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Analysis EO
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Analysis EO
Aug 12, 2020 11:08 am ·

NetEase Music and Universal Music Enter into Licensing Agreement

On August 10, NetEase Music and Universal Music Group jointly announced a new strategic cooperation, to continue for several years. Under this cooperation, NetEase Music will obtain the authorization of Universal Group's music library, but the two parties will also jointly explore music products. Also, they will carry out broader cooperation in more innovative areas. Universal Music is the world's leading music entertainment company, with a music library spanning multiple generations and covering different music genres. It not only owns top-notch musicians in the European and American music circles, such as Taylor Swift, Ariana Grande, Justin Bieber, Katy Perry, Drake, Billie Eilish, Troye Sivan, etc. but also has flagship musicians in the Chinese music industry such as Jacky Cheung and Eason Chan. Based on the unique community atmosphere of NetEase Cloud Music, in addition to traditional streaming media services, the Universal Music music library cooperation has been extended to a brand-new community product – Mlog – and other rich and diverse music usage scenarios. In the future, the two parties will work together to provide users of the NetEase cloud music platform with a more complete music experience, promote music product innovation and value system construction, and explore new models and motivations for the long-term sound development of China's music ecosystem. 'NetDepression' Cloud Music? NetEase Cloud Music was officially launched in April 2013. It is a music product under NetEase that focuses on discovery and sharing. As one of the mainstream online music platforms in China, NetEase Cloud Music takes "delivering the beautiful power of music" as its mission, and continues to help users discover and share music through playlists, music reviews, personalized recommendations, Mlog and other product innovations, leading China online Innovative development of the music industry, is China's leading music community. At present, NetEase Cloud Music has more than 800 million users and 30 million music libraries. The user growth rate and retention rate are both leading the industry. However, the discussion about the comment area on NetEase Cloud Music is hot, and people even renamed it as 'NetDepression' Cloud Music. Where does this nickname come from? Some people explain that there are many depressive statements in the comment area, and it is even called the phenomenon of 'per capita depression.' It seems as though some people use this comment function to gain attention and sympathy. How does a music product become an emotional sounding board? In 2013, when NetEase Cloud Music was established, Ding Lei positioned it as a platform allowing you "to listen to music at any time and share music with others at any time." Therefore, in this product, user experience and social sharing are the biggest differences between it and other music platforms.   Its earliest trip out of the circle started with subway marketing. In 2017, NetEase Cloud Music printed 5,000 music reviews with the highest number of likes on Hangzhou Metro Line 1. Many people stopped to take photos and share under the advertisement of the NetEase Cloud Music Comment. Since then, NetEase Cloud music lovers have built a natural social environment, and more and more young people are willing to share their emotions here. According to data released by Questmoblie's 'Generation Z Insights Report' and Mob Research Institute's 'Generation Z College Student Guide,' NetEase Cloud Music has become the most popular music app for young people born in 1995 with the highest proportion of active users and high TGI (user preference).   In addition to offline marketing, NetEase Cloud also strengthens the music + social model on the product side.   In August 2019, NetEase Cloud Music began to focus on building the community section, calling it "the most important strategy" in order to create a UGC content ecosystem. Driven by social attributes NetEase Cloud Music has maintained a certain growth rate. In the second quarter of 2019, the total number of users of NetEase Cloud Music had exceeded 800 million, a year-on-year increase of 50%. And the number of effective paid members rose by 135% year-on-year. The core of the music platform lies in the music copyrights On the online music battlefield, owning more copyrights of songs means enjoying more market share. At present, even if "over 99% of exclusive copyrights are mutually granted," Tencent Music cannot share the copyrights with NetEase Cloud Music for free.   Tencent Music Group's (TME) financial report for the first quarter of 2020 shows that the number of paying users of online music services reached 42.7 million, a year-on-year increase of 50.4%; the ARPPU (average paid user revenue) of online music services increased by 13.3% year-on-year; total revenue reached 6.31 billion yuan (about 891 million US dollars), an increase of 10%. However, in the 2020 Q1 NetEase financial report, the specific data of NetEase Cloud Music was not disclosed, but only mentioned that "NetEase Cloud Music's net income during the reporting period maintained a year-on-year growth, and the number of paid members continued to increase." In May 2017, TME obtained a three-year exclusive Universal Music library content and sublicense license, as well as the rights and interests of the operation, promotion, and development of world-renowned singer resources. But it is worth mentioning that as early as March this year, Tencent Music announced that a consortium led by Tencent Holdings had completed the acquisition of a 10% stake in Universal Music.   In other words, the cooperation between NetEase Cloud Music and Universal Music is to some extent buying copyrights from Tencent.

Analysis EO
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Analysis EO
May 25, 2020 04:33 am ·

Tencent Music’s Challenges – How to Turn Traffic into Money?

