Thank you for standing by, and welcome to the iQIYI Third Quarter 2023 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key, followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Chang Yu, Investor Relations Director of iQIYI. Please go ahead.
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. Yuchao 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.
Hello, everyone. Thank you for joining us today. Our focus of the quarter remained 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 seven consecutive quarters. Our original dramas remained as a key driver for content supply and revenue contribution.
Meanwhile, a diverse of high-quality titles premiered, were highly acclaimed by users. Notably, Mysterious Lotus Casebook, Lianhua, 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 our two key factors contributed to the revenue growth, firstly, in part by the high appeal of our exclusive content. We have reduced the discounts provided for membership purchases, while direct and the 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, E-X-A-V-E, Zhen Ziqi MAX, to enjoy theater quality audio visual experience. The audio experience is equally enhanced with a shift from ordinary stereo sound to the immersive and captivating proprietary, industry-leading Hi-Q ephemeral sound. Our member perks don't stop there. We go beyond the online realm, extending our offering to exciting offline experiences, such as exclusive concerts. These upgrades have transformed entertainment, providing user a diversified, personalized, and immersive entertainment experiences. We are very pleased to see users' appreciation for our content and our services translate into ARM growth. Alongside membership services, advertising revenue was our second growth driving during the quarter.
Our premium content and enhanced marketing capability drove up advertising revenue by 34% annually, and 12% sequentially. Both brand ads and the performance ads booked annually and sequentially growth. Entering into Q4, we are cautiously monitoring the macro environment's impact on the advertising market, where we 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 RMB 107.5 million. The current ARM level, in our views, 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 the 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 a 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 package, concerts, and merchandise offers. Finally, we see significant potential to further upgrade in getting Gold members to Platinum and Star Diamond membership tiers, which command a higher price, yet offer more privilege. Our member privileges and benefits have proven highly attractive, and we expect their appeal to remain strong. For example, the express package is one of the content privileges we have developed for members, which enable subscribers to redeem their member points to unlock early access to final 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 person,
Perception.
perception attached to this benefit. In line with our strategy to foster deeper connections between our loyal members and our premium content, some IP derivatives, cloud concerts are another important component of membership offering. We held the Mysterious Lotus Casebook theme 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 the 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 the proportion of annual plan subscription in the third quarter. Moving on to content. Content is our core competitive advantage. iQIYI original dramas continue to be the main driver in terms of content supply and revenue contribution, accounted for over 60% of the key drama launched in the third quarter. For this year, summer season, our drama lineup covered diverse genres such as Asian costume, romance, and suspense. The Asian costume detective drama, The Mysterious Lotus Casebook, become the dark horse hit of the summer.
It was our tenth drama to break our 10,000 popularity index score. And the drama theme concert we held generated over 230 trending search topics and attracted over 320 million likes. We're happy to see the significant long-lasting impact with these serials as it continued to dominate the United List even after its serials finale. Other hit dramas, such as Asian costume suspense serials, My Journey to You, 云之羽. Imperfect Victim, 不完美受害人. Our serials focus on social issues and criminal suspense serials. The Lost 11th Floor, 消失的十一层, were all well received by audiences and reflect the quality and 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 (叫舞优等生), made a strong comebacks. The Big Band 3 achieved an outstanding performance in both advertising and membership revenue. We also launched diverse, innovative new IPs, including our very first variety show and a drama crossover, As You Wish, Love You Seven Times (一百万个约定之七时吉祥). A cultural variety show, Glory is Back, Beijing, and a cuisine show, Let's Barbecue, which attract 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, food, 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, 天龙记, Story of Kunning Palace, 宁安如梦, and The Fearless Season 1, 无所畏惧第一季, 无所畏惧 one. We also prepared a stellar drama pipeline to be released.
This includes major Asian costume titles, A Journey to Love (一念关山), and the Chinese Paladin 4 (仙剑四), as well as modern-day themed dramas like Detective Chinatown Season 2 (唐人街探案), Like of Flowing River (大江大河), and The Lonely Warrior (三大队). For variety show, our pipeline covers a wide range of themes, including our first original physical competition show, The Show We Never Stop (势不可挡), and our hit show, Become a Farmer. We are introduced 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 Girl Squad Season 3, Girl Squad Season 3, and a brand new title, Mega Meow, Miao Neng Zhan Shi . For original animation, The Great Ruler, Da Zhu Zai, and Against the Gods, Ni Tian Xie Shen, are still trending. While new entries, such as the sci-fi series, The Abyss Game, Shen Yuan You Xi, and a comic adaptation, The Magic Grocery, Wan Neng Za Huo Dian, 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 and Love You Seven Times, attracted stronger advertising demand. Advertising budgets allocated towards variety show and drama 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 healthcare also recovered. Revenue from performance ads recorded strong annual revenue growth of over 17%, mainly due to two factors. First, targeted and efficient operations gained a 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 segment 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. We will continue to fine-tune our algorithm and leverage generative AI to enhance ad creation and maximize efficiency. Moving on to technology and the products. Our commitment is centered around fostering technology innovation to empower the entertainment ecosystem, creating value for our users and the content creators. Firstly, we harness the power of technology to elevate the entertainment experience for our users.
