscriptions in the third quarter.
Moving on to content. Content is our core competitive advantage. iQIYI online dramas continue to be the main driver in terms of content supply and the revenue contribution, accounted for over 60% of the key dramas launched in the third quarter.
For this year's summer season, our drama lineup covered diverse genres such as ancient costume, reality and suspense. The ancient costume detective drama, The Lotus Casebook, became the dark horse hit of the summer. It was our 10th drama to break our 10,000 popularity index score. And the drama's theme concert we held generated over 230 trending search topics and attracted over 320 million likes. We are happy to see the significant long-lasting impact with this series as it continued to dominate the Enlightent list even after its series finale.
Other key dramas such as ancient costume suspense series, My Journey to You; Imperfect Victim, a series focused on social issues; and criminal suspense series, The Lost 11th Floor, were all well-received by audiences and reflect the quality and the depth of our drama lineup.
For variety shows, sequels to our classic IPs, such as the third season of The Big Band and Housework Talent, made a strong comeback. The Big Band 3 achieved outstanding performance in both advertising and membership revenue. We also launched diverse, innovative, new IPs, including our very first variety show and drama crossover, As You Wish: Love You Seven Times; cultural variety show, Glory is Back: Beijing; and cuisine show, Let's BBQ!, which attracted a wide variety of users.
On a separate note, we are also making good progress in realizing the commercial potential of our premium IPs. Notably, sales of The Lotus Casebook merchandise exceeded RMB 18 million. We have also introduced merchandise based on our original children's IPs, spanning the full range of children's products, including daily life, learning and offline entertainment.
Heading into Q4 and next year. We are committed to deliver diversified and high-quality content on continuous basis. We have a highly anticipated slate of dramas. Aside from the already launched hit titles such as Romance on the Farm, Story of Kunning Palace and The Fearless Season 1, we also prepared a stellar drama pipeline to be released. This includes major ancient costume titles, A Journey to Love and Chinese Paladin 4, as well as modern day-themed dramas like Detective Chinatown Season 2 and Like A Flowing River Season 3 and The Lonely Warrior.
For variety shows, our pipeline covers a wide range of themes, including our first original physical competition show, We Never Stop. And our hit show, Become a Farmer, will introduce its first spin-off show, Hi! Young Farmers. We also have an exciting lineup of children's cartoon and animation. For original children's cartoon, we are going to debut the second half of Deer Squad Season 3 and a brand-new title, Mega Meow. For original animation, The Great Ruler and Against the Gods are still trending while new IPs such as sci-fi series, The Abyss Game, and the comic adaptation, Love Magic Grocery, are set for release.
Moving on to advertising business. We are delighted to see accelerated recovery during the third quarter. Total advertising revenue reached RMB 1.7 billion, up 34% annually and 12% sequentially. Revenue from brand ads recorded double-digit growth both annually and sequentially, driven by several factors. Notably, our premium original content, such as Big Band Season 3 and Love You Seven Times, attracted stronger advertising demand.
Advertising budgets allocated towards variety shows and dramas increased by 67% and 28% year-on-year, respectively. Breaking it down by sector, we saw increased ad budget from food and beverage while sectors like Internet services, transportation and health care also recovered.
Revenue from performance ads recorded strong annual revenue growth of over 78%, mainly due to two factors. First, targeted and efficient operations gained higher budget share from sectors such as Internet services, e-commerce and games. Second, the effective use of generative AI enhanced ad creation and ROI.
Looking ahead to Q4, we are cautiously monitoring the overall advertising market. We acknowledge that the consumption sentiment takes time to fully bounce back, creating a lagging effect on brand advertising business. Nevertheless, based on our unparalleled content quality and extensive user profile, we are the go-to platform for advertisers seeking optimal advertising opportunities. For performance ads, we are optimistic on sectors such as Internet services, e-commerce and short dramas. And we will continue to fine-tune our algorithm and leverage generative AI to enhance ad creation and maximize efficiency.
