Tencent was investigated recently by anti-competitive watchdogs in China, and it is time for NetEase Cloud Music to shine.
On July 26, according to the source quoted by the Hong Kong Economic Daily, NetEase Cloud Music (aka. Cloud Village) will seek a listing hearing on the Hong Kong Stock Exchange as soon as this week. The company plans to raise about USD 1 billion (CNY 6.5 billion). The co-sponsors are Merrill Lynch, CICC and Credit Suisse. NetEase Cloud Music didn’t comment yet.
Later on May 26, NetEase announced that it planned to spin off NetEase Cloud Music and to list it independently. At the end of May, NetEase Cloud Music submitted an application for listing on the main board of the Hong Kong Stock Exchange.
According to the prospectus, the controlling shareholder NetEase holds 62.46% of the shares, and other shareholders include Taobao China (10.81%); Novel Entertainment (5.41%) and Baidu (4.26%).
In terms of the revenue, NetEase Cloud Music achieved CNY 1.148 billion, CNY 2.318 billion and CNY 4.896 billion respectively from 2018 to 2020. The net loss attributable to company shareholders were CNY 2.006 billion, CNY 2.016 billion and CNY 2.951 billion, respectively during the same period.
This music leading company’s revenue structure can be divided into online music services, social entertainment services and others. In 2020, the revenue from online music services was CNY 2.623 billion, accounting for 53.6% as the largest contributor, where the paid subscription membership fee was the core. From 2018 to 2020, the monthly active users (MAU) of online music services of NetEase Cloud Music were 105 million, 147 million and 181 million respectively, of which the amount of paid members were 4.2 million, 8.63 million and 16 million accordingly. The rest part revenue was derived from social entertainment services and others, accounting for CNY 2.273 billion.
As the biggest competitor of NetEase Cloud Music, Tencent Music was disciplined by the State Administration of Market Regulation on July 24. It is asked to remove its exclusive copyright of online music and stop the payment of copyright fees such as high prepayment. Other measures to restore market competition include forcing the upstream copyright parties to give superior conditions than competitors without justified reasons.
According to an online music platform practitioner, there is little difference in the aggregate volume of music libraries between these two tycoons, but Tencent Music holds 1% of the scarce music library copyright and resources. This time’s restriction on the copyright of its competitors is conducive to the greater development of NetEase Cloud Music in online music services and paid subscriptions, as well as its listing process.
Previously, Ding Lei, the founder of NetEase, expressed that he was quite confident about the profitability of NetEase Cloud Music's membership, advertising, audio live broadcasting and social functions. On the 2021Q1 earnings conference call held on May 18, NetEase said that there are many possibilities in product innovation and monetization methods for Cloud Village, and they will continue to dive into membership, live broadcasting, advertising and more fields.