From Sam's Club to Netflix and iQIYI, decoding the cross-industry impact of membership economies.

Original New Entropy

In any industry, as the market landscape matures, continuously tapping into deeper value growth becomes a pivotal challenge for enterprises. Those that rise to this challenge often become industry benchmarks.

In retail, Sam's Club has demonstrated the potential of transcending traditional business models through membership systems and services. Similarly, the long-form video industry is embarking on a similar path.

According to the recently released "China Audiovisual New Media Development Report," China's online audiovisual user base has reached 1.074 billion, with a usage rate of 98.3%. As the user base enters a period of steady growth, how to capture evolving user needs, enhance membership system value, and initiate the flywheel of content + membership services has become a focal point for video platforms.

On January 21, iQIYI announced an upgrade to Star Diamond VIP membership benefits, drawing attention from users and the industry. Star Diamond VIP members can now enjoy "free access to extra episodes" without additional payment or points redemption for behind-the-scenes footage, access to the final episode, and more. This marks the second time in nearly two months that iQIYI has upgraded Star Diamond membership benefits – not long ago, the number of devices Star Diamond members can log in to was increased from 5 to 8.

Behind the continuous optimization and upgrading of membership benefits lies a proactive strategy by long-form video platforms to delve deeper into refined membership services in the era of steady development. This approach aims to continually address new user needs and explore incremental membership revenue.

Similar to retail, whether it's family customers, the lower-tier market, or mid-to-high-end users, optimizing the membership system and segmentation based on quality content and products is crucial. Providing high-quality, low-cost services that exceed expectations enhances long-term brand attractiveness. Unlike offline entities, long-form video covers a broader audience and diverse usage scenarios, making the added value of membership systems even more significant for the industry.

Penetration and Exploration by Long-Form Video Platforms

Historically, as markets mature, corporate growth strategies shift towards service-oriented strategies focused on quality and efficiency. For the content market, structural changes in consumption drive demand generation.

In the long-form video market, service focus tends towards discovering and swiftly responding to user needs to enhance and optimize the user experience.

McKinsey's "2024 China Consumer Trends Survey" report predicts that by 2030, over 66% of China's personal consumption growth will come from the lower-tier market. The county market has emerged as a "new blue ocean" driving domestic consumption growth. In terms of consumption characteristics, the lower-tier market is shedding its low-end label, with consumers increasingly valuing product quality, brands, and services.

Specifically in the content industry, the rapid development of micro-short dramas in the lower-tier market has proven the demand and consumption potential for video content. Unlocking the incremental potential of the lower-tier market for long-form videos has become a key focus for various platforms.

Taking iQIYI as an example, reducing the content consumption threshold and opening up consumption space for price-sensitive users is pivotal to its lower-tier market penetration strategy.

In 2021, iQIYI introduced basic membership on its Lite version, effectively lowering the entry barrier for content consumption through a low-price + ad-supported membership model. In 2024, iQIYI gradually rolled out basic membership services on its main site, attracting more price-sensitive users with a monthly fee 10 yuan lower than Gold members. iQIYI's 2024 membership consumption trends revealed that basic membership is attracting active subscriptions from users in fourth- and fifth-tier cities and younger users.

It's not just the lower-tier incremental market; in mature family markets and high-net-worth consumption markets, demand is also evolving.

For instance, in the spatial scenario of family content consumption, the differentiated needs of different generations and the increase in content usage devices are undeniable facts. In terms of devices, video content consumption has expanded from mobile phones, tablets, and computers to smart TVs, buddy machines, projectors, VR, smart homes, and more. Within the same content space, the multi-member + multi-device viewing needs of families directly lead to a significant increase in demand for personalized and comprehensive membership services.

In iQIYI's membership service system, if basic membership represents the "penetration" of operational strategies, Star Diamond membership signifies the "exploration" of long-form video membership services. For deep long-form video users with strong paying capabilities and a pursuit of high-quality services, saving time and effort while enjoying the richest experience is a rigid demand.

Taking these two Star Diamond membership benefit upgrades as examples, iQIYI increased the number of simultaneously loggable devices to 8 and directly included the ability to watch extra episodes as a membership benefit. These measures significantly enhance the value of this high-end membership.

Continuous improvement in high-end membership service value can, on one hand, increase the loyalty and stickiness of "high-net-worth users"; on the other hand, it is expected to further expand the consumption horizons of other heavy users. This encourages more long-term and stable standard subscription customers to recognize the value of high-end subscriptions and have the motivation to upgrade their own consumption, bringing new increments to the platform's ARPU value.