Secondly, we empower our content creators by equipping them with the latest tools and the resources to improve the quality and the efficiency of their creation. 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. User directed to a drama through AI plot search spent an average of 40% more time viewing the content. One more exciting user experience optimization is the introduction of karaoke mode in the Big Band 3.
This innovative and interactive feature seamlessly integrates song lyrics into the on-screen display during band performance sessions, allowing viewers to sing along and creating a more immersive experience. With a meaningful viewer engagement and the time spent increased by users activating this feature. In terms of content production and operation, we are promoting the application of generative AI in various use cases during the rapid technology development of the video industry. Now, the role of generative AI is evolving from mere embedded to a copilot made in every phase of workflow. By leveraging this transformative technology, we are empower creators in every aspects of their work, from planning and development to production and the promotion of content. This approach not only enhance efficiency, but also unlock 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, Chang Feng Du, The Big Band Season 3, et cetera. In addition, we are expanding the reach and influence of apps by using generative AI. Finally, for our business performance in regions outside of mainland China, our premium content continues to win acclaim from overseas users and drive 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 popularity extended beyond mainland China and topped our overseas platform in both total video views and viewing time in the third quarter, and remained number one in total video views in Southeast Asia, East Asia, and North America market. 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 drama. We are 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 other 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, cautiously increase investment in both our core and innovative business, establish a solid foundation for sustainable long-term growth. Now, let me pass to Wang Jun to go some of financial performance.
Thanks, Mr. Gong, and hello, everyone. We have delivered strong Q3 results, as you can see. The growth of ARM drove, drive the growth of the membership services revenue, profits, and the free cash flow, and our operating leverage led to margin expansion on 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 content costs and expenses remained relatively stable year-on-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 flow, the non-GAAP operating income reached RMB 895 million, up 71% annually, positive for seven consecutive quarters. The free cash flow reached RMB 826 million, and has been positive for five consecutive quarters, representing our enhanced cash generating capabilities. At the end of Q3, the company had cash, cash equivalents, restricted cash, short-term investments, and long-term restricted cash, including the prepayment and other assets at the total of RMB 7.2 billion.
To conclude, our Q3 results reflected the strong execution of our strategy and the 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.
Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you are on a speakerphone, please pick up the handset to ask your question. If you wish to ask your question in Chinese, please then repeat your question in English for the benefit of everyone on the call. Please limit yourself to one question. If you have further questions, you may re-enter the question queue. Your first question comes from Xue qing Zhang of CICC. Please go ahead.
Thanks, management for taking my question, and congratulations on another strong quarter. My question is about ARM. The ARM has continued solid growth this quarter. So what's your outlook for ARM in the first quarter and next year? Also, could you give us more color on how to improve the perceived value and loyalty of membership? Thank you.
Thank you. Duan Youqiao will answer this question.
Yeah.
大家好.
Vice President of Membership Business, Youqiao Duan, will answer this question. Please go ahead.
Hello, everyone. I will answer this question. The ARM in Q3 exceeded RMB 15 for the first time, which is within our expectations. This is the result of our long-term efforts in the two aspects of content quality and member benefits. Users are increasingly willing to pay reasonable prices for premium content and services. The overall goal of our membership business is to maximize long-term sustainable membership revenue by continuously improving user experience. In the current stage, our focus is on ARM and members' Lifetime LT.
Yeah. For Q3, the ARM exceeded CNY 15 is within our expectations. This is because our progress in content quality and also content quality, and also membership privilege for the long-term perspective. The result of that has been promising, and more users have been willing to pay at a reasonable price for premium content and also quality services.
我们预计今年Q4呢，ARM还会继续保持健康增长，并且长期看呢，ARM拥有较大的提升空间。我们这个信心呢，主要来自以下四个方面。
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.
第一呢，内容是决定会员付费的主要因素，而我们持续稳定提供，高品质和多元化内容的能力呢，一直在不断地增强。
Content quality remains the primary determinant for members' purchase decision, and ability to consistently provide high quality and diversified content is strengthening continuously.
第二呢，与国内其他的日常消费品以及国外的同类的产品相比，目前呢，我们会员的实际售价呢，都还相对比较低。
Second, in comparison to other domestic daily consumer goods and similar products abroad, our current prices are relatively low.
