With news of Tencent Music Entertainment’s recent initial public offering activities hitting the headlines this month, the company’s 800 million Chinese listeners are part of a new generation of streaming audience who are, in turn, vital in contributing to a developing music industry that differs in significant ways from the traditional Western model.
Despite Tencent Music’s US IPO being delayed due to unstable global stock markets, the Chinese music streaming giant is rivaling the likes of Spotify and Apple music. The term “startup” would be ill-fitted to describe this financial behemoth. Valued at $12 billion at least, based on Spotify’s IPO data earlier this year, the initial and unchanged target for TME is to raise $1 billion in the initial public offering.
But why is Tencent Music worth so much, and how does its success, along with other fast-growing Chinese streaming services, play out compared with the Western model? Tencent Music holds a diverse range of streaming services, each with its own unique niche: WeSing, Kuwo Music, Kugou Music and Q Music. This bundle of traditional streaming services is mixed in with karaoke apps and livestreaming services, in line with the trend and tastes of Asian markets.
This monopoly is a winning formula that is a profitable business, a rarity in the field (unlike Apple music or Spotify so far). In the West, Spotify relies on a mixture of subscriptions and advertisement-fueled free options with limited success. Likewise, SoundCloud has been in a position where the company has been financially rescued multiple times. The most recent saviors of SoundCloud, which is beloved globally by underground music lovers, include high-profile public vouches of confidence by American artists such as Chance the Rapper, and an ex-Vimeo board member who pooled together $170 million to save the platform in April this year. The user base for SoundCloud is now growing, though a lot is left to be desired when compared with the ones and zeroes brought in by Tencent Music’s $1.3 billion in annual revenue produced so far.
Tencent Music draws the majority of its revenue from advertisements, song sales and social activities. As opposed to Western platforms such as Spotify which rely heavily on standard and straightforward paid subscriptions, Tencent Music’s subscriptions only account for 30 percent of its profits. Instead, a significant amount of profit is derived from virtual gifts and money transfers that are sent to livestreamers. In addition, a greater range of premium memberships are also available to the enthusiastic customer base as additional options.
Tencent Music’s performance may be a surprise to those who have not been paying attention to the rapidly growing livestreaming culture among young people in China, where viewing figures dwarf even the largest of Western responses such as Twitch. Copyright laws in China have also dramatically improved since a 2015 improvement in legislative regulation, and copyright owners in the past few years have enjoyed an empty market to make their gains, streaming everything from movies and television shows to music. This