iQIYI's AI-Driven Virtual Production Revolution and Its Implications for the Media and Entertainment Sector

The media and entertainment sector is undergoing a seismic shift as artificial intelligence and virtual production technologies redefine content creation. At the forefront of this transformation is iQIYI, China's leading online entertainment platform, which has aggressively invested in AI-driven virtual production to enhance scalability, reduce costs, and secure a competitive edge. This article assesses the strategic and financial implications of iQIYI's industrialized virtual production initiatives, evaluates its market leadership claims, and contextualizes its progress against global peers like Netflix, Disney, and Tencent Video.

Strategic Innovations: From Patented Platforms to Industrialized Studios

iQIYI's IQ Stage virtual production platform, which integrates over 20 patented technologies, has become a cornerstone of its innovation strategy. By enabling real-and-virtual integration effects, the platform has allowed productions like Fangs of Fortune to pioneer large-scale water surface reflections in virtual filming-a technical first in China, according to a PR Newswire report. The company's 2,500-square-meter flagship virtual studio further underscores its commitment to industrialized production, with projects like My Journey to You achieving a 30% efficiency boost through virtual filming techniques, as noted in the same PR Newswire report.

Collaborations with technology partners like Global Mofy AI's subsidiary Mofy VFX have amplified these efforts. Mofy VFX's self-developed 3D digital asset library and generative AI tools now support end-to-end virtual production workflows, from scene construction to rendering, for flagship titles such as The Guiding Lantern and Eradication, as described in a Stock Titan article. As Ms. Wenjun Jiang, CTO of Global Mofy, notes, iQIYI is "driving the industry into a new era centered on intelligence and assetization," according to the Stock Titan article.

Financial Impact: Balancing Investment and Profitability

Despite these innovations, iQIYI's financials reveal a mixed picture. For Q2 2025, the company reported a net loss of RMB133.7 million (US$18.7 million), a reversal from a RMB68.7 million net income in the same period in 2024, according to an IQIYI earnings release. Total revenue declined 11% year-over-year to RMB6.63 billion (US$925.3 million), with membership services revenue down 9% to RMB4.09 billion, according to the same earnings release. CEO Yu Gong attributes these challenges to strategic investments in AI applications, micro dramas, and global expansion, emphasizing long-term value creation, as reported in the earnings release.

The company's capital structure optimization has provided some relief. Net interest expenses have declined for seven consecutive quarters, and iQIYI's focus on cost efficiency-such as the 30% production efficiency gain in My Journey to You-suggests that virtual production could eventually offset current losses, as noted in the PR Newswire report. However, the path to profitability remains uncertain, particularly as the platform competes with global giants like Netflix and Disney, which are also adopting AI-driven workflows.

Competitive Landscape: iQIYI vs. Global Peers

While iQIYI's domestic leadership in virtual production is evident, its global standing requires closer scrutiny. Netflix, for instance, has leveraged Runway AI to accelerate VFX in The Eternaut, completing a sequence 10 times faster than traditional methods, according to a Digit article. Disney, though more cautious, is testing Runway AI tools for potential use in films and TV shows, while also deploying AI in theme parks and streaming recommendations, as described in a TechRadar article. Tencent Video, a key domestic rival, has launched an AI short film competition requiring 70% AI-generated content, signaling a parallel push toward automation, according to a Markets and Markets report.

iQIYI's international expansion, however, offers a unique edge. Its October 2025 partnership with KADOKAWA Corporation for the global distribution of animated series like The Fated Magical Princess marks the first simultaneous international release of premium Chinese animation by a Chinese platform, as reported in a Yahoo Finance article. This move not only diversifies revenue streams but also positions iQIYI to capture growing demand for Asian content in markets like Japan, the U.S., and Europe.

Market Leadership and Financial Sustainability

The global virtual production market, projected to grow at a 33.1% CAGR from 2025 to 2030, is a critical tailwind for iQIYI's strategy, according to the Markets and Markets report. By reducing reliance on post-production and enabling real-time rendering, AI-driven workflows lower costs and accelerate time-to-market-key advantages in a sector where content velocity and quality are paramount. iQIYI's 2025 iJOY Autumn Showcase, which unveiled over 400 titles across formats, exemplifies this scalability, as described in the Stock Titan article.

Yet, financial sustainability hinges on balancing innovation with profitability. While iQIYI's R&D investments and infrastructure spending are prudent for long-term growth, its current revenue decline raises questions about short-term viability. Competitors like Netflix and Disney, with larger cash reserves and diversified revenue models, may have more flexibility to absorb losses during AI integration.

Conclusion: A High-Risk, High-Reward Bet

iQIYI's AI-driven virtual production revolution is reshaping the media landscape, offering a blueprint for industrialized content creation. Its strategic partnerships, technological advancements, and global expansion efforts position it as a formidable player in the virtual production arms race. However, the company's financial challenges and the competitive intensity of the streaming sector mean that success is far from guaranteed. For investors, the key question is whether iQIYI can translate its technical prowess into sustainable profitability-a bet that will hinge on execution, market adoption, and the broader trajectory of AI in entertainment.