Moving on to technology and products. Our commitment is centered around fostering technology innovation to empower the entertainment ecosystem, creating value for our users and content creators. Firstly, we harness the power of technology to elevate the entertainment experience for our users. And secondly, we empower our content creators by equipping them with the latest tools and resources to improve the quality and the efficiency of their creations.
Our focus on leveraging AI to enhance the user experience has yielded significant progress. Notably, we have pioneered the use of generative AI in three key search categories: character search, plot search and actor search. By applying advanced content analysis, we are now capable of automatically generating video clips and drama highlights. This cutting-edge technology has been implemented across hundreds of core dramas on our platform, greatly improving search accuracy and user engagement. Users directed to a drama through AI plot search spend an average of 40% more times viewing the content.
One more exciting user experience optimization is the introduction of Karaoke Mode in Big Band 3. This innovative and interactive feature seamlessly integrates some lyrics into the onscreen display during band performance sessions, allowing viewers to sing along and creating a more immersive experience. We saw meaningful viewer engagement and time spent increase by users activating this feature.
In terms of content production and operations, we are promoting the application of generative AI in various use cases, driving the rapid technology development of the video industry. Now the role of generative AI is evolving from a mere embedded tool to a copilot mode in every phase of workflow. By leveraging this transformative technology, we are empowering creators in every aspect of their work, from planning and development to production and promotion of content. This approach not only enhances efficiency but also unlocks new potentials.
We are seeing great initial results. For example, we use generative AI producing low-cost, high-quality posters and videos to showcase our content. We have applied this technology in promoting our key programs such as Destined, The Big Band Season 3, et cetera. In addition, we are expanding the reach and influence of ads by using generative AI.
Finally, for our business performance in regions outside of Mainland China. Our premium content continued to win acclaim from overseas users and drove steady growth in overseas membership revenue. In the third quarter, membership revenue in Japan, Korea, the U.S. and Hong Kong all increased by over 50% annually. The solid performance was driven by the rising influence of our high-quality C-pop. Powered by a number of popular titles, the total viewing time for C-dramas on our overseas platform increased by 23% annually and 33% sequentially in the quarter.
My Journey to You achieved the highest revenue on our overseas platform during its broadcasting period. Meanwhile, The Lotus Casebook's popularity extended beyond Mainland China. And it topped our overseas platform in both total video views and viewing time in the third quarter and ranked #1 in total video views in Southeast Asia, East Asia and the North American markets.
For the fourth quarter, we will continue to drive high-quality growth. In addition to enhancing platform cooperation and channel expansion, we are dedicated to bolster our content pipeline to capitalize on the strong momentum of Chinese dramas while introducing localized dramas in Thailand, Malaysia and Taiwan to further expand our influence.
In summary, we have accomplished strong results in the third quarter with emphasis on delivering high-quality growth. As we look ahead, our dedication to enhancing user experience, strengthening competitive edge in original content, maximizing member value and harnessing the power of advanced AI technology remains steadfast. Going into next year, we will cautiously increase investment in both our core and innovative businesses, establishing a solid foundation for sustainable long-term growth.
Now let me pass to Wang Jun to go through our financial performance.
Jun Wang
Thanks, Mr. Gong, and hello, everyone. We have delivered strong Q3 results. As you can see, the growth of ARM drove the growth of the membership services revenues, profits and the free cash flow. And our operating leverage led to margin expansion on a year-over-year basis. This demonstrates the defensibility and scalability of our business model. Now let me walk you through the key numbers.
The total revenue increased by 7% annually to RMB 8 billion, driven by growth in both membership services revenue and online advertising services revenue. The membership services revenue exceeded RMB 5 billion, up 19% annually, primarily driven by the increase in ARM. Online advertising revenues reached RMB 1.7 billion with annual growth rate of 34%. This was fueled by the growth in both brand and performance ads with performance ads showing stronger growth momentum.