► Users in China are in the beginning stage accepting payment for music with great potential for future growth. ► Online Karaoke and live streaming are the main income source, occupying nearly 70% of the total revenue. As a joint venture of Tencent (TCTZF:OTCMKTS) and Spotify, Tencent Music (TME:NYSE) takes the first seat in the China’s music entertainment service market. Previously, Bridgewater Associates reported a 9.29% increase in ownership of this entertainment group in the first quarter of 2020. Other investors with positions similar to Bridgewater Associates included Citadel Advisors, Wells Fargo and many others. Whereas Tencent Music is experiencing a positive time, it is facing fierce competition in the music and related entertainment area of China market. Supported by capital and traffic, Internet giants are seizing more core-business-related areas and establishing their own ecosystem. Just like other music or online video platforms, copyright is the priority, together with other investment into content service, the business map of Tencent music is expanding. Investment into copyright not likely to stop As for the copyright part, Tencent Music holds the largest music copyright library in China nowadays. Tencent Music has exclusive licensing agreements reached with the world's largest record companies such as Universal Music Group, Sony Music Entertainment and Warner Music Group. These three firms’ total market share is close to 65%. During the first quarter of 2020, the copyright collector’s online music business revenue was CNY 2.04 billion (USD 290 million), occupying 32.39% of total. Monthly active users (MAU) were 657 million, and the number of paying users was 42.7 million, up 50.4%. From one aspect, the paying numbers increased a lot, from another aspect, the payment rate is actually 6.50%. In 2018, the China music industry payment rate level was (in Chinese) 5.30%, and the number in the US was nearly 24%. On average, Tencent Music’s users’ willingness to pay is beyond industry overall level. Users in China are at the beginning stage of payment to music, while users in the US are  more accustomed to it.  Although the payment rate is not high, these paid users have made Tencent Music the fourth most paid users’ platform in the world, followed by Spotify, Apple Music and Amazon Music. It seems like Tencent Music is in a safe castle with a broad moat, but the competitors are covetous. The second largest music app is NetEase Cloud Music, these two firms comprise the first tier of China’s music industry. Different from the concentration on copyright, NetEase one was famous for its good music community, users commented on songs and shared feelings to resonate. Copyright was NetEase’s shortcoming for a time, but Alibaba’s investment of USD 700 million in 2019 into this second player made the story different. With support from Alibaba, NetEase Cloud Music can devote more on the copyright area. From February to May, this second China music platform successively reached strategic cooperation with Rolling Stone Records and Warner Copyrights, and collected the copyrights of three Chinese head music variety shows. Subsequently, on May 12, NetEase Cloud Music won the lyrics copyright of Warner Copyright (WCM). Not only does the music industry needs copyright protection, other entertainment also needs it –such as TikTok. Then the expenses just went up during the past years. When TME signed the global exclusive in 2017, the copyright fee once rose from the original nearly USD 35 million to USD 350 million in cash plus USD 100 million in equity, which surged 10 times in the short term. The expenses are increasing, and if Tencent Music wants to hold its advantage in this area, further investment is hard to stop. Moreover, now the competitions more concentrate on the top singers such as Jay Chou and Taylor Swift. These people only obtained 1% of the total, but they own the most fans and fans are willing to consume. The investment into Taylor Swift’s Paris Concert world premiere on May 18 is a good example. Social entertainment is another way Another part of the business sector – music related entertainment – occupied the rest of income, with 67.61% of the total. The number in 2016 was nearly 50%, while as China’s live streaming industry flourished, its percentage kept increasing during the past few years. The first quarter’s MAU grew 13.3% to 256 million, paying users grew 18.5% to 12.8 million, but monthly ARPPU (Average Revenue Per Paying User) decreased 12.9%. If using the concern for the future after the epidemic might be part of the reason, it’s not enough. Live streaming in China has several categories, Tencent Music’s product mainly focuses on music lacking enough visual stimulation (like game fighting scenes). Compared to the hot game live streaming, which has strong visual and auditory stimulation, consumers who stayed at home during the epidemic are easily attracted more by it. According to QuestMobile’s report, live game users' payment rate exceeds 30%, while the music’s user base is surely larger than the games. This year, Tencent Music has other plans – it wants to focus on long audio. In April, it officially released the long audio strategy and launched the new brand ‘Kuwo Changting.’ The advantage is the long time that clients can stay on the platform during their day. As well, audio can control the costs since per piece is longer than songs, and enrich monetization channels. Spotify agreed with Tencent Music’s thoughts; over the past 18 months, it has spent nearly 600 million US dollars on podcast-related acquisitions. In contrast to Tencent Music and Spotify, NetEase Cloud Music chose to step into the Karaoke Market and focus on original music. On April 27th, it launched the first music live broadcast mode, and added full live music support. The plan was based on its good music community and strengthened the stickiness one more step. Tencent Music and NetEase Cloud Music have chosen different development paths beside copyright issues. Meanwhile they all face the uncertainty of payment rates and ARPPU. In the long audio race, there are already three main players ­– but large-scale commercial monetization remains a major challenge for them. The first long audio stock, Lizhi, said that livestreaming is its main income source. NetEase’s new effort also has no recent example to refer to. As they developed approaches based on their own strategies, the best ideas need to be verified by the market.

Analysis
Analysis · 1
Analysis
Mar 24, 2020 12:00 am · 36Kr

Music Industry 3.0: Fight Like 15 Seconds Short Video