第三，随着电视大屏观影需求的不断增长，越來越多的黄金会员会向更高阶的白金和钻石会员升级。
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.
第四呢，随着会员积分、加更礼、云演出、会员优选、IP衍生品，等等这些更多的会员权益的推出呢，也会持续提升会员产品的吸引力，并给会员呢带来长期价值。
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.
上面的四个方面呢，都让我们对未来的 ARM 的持续健康增长充满信心。
All of the above four items I just mentioned, give us confidence that the ARM will continue to have healthy growth in the future.
另外，因为我们的价格基数低，在此基础上的ARM增长呢，从绝对值的角度来看，对用户的感知影响有，但是不大。用户付费呢，最在意的还是我们上面说的内容有多好，还有那个体验有多好。近期随着优质内容的上线，会员的规模呢，已经在快速提升，这更说明我们用好内容和好体验去提升ARM和会员的长期价值的策略是正确的，能够得到用户的认可，也能够得到会员收入的可持续增长。下面呢，我们会继续在这个方向上推进，谢谢。
Further, due to our relatively low pricing base, the absolute impact of ARM growth on user progression 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 conversion 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. Thank you.
The next question will come from Lincoln Kong of Goldman Sachs. Please go ahead.
So, thank you for taking my question. So my question is, at this time juncture of the year, when we thinking about next year, how is our overall business plan, strategy, outlook, and the focus area, for next year? Thank you.
谢谢。我来回答这个问题。根据我们自己对明年宏观经济的判断，以及我们自己的这个条件，我们把明年主题还是定位在高质量增长，也就是收入和利润，这个双增长，而且利润的增长速度要高于收入的增长速度。
For next year, for 2024. Based on the current macro environment out 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 go at a faster pace.
有两个方面会适度地增加投入。第一方面，在内容方面，因为内容是我们会员业务、广告业务的最主要的驱动力，那么明年我们会根据市场的这个增长情况，适度地增加内容的，特别是头部内容的这个投入，以此来提升会员的lifetime，还有会员的数量，以及增加广告收入。
OK, secondly, we will cautiously appropriate in 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 increase drive the performance in advertising business.
另一方面是，加大投入在生成式AI的应用方面。生成式AI应用大概两个方面，一个是我们叫To B的，重点在智能制作，提升影视工业化的这个程度上。另一方面，主要应用在对消费者服务的创新方面，来争取运用-
...这个大语言模型生出了AI，能够创新出新的业务，这个新的业务能够成为未来爱奇艺的这个第二、第三增长曲线。
OK. Thirdly, we will continue to explore the implementation of innovative technologies centered around generative AI. So, there are two sides that's gonna benefit from this. On the B2B side, we will increase investment in intelligent production to improve the industrialization and efficiency of the video industry. And on the B2C side, we'll 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.
另外，爱奇艺的两个创新型的业务，一个是海外业务，一个是极速版。在有盈利的情况下，明年的这个收入，我们争取，增长更多一些。
And for the other two innovative and new growing business such as overseas business and iQIYI Light, if we can maintain the profitability of these two business, we will hopefully to grow the revenue performance for these segments next year.
Thank you.
Thank you.
The next question comes from Daniel Chen of JP Morgan. Please go ahead.
Thanks, management, for giving me the opportunity to ask a question. 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. Thank you.
our Chief Content Officer, Mr. Xiaohui Wang, will answer this question. Please go ahead.
谢谢。下面我来回答这个问题。总体来看呢，未来我们整体的内容策略的目标啊，还是要稳定持续输出高质量和多元化的内容，来继续巩固核心电视剧赛道的优势，同时也在谋求其他内容品类更多的突破。
Our goal for in the future remains to consistently delivering high quality and device diverse content, solidifying our core advantage in drama genre, while seeking breakthroughs in other content categories.
分类来看吧。戏剧方面，明年我们在保持整体上线数量稳定的情况下，将重点提高对头部项目，也就是我们常说的S和A级项目的投入比例，持续地生产和供应高质量的内容。同时呢，明年Q1我们将推出新一季的迷雾剧场，还有一些重磅的S级的一些作品，来加固我们的竞争优势，为明年创造一个开门红。从爱奇艺的热度值来看呢，今年到目前为止已经有4部热度值破万的戏剧了，我们预计明年将会比今年有进一步的提升。
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 call the S+ and A+ ratings. Continue to produce and supply high quality content is our number one goal. In Q1 of next year, we will launch a new season of Mist Theater and 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 four 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.