From iQIYI's continuous optimization of different membership services over the past year, it's evident that as the market enters a stage of steady development, the platform is making membership segmentation refinement a key focus of its long-term operational strategy. Whether it's covering and tapping into market increments, insightfully responding to the personalized needs of the family market, or continuously capturing the attention and conversion rate of the mid-to-high-end market with high-level benefits, the reshaped brand value and membership service capabilities will become crucial avenues for the growth and competition of long-form video platforms in the next stage.

It's worth noting that this layered logic of "downward compatibility and upward experience breakthrough" is not unique to the long-form video industry. In the retail sector, which faced the challenge of steady market development earlier, Sam's Club has validated the potential of the membership economy to break through, and its methodology is also providing cross-industry inspiration for streaming media platforms.

Long-Form Videos Enter "Sam's Club Time"

Looking back at the development of the commercial market in recent years, in the stage of stable market development, developing the value of the membership system is playing an increasingly important role. To gain user recognition for the membership system, it's necessary to design a precise and effective membership segmentation system that caters to as many needs as possible, while also delivering high-quality, low-cost products and services that exceed expectations.

In a saturated market, how do you maintain high-speed growth? From an industry perspective, membership retail, represented by Sam's Club, is the most successful model. Its success lies in designing a healthy business model that captures specific needs of specific groups and continuously and targetedly optimizes and provides deep value through service benefits.

Data shows that among retail units above a certain size in 2023, supermarket retail sales fell by 0.4% year-on-year, indicating market saturation and slowing growth momentum. Among the top 100 supermarkets in 2023, 55 experienced negative sales growth. However, Sam's Club China presents a different picture. Recent data reveals that online net sales increased by 25% in the third quarter of 2024, and membership revenue grew by 22%. Simultaneously, Sam's Club has maintained double-digit growth for multiple consecutive quarters in China, entering a stage of "rapid growth" in the market.

In fact, in 2016, Sam's Club increased its membership fee from 150 yuan/year to 260 yuan/year, with the Premium membership fee reaching 680 yuan/year. However, data shows that the current membership renewal rate at Sam's Club China is 80%. Why is there such a large user base willing to pay for the Sam's Club membership system despite the relatively high membership price? The reason lies in the fact that most consumers inherently desire high-quality, low-cost products and superior services.

Specifically, although Sam's Club operates a membership system, its products have always maintained a high standard within the retail industry. Media reports state that Sam's Club weighs and selects red dates individually to ensure each weighs more than 10 grams, and for beef, according to suppliers, Sam's Club can achieve the highest quality of imported beef on the market. In terms of pricing, Sam's Club reduces costs by increasing sales volume. For membership services, Sam's Club further refines the benefits for ordinary and Premium members, with Premium members receiving up to 500 yuan in cashback per month, a monthly shipping voucher, discounts on some products, and richer local services compared to ordinary members.

The success of Sam's Club's membership system and services has inspired and provided generalized value to the retail industry. Both Hema X members and Fandonglai, positioned in third- and fourth-tier cities, demonstrate the huge potential of Sam's Club's methodology and membership model.

Returning to the long-form video industry, the products and membership systems of the retail industry are relatively similar to the content and membership systems of the long-form video industry – both are based on a membership model for commodity (content) consumption. This similarity also makes the membership operation paths of the two industries relatively aligned.

Taking Netflix as an example, in response to slowing revenue growth in 2022, Netflix was the first to launch a low-price ad-supported membership package at $6.99/month, aiming to lower the entry threshold for content consumption. Subsequently, Netflix eliminated the ad-free basic membership package, cracked down on password sharing, and provided a service to add extra accounts at a low price.

By designing precise services for different members, Netflix not only lowered the threshold for consuming content but also regained respect for the value of membership services, achieving a "high quality at a low price" similar to Sam's Club. The results show that a refined layered service strategy for membership products, akin to that of the retail industry, did indeed become an important driving force for Netflix to return to growth in subsequent years.

In contrast, domestically, as both the long-form video industry and content production have entered a stage of steady development, membership services, which dominate consumption, have gradually become a greater concern for consumers. Among platforms, those that can effectively optimize membership services and precisely respond to membership demands tend to accumulate a good reputation among users.

iQIYI is a typical representative of this trend.

Through multiple membership benefit optimization actions over the past year, iQIYI has demonstrated strong initiative in membership segmentation. Anchored on "high quality at a low price," it covers different users at various levels, not only tapping into increments from the lower-tier market (such as expanding basic membership services from exclusive access on iQIYI Lite to becoming one of iQIYI's standard membership products) but also launching unexpected services like "free access to extra episodes" and "additional sports membership" for Star Diamond members to meet high-end demand, incorporating content services with a higher pay ratio into membership benefits.