Now moving to the cost. Our quarterly cost and expenses remained relatively stable year-over-year. Total cost of revenue was RMB 5.8 billion, up 2% annually. Content cost as a component of cost of revenues was RMB 4.2 billion, down 3% annually. Total operating expenses were RMB 1.4 billion, down 2% annually.
Turning to profits and cash flows. The non-GAAP operating income reached RMB 895 million, up 71% annually, positive for 7 consecutive quarters. The free cash flow reached RMB 826 million and has been positive for 5 consecutive quarters, representing our enhanced cash-generating capabilities. As of the end of Q3, the company had cash, cash equivalents, restricted cash, short-term investments and long-term restricted cash included in prepayments and other assets, the total of RMB 7.2 billion.
To conclude, our Q3 results reflected the strong execution of our strategy and a steady progress in driving high-quality growth. We are dedicated to delivering long-term value to all of our stakeholders. For detailed financials, please refer to our press release on our IR website. Now we will open the floor for Q&A.
Question and Answer Session
Operator
(Operator Instructions) Your first question comes from Xueqing Zhang of CICC.
Xueqing Zhang
(foreign language) Congratulations on another strong quarter. My question is about ARM. The ARM has quite a solid growth this quarter. So what's your outlook for ARM in the fourth quarter and next year? And also, could you give us more color on how to improve the perceived value and the loyalty of membership?
Tim Gong Yu
Thank you. Youqiao will answer this question.
Chang Yu
Yes, Senior VP of Membership business, Duan Youqiao, will answer this question. Please go ahead.
Youqiao Duan
(foreign language)
Chang Yu
[Interpreted] Yes. For Q3, the ARM exceeded RMB 15, it's within our expectations. And then this is because our progress in content quality and also membership privilege for the long-term perspective, the result of that has been promising. And more users have been growing to pay -- willing to pay at a reasonable price for premium content, also quality services.
Youqiao Duan
(foreign language)
Chang Yu
[Interpreted] We expect healthy growth in ARM to continue in Q4 with significant room for further improvement in the long term. Our confidence comes from four aspects.
Youqiao Duan
(foreign language)
Chang Yu
[Interpreted] Content quality remains the primary determinant for our members' purchase decision. And our ability to consistently provide high-quality and diversified content is strengthening continuously.
Youqiao Duan
(foreign language)
Chang Yu
[Interpreted] Second, in comparison to other domestic daily consumer goods and similar products abroad, our current prices are relatively low.
Youqiao Duan
(foreign language)
Chang Yu
[Interpreted] Third, with the growing demand for watching content on large TV screens, an increasing number of Gold members are upgrading to Platinum and Diamond membership levels.
Youqiao Duan
(foreign language)
Chang Yu
[Interpreted] And fourth, the introduction of more member privileges and benefits such as loyalty points, express package, cloud performances, member-exclusive e-commerce items and also IP merchandise will continuously enhance the attractiveness and the long-term value for members.
Youqiao Duan
(foreign language)
Chang Yu
[Interpreted] All of the above four items I just mentioned give us confidence that the ARM will continue to have healthy growth in the future.
Youqiao Duan
(foreign language)
Chang Yu
[Interpreted] Further, due to our relatively low pricing base, the absolute impact of ARM growth on user perception is relatively small. What users care about the most is still the quality of content and the user experience. We have seen rapid increase in member conversions with the launch of recent premium content.
This indicates that our strategy of leveraging quality content and user experience to enhance ARM and long-term member value is correct and has gained user recognition, leading to sustainable growth in membership revenue. We will continue to pursue this direction.
Operator
The next question will come from Lincoln Kong of Goldman Sachs.
Lincoln Kong
(foreign language) So my question is, at this time juncture of the year when we're thinking about next year, how is our overall business plan, strategy, outlook and the focus area for next year?
Tim Gong Yu
(foreign language)
Chang Yu
[Interpreted] For next year, for 2024, based on the current macro environment and also our current performance so far, our goal for next year is still aiming for high-quality growth, high-quality growth, meaning the revenue and profit will both grow and profit will grow at a faster pace.