从综艺方面来看呢，在保持内容成本基本稳定的同时，我们会增加节目数量，同时也升级我们的制作团队。除了已经被市场验证的几个中文带子节目以外，我们多个创新的项目将从今年的Q4开始陆续与大家见面，比如即将上线的体能竞技类的自制综艺《势不可挡》。这也是我们一个内部评分的高分的综艺，即将在十一月底上线。在商业模式上，我们也将探索广告会员、IP衍生品以外的变现模式，争取在IP生命周期开发上做更多的探索。
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 will explore monetization models beyond advertising, membership, and IP derivatives, as well as explore more IP development opportunities throughout its lifecycle.
电影方面，我们也会增加对纯网络电影和头部电影内容的投入。对于网络电影、院线电影和云影院三种不同的运营模式将做进一步的优化。
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.
在儿童内容方面呢，我们将适当地增加投入，尤其是要加强续集IP影响力的同时，增加商业导向的自制，并扩充PUGC的内容，以增加收入为第一目标，扩展发行和玩具授权等更多元的收入潜力。
For children's content, we will appropriately increase investment, 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 potentials such as toy licensing and etc.
在动漫方面呢，我们看到Q3是有史以来我们自制动漫表现最好的一个季度了，我们非常有信心，明年会继续增加自制内容的投入，预计自制数量将有一定的增长。谢谢。
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. Thank you.
The next question comes from Thomas Chong of Jefferies. Please go ahead.
晚上好, 谢谢管理层接受我的提问。我的问题是关于海外业务的, 请问管理层可以分享一下我们现在最新的情况, 还有未来的, 未来的战略吗? Thanks management for taking my questions. May I ask about our overseas outlook as well as our strategies? Thank you.
Our Senior Vice President, Xianghua Yang, will answer this question. Thank you.
大家晚上好。海外业务起步于2019年，刚启动以后也确实遇到了疫情，因此在过去的三 年里，我们也发展的同时也进行了一些调整，放慢了一些脚步。通过这三年的摸索呢，我们也有了更多的收获。
Our overseas business started in 2019 and encountered the outbreak of COVID, which led us to adjust and slow down our progress over these three years. However, through these three years of exploration, we have also achieved fruitful results.
First, we verified that our domestic business model is successful overseas. In 2023, although our overseas business scale is still relatively small, we expect to achieve revenue growth for the full year while also achieving profitability. In trials at different market tiers, we found some methods for growth and profitability, which can also be gradually replicated to other markets next year.
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.
其次，我们验证了 iQIYI 自制内容在海外的影响力，确立了我们的核心竞争力。我们目标是把海外站打造成一个亚洲内容为核心的视频平台。iQIYI 的自制剧是我们显而易见的优势。经过这几年，我们陆续在一些市场观看量增长显著，我们也看到了 CPOP 的一些潜力。
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 CPOP.
最后呢，我们也开始在一些重点国家逐步建立起自己的合作的生态系统，包括与当地的监管机构、内容的合作伙伴、渠道的合作伙伴。并且通过合作呢，我们也推出了一些优秀的地方剧集内容，我们可以通过 iQIYI 的网络，全球网络，将其他国家的优秀的内容和文化带给中国，甚至全世界的观众。这些进展我们目前，非常顺利。
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, all over the world to iQIYI users in China and also around the world through our global network. These advancements have inspired us, largely.
在这三个成果的基础上，我们希望更多的加强和各地合作伙伴的合作，以内容为载体，通过我们的技术平台，一方面促进文化交流，另一方面更重要的是探索新的商业的合作、商业化的机会，并且不断为生态系统的合作伙伴们提供赋能和增值。
Building on these three achievements, we aim to strengthen collaboration with partners around the world, using content as the 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. Thank you. Thank you.
The next question comes from Maggie Ye of CLSA. Please go ahead.
Thank you, management, for taking my question. 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. Thank you.
Sure. Thank you, Maggie, and then, we will have Wenfeng, our CTO, to answer this question.
We believe generative AI will have a significant impact on the next three to five 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 text, image, sound, and video. And this has helped creators to improve quality, optimize efficiency, and reduce costs. For example, in content planning phase, we have used generative AI to compress the time required for sorting extensive 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 three to four days to about 1 hour. The accuracy of scene and character breakdown in script have also exceeded 90%. In the production phase, producers have effectively saved on design and production costs by using generative AI tools to generate character sketches and concept posters. In the promotion phase, high-quality posters and dynamic videos generated by generative AI have been applied in platform operations and off-platform advertising for key projects such as Destiny and The Big Band Three. In addition to content production, we also utilize AI-generated creative tools for effective app material production for performance ad. Some industry have seen a 200% increase in ad spending compared to before the use of AI.
While ad campaigns using AI-generated materials have also experienced a 60% higher rate of investment compared to non-AI materials. 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. Thank you.
There are no further questions at this time. I'll now hand back to management for closing remarks.
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. Thank you.
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.