These multi-layered strategies not only cater more effectively to the diverse needs of users but also continually elevate the user experience through rapid iterations, ultimately resulting in a reputational edge. Over the past year, iQIYI's refinement and enhancement of its membership system can be seen as a reshaping of user perceptions amidst a period of steady user growth.

The Flywheel Effect of "Content + Membership"

For the video streaming industry, high-quality content has consistently served as the linchpin for generating commercial value. As the cornerstone of user willingness to pay and the vehicle for advertising value, content quality directly determines the ceiling for a platform's membership base and bargaining power in advertising.

This synergistic effect has been thoroughly validated in the international arena.

In 2023, Netflix invested $17.9 billion in content production, accounting for 75% of its total revenue. Behind this substantial investment lie hits like "Squid Game" and "Wednesday," which continue to captivate nearly 300 million paying subscribers worldwide, as well as the commercial breakthrough of achieving 10 million subscriptions for its ad-supported tier within a year of its launch.

Disney's streaming service has leveraged the value of its IPs through Star Wars spin-offs such as "The Mandalorian," not only propelling Disney+ subscriptions beyond 150 million but also witnessing a 43% year-over-year surge in advertising revenue in 2024.

These instances confirm that when high-quality content creates a magnetic pull, user payments and advertising revenue do not constitute a zero-sum game but rather jointly propel a dual-turbocharged platform development.

China's video platforms have been exploring the integrated growth of advertising and membership subscriptions for over a decade. The unique ecological structure of the Chinese market offers a richer tapestry of practical scenarios for this synergy: In the vast market of hundreds of millions of internet users, there are avid film fans willing to splurge on content and casual entertainment seekers preferring low-cost viewing; there are enthusiasts of 4K picture quality pursuing immersive experiences, and micro-drama audiences fond of fragmented consumption. This stratified demand fosters growth opportunities for the "content customization + service tiering" business model.

iQIYI's endeavors are demonstrating the potential of this synergistic model.

In terms of content cultivation, iQIYI has steadfastly adhered to high-quality content as its core and consistently increased investment in content creation, ranging from popular national hits like "The Speed Cubers," "The Tales of Tang Dynasty," and "Love Between Fairy and Devil" to niche boutique works such as "Hidden Corner," "The Truth Beneath," and "I Am a Detective" that penetrate vertical niche audiences. The consistent supply of high-quality content and the diversification of the content portfolio have directly fueled an increase in user willingness to pay and the conversion of advertiser investments.

Amidst content continually igniting the market, the value of membership is further underscored: Star Diamond members enjoy complimentary access to additional episodes and support for more devices, reinforcing the loyalty of core users; Gold and Platinum members stabilize the basic user base on mobile and TV platforms; and basic members with advertising versions, on one hand, shift part of the cost to advertisers, further realizing cost-effective acquisition to boost user traffic pool activity, and on the other hand, the rise in "user engagement" also amplifies the platform's advertising value and advertiser investment willingness, opening new avenues for advertising revenue growth.

For iQIYI, this forms a virtuous development cycle of "high-quality content - driving membership and advertising revenue growth - securing more funds for continuous investment in content production and service enhancements."

This path of "leveraging high-quality content to drive sustained revenue growth" has already borne fruit: Taking iQIYI's 2023 financial report as an example, thanks to acclaimed works such as "The Speed Cubers," "Life After Lockup," "Lotus Pavilion," "Ning'an Like a Dream," and "A Will Eternal," iQIYI's membership service revenue surged 15% year-over-year in 2023, and advertising revenue maintained a 17% year-over-year increase despite the backdrop of membership revenue growth, attesting to the multi-faceted monetization potential of content value.

Building on this foundation, iQIYI now further amplifies the marginal benefits of membership value through more refined tiered membership perks - ensuring sustained investment in content production while fortifying user loyalty in the existing market with the dual leverage of "high-quality content + precise services."

At this juncture, from Sam's Club driving membership loyalty with premium products and cost-effectiveness to Netflix and iQIYI experimenting with the compounded optimized growth of "content + service," industry leaders across different sectors have converged on a common trajectory: Only when the membership system and core offerings (products/content) form a tightly integrated mechanism can the flywheel continue to spin. As the incremental dividend phase wanes, optimizing the granularity of membership benefits becomes imperative to continually seek growth within the existing user base.

The "Sam's Club moment" for long-form videos may just be commencing.