Tim Gong Yu
(foreign language)
Chang Yu
[Interpreted] Okay. Secondly, we will cautiously appropriate an increased investment in core business to promote long-term growth. Specifically, we will reasonably allocate more investment in top premium content to enhance our core membership business performance in ARM, member lifetime and sub base and also will drive performance in advertising business.
Tim Gong Yu
(foreign language)
Chang Yu
[Interpreted] Okay. And thirdly, we will continue to explore the implementation of innovative technologies centered around generative AI. So there are two sides that's going to benefit from this. On the B2B side, we will increase investments in intelligent production to improve the industrialization and efficiency of the video industry. And on the B2C side, we will explore new services and even new business models to cater to the consumer needs. And hopefully, this will become the second or third growth -- new growth pillars going forward in the long term.
Tim Gong Yu
(foreign language)
Chang Yu
[Interpreted] And for the other two innovative and new growing business, such as the overseas business and iQIYI Lite, if we can maintain the profitability of these two businesses, we will hopefully to grow the revenue performance for these segments next year.
Operator
The next question comes from Daniel Chen of JPMorgan.
Qi Chen
(foreign language) My question is on the content cost and also content strategy. Could management please elaborate on what's our content strategy going forward and also the content spend outlook?
Chang Yu
Yes, our Chief Content Officer, Mr. Xiaohui, will answer this question. Please go ahead.
Xiaohui Wang
(foreign language)
Chang Yu
[Interpreted] Our goal for -- in the future remains to consistently deliver high-quality and diverse content, solidifying our core advantage in drama genre while seeking breakthroughs in other content categories.
Xiaohui Wang
(foreign language)
Chang Yu
[Interpreted] For 2024, in terms of the drama category, while maintaining a stable overall number of releases, we will focus on increasing investment in top-tier projects, which we normally called the S and A+ gradings. Continue to produce and supply high-quality content is our #1 goal.
In Q1 of next year, we will launch a new season of Mist Theater, a highly anticipated S-grade production, strengthening our competitive advantage and making a strong kickoff for the year. Based on the iQIYI's popularity index score, we have already seen 4 dramas this year that have exceeded a significant milestone of 10,000 score for this year. And we anticipate the performance for next year will be better than this year.
Xiaohui Wang
(foreign language)
Chang Yu
[Interpreted] Regarding variety shows, while keeping content costs relatively stable, we will increase the number of programs and upgrade our production team. In addition to the already market-proven multi-season variety shows, several innovative projects will be gradually introduced starting from Q4 this year, such as our original physical competition show, We Never Stop, which will be launched at the end of November. And we have internally high expectations for that. In terms of business models, we form monetization models beyond advertising, membership and IP derivatives as well as explore more IT development opportunities throughout its lifecycle.
Xiaohui Wang
(foreign language)
Chang Yu
[Interpreted] For movies, we will increase investment in films made for online distribution and top-tier content feature films while further optimizing the operating models for online films, theatrical releases and our iQIYI Cloud Cinema.
Xiaohui Wang
(foreign language)
Chang Yu
[Interpreted] For children's content, we will appropriately increase investments, strengthen the influence of our multi-season IPs and increase commercially oriented original content as well as expand PUGC content. Our primary objective will be increasing the revenue growth potential and expanding IP licensing and exploring additional revenue potential such as toy licensing and et cetera.
Xiaohui Wang
(foreign language)
Chang Yu
[Interpreted] As for animation, Q3 was the best quarter we've had for original animation. We are confident in further increasing investment in original content next year and expect a moderate increase in the number of original titles.
Operator
The next question comes from Thomas Chong of Jefferies.
Thomas Chong
(foreign language) May I ask about our overseas outlook as well as our strategies?
Chang Yu
Our Senior Vice President, Xianghua, will answer this question.
Xianghua Yang
(foreign language)
Chang Yu
[Interpreted] Our overseas business started in 2019 and encountered the outbreak of COVID, which led us to adjust and slow down our progress over these 3 years. However, through these 3 years of exploration, we have also achieved fruitful results.
Xianghua Yang
(foreign language)
Chang Yu
[Interpreted] Firstly, we have validated our business model. Although our overseas business is still small in scale in 2023, we forecast to achieve revenue growth and profitability. We have experimented in different markets and identified methods for growth and profitability that can be gradually replicated in other markets.
Xianghua Yang
(foreign language)
Chang Yu
[Interpreted] And secondly, we have validated the influence of iQIYI's original content overseas, establishing our core competitiveness. Our goal is to establish our overseas platform as the home of beloved Asian content. And iQIYI's original Chinese dramas are our most evident advantage. Over the past years, Chinese dramas have witnessed significant viewership growth in certain markets. And we have seen the potential of C-pop.
Xianghua Yang
(foreign language)
Chang Yu
[Interpreted] And lastly, we began to build a comprehensive ecosystem in key countries, including cooperation with local regulatory agencies, content partners and channel partners. Through these collaborations, we have already launched exceptional local drama content. We can bring outstanding content and culture from all over the world to iQIYI users in China and also around world through our global network. These advancements have inspired us largely.
Xianghua Yang
(foreign language)
Chang Yu
[Interpreted] Building on these three achievements, we aim to strengthen collaboration with partners around the world using content as a medium and leveraging technology platforms to facilitate cultural exchange and also explore new commercial opportunities. We will continuously empower and add value to everyone in our ecosystem.
Operator
The next question comes from Maggie Ye of CLSA.
Yifan Ye
(foreign language) My question is about advancement we made in the application of generative AI technologies at iQIYI. And I'm particularly interested in understanding the results we have already achieved in terms of improvement in business efficiency as well as cost structure and also want to learn more about management's perspective on the long-term impact of these technologies.
Chang Yu
Sure. Thank you, Maggie. And then we will have Wenfeng, our CTO, to answer this question.
Wenfeng Liu
(foreign language)
Chang Yu
[Interpreted] Okay. We believe that generative AI will have significant impact on the entire video industry in the next 3 to 5 years, bringing significant changes in production methods, cost structure and personnel structure. So currently, iQIYI has already started implementing generative AI in core areas such as content planning, development, production and promotion. We have achieved a certain level of productivity in four major application scenarios, namely tech, image, sound and videos. And this has helped creators to improve quality, optimize efficiency and reduce costs.
Wenfeng Liu
(foreign language)
Chang Yu
[Interpreted] For example, in content planning space, we have used generative AI to compress the time required for sorting sensitive evaluation feedback from project assessment process from several hours to a few minutes. In the development phase, the use of generative AI has assisted reducing the time required for manual reading from 3 to 4 days to about 1 hour. The accuracy of scene and character breakdown in scripts have also exceeded 90%.
Wenfeng Liu
(foreign language)
Chang Yu
[Interpreted] In the production phase, producers have effectively saved on design and production costs by using generative AI tools to generate character sketches and compact posters. In the promotion phase, high-quality posters and dynamic videos generated by generative AI have been applied in on-platform operations and off-platform advertising for key projects such as Destined and the Big Band 3.
Wenfeng Liu
(foreign language)
Chang Yu
[Interpreted] In addition to content production, we also utilized AI-generated creative tools for effective ad material production for performance ads. Some industries have seen a 200% increase in ad spending compared to before the use of AI while using -- while our campaigns using AI-generated materials have also experienced a 60% higher rate of investment compared to non-AI materials.
Wenfeng Liu
(foreign language)
Chang Yu
[Interpreted] In the future, we will continue to explore more business scenarios and application opportunities, fully leveraging the capabilities of generative AI to create even greater value.
Operator
There are no further questions at this time. I'll now hand back to management for closing remarks.
Chang Yu
Thank you, everyone, for participating in today's call, and please do not hesitate to contact us if you have further information or questions. Thank you. Bye-bye. We'll see you next quarter.
Tim Gong Yu
Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
