March 1 (NBD) -- Internet giant Baidu is taking its Netflix-like video streaming service public in the U.S. The service, iQIYI, aims to raise at least 1.5 billion U.S. dollars via its IPO and will trade under the stock ticker "IQ", filed late Tuesday.

Domestic video websites are facing fierce competition and most of them haven't found their way to profit. Despite a large user base, they are losing money all the time.

Online video industry is losing money

Top Chinese video platforms are iQiyi, Youku and Tencent Video. Behind these platforms are Alibaba, Baidu and Tencent. Baidu owns about 70 percent of iQiyi and is likely to remain the largest shareholder after the latter's IPO.

iQiyi reported a net loss of about 2.58 billion yuan (406.5 million U.S. dollars), 3.07 billion yuan (485.2 million U.S. dollars) and 3.74 billion yuan (589.9 million U.S. dollars) in 2015, 2016 and 2017 respectively with loss rate of 48 percent, 27 percent, and 22 percent. It's noted that loss rate of the past three years gradually narrowed. Earlier this year, Baidu CEO Li Yanhong  mentioned in a video conference that iQiyi lost less money than its rivals.

While for Alibaba, its media and entertainment services generated 4.08 billion yuan (644.2 million U.S. dollars) from April 1 to July 30 of last year, a year-on-year increase of 30 percent. However, compared with the previous four fiscal quarters, the growth was relatively weaker. The company said it is mainly due to the rising content procurement costs of Youku Tudou. The fiscal report showed that the technology giant's media and entertainment services lost around 3.39 billion yuan (534.8 million U.S. dollars), nearly the full-year loss of iQiyi.

As for Tencent Video, Liu Zhiping, President of Tencent, noted last August that it might take a while for its online video services to make ends meet. But unfortunately, the net loss of the services is widening.

iQiyi warned investors in its prospectus that the company has been operating at a loss since its inception and might continue to lose money in the future. Huge amount of money are used to make and buy prime video contents. The platform expects a reduction in financial dependence on Baidu after being listed on Nasdaq, said the company in its prospectus.

Number of paid subscribers is climbing

iQiyi has 50.80 million paid subscribers, contributing around 6.54 billion yuan (1.03 billion U.S. dollars) to its 2017 operating revenue. The proportion of revenue coming from membership services swelled to 37.6 percent of total revenue last year from 18.7 percent in 2015. Membership fees have gradually replaced ad fees as the backbone of its revenue.

Its rivals, too, are competing for paid subscribers. The number of Tencent Video's paid subscribers has reached 43 million, Tencent disclosed last year. Youku saw its subscribers exceed 30 million in 2016. 

Consultancy BDR said as of March 2017, the number of online video viewers has surpassed 580 million, creating a market worth 23.14 billion yuan (3.65 billion U.S. dollars). As the cost of 4G data is reducing, the online video industry is expected to see more vigorous growth.

The more subscribers online video sites get, the bigger chance of survival they will have. And the competition for subscribers is literally competition for prime contents. For that reason, Tencent Video bought good contents in addition to making videos in partnership with by Tencent Penguin Pictures. With the support of Baidu, iQiyi has a natural advantage in customer reach. Alibaba-backed Youku is expected to have more contents to fill its website with the incorporation of Heyi Pictures into Alibaba Pictures.

The competition among the three video platforms will never end, no matter in capital, membership, and profitability. The listing of iQiyi is just the beginning.

Email: tanyuhan@nbd.com.cn