Chinese video streaming service iQiyi is raising new cash as it feels the squeeze from surging content costs.
The video business, which is owned by China’s online search giant Baidu, said on Wednesday that it will issue $500 million in convertible senior notes. Proceeds from the offering will go toward content and technology investments as well as capped call transactions to reduce potential dilution to shareholders upon conversion of the notes.
The proposal arrived just eight months after iQiyi pulled in $2.25 billion from an initial public offering on NASDAQ that marked one of the largest flotations by a Chinese tech company in recent years.
IQiyi has seen its subscription base grow thanks to a series of blockbuster titles — including “Story of Yanxi Palace,” a record-breaking TV drama about backstabbing concubines — but that comes at a cost. During the third quarter, iQiyi’s content expenses rose 66 percent to $876 million, which made up 80 percent of the firm’s total costs. Operating losses widened to $377 million, compared to $160 million a year ago.
Like many other verticals, China’s video streaming arena is a proxy war for Baidu, Alibaba and Tencent — collectively known as the BAT for their dominance in the country’s consumer technology industry. Baidu’s iQiyi has been going head-to-head with Tencent’s video streaming service. Both claimed to have topped 80 million subscribers in the third quarter: over 98 percent of iQiyi’s 80.7 million subscribers were paying, while Tencent did not specify the breakdown of its 82 million subscriptions.