Hitting a High Note

2019-09-09 16:01:20 Beijing Review 2019年36期

By Wang Jun

Chinas two major online music service providers recently disclosed their business performance in the second quarter of the year, showing a remarkable difference and a new trend.

NetEase Cloud Music, a music streaming service with a database of more than 10 million songs, had 800 million users, up 50 percent over a year ago, according to NetEase, Inc.s second quarter earnings conference call on August 7. The number of paying subscribers jumped by 135 percent year on year.

NetEase is one of Chinas largest Internet companies, offering online game, advertising and wireless value-added services. Its net revenue in the second quarter of the year exceeded 18 billion yuan ($2.73 billion), an increase of 15.3 percent compared to the same period in 2018. The net revenue from innovative businesses and others, including NetEase Cloud Music and Youdao Online Education, totaled more than 1.5 billion yuan ($219.5 million), up 23.2 percent year on year.

Despite the impressive figures, it was Tencent Music, a subsidiary of Internet giant Tencent Holdings, that remained the leader in the Chinese online music market, consolidating the over 56-percent market share estimated three years ago. Currently, Tencent Music offers online music and music-centric social entertainment services with four mobile apps—QQ Music, Kugou Music, Kuwo Music and WeSing—to over 800 million users.

The quarterly financial report of the Tencent Music Entertainment Group said its revenue was 5.9 billion yuan ($835.69 million) in the second quarter of the year, with profi ts amounting to 1.09 billion yuan($154.39 million), a year-on-year increase of 7 percent. Its number of monthly active users (MAU) reached 652 million at the end of June.

Although the number of users is the basis of profits, revenues are still determined by profi tability, and in terms of this, Tencent Music is performing better than NetEase Cloud Music, Fan Zhihui, a music industry observer, told China Business News.

Factor for profit

All online music streaming service platforms in the world are facing diffi culties in churning out profi ts, Fan said.

On July 28, Swedish music streaming giant Spotify Technology announced that its revenue in the second quarter of 2019 was 1.67 billion euro ($1.85 billion), with a net loss of 76 million euro ($84.26 million).

For Tencent Music, one of the few profitable online music platforms in the world, it is its social entertainment business that is bringing in the most profi t.

According to its fi nancial report for the second quarter of the year, while online music subscription contributed 13.5 percent to the revenue and non-subscription online music 13 percent, its social entertainment business accounted for a whopping 73.5 percent. Revenue from social entertainment service and other areas increased by 35.3 percent to reach 4.34 billion yuan ($614.73 million).

“We are pleased with the second quarter results driven by the strength of both our online music and social entertainment businesses,” Cussion Pang, CEO of Tencent Music, said in a press release.

Power of social business

William Ding, CEO of NetEase, said to make a profit, NetEase Cloud Music should, in addition to expanding its membership, advertising and live audio streaming service, develop social functions, according to 21st Century Business Herald.

Charles Yang, Chief Financial Offi cer of NetEase, said at the end of July, NetEase Cloud Music added a new feature, Cloud Village, a music community enabling discussions, creation and sharing, and personalized expressions around music. It is becoming very popular, changing the way users can experience music today, from just listening to watching and interacting.

“Weve seen very, very encouraging signs of strong growth in both daily active users and MAUs since we launched the latest version,” Yang said, adding that this growth has made NetEase confident that the innovation will be well rewarded. “It creates opportunities for us to explore the commercial potential,” he said.

In social entertainment, Tencent Music has not only broadened its user base through mini programs and a lite version app, but also improved user engagement by adding new social features with high user participation. “We are confident that these initiatives will lead to further growth in the second half of the year,” Pang said.

“The major way for both NetEase Cloud Music and Tencent Music to make a profi t is to develop social business,” Fan said. “While the former focuses more on music-based social business, the latter concentrates on social entertainment.”

Educating users

According to Pang, the growth in Tencent Musics online paying membership accelerated in the second quarter of the year, with 2.6 million more users added, compared to the previous quarter.

To expand the number of paying users, from 2019, Tencent Music has been adding more content behind a paywall, Tony Yip, Chief Strategy Officer of Tencent Music, said.

“We want to spend this year and next year as investment years to educate our user base to buy the concept of paying for an ‘all-you-can-eat music streaming service for a very reasonable price. That goes beyond just paying for a particular song or a particular album or a particular artist,” Yip said. “It really comes down to educating users to get used to paying for convenient services, which allow them to enjoy the most comprehensive content offering in the market.”

According to him, the number of new paying users in the second quarter of the year is the highest in the past fi ve quarters.

Zhu agreed that membership is essential for an online music platform. “For NetEase Cloud Music, revenue from paying users contributes the highest to our total revenue. Other businesses, including advertising and live-streaming services, also contribute, but paying members are definitely the most essential,” Zhu told 21st Century Business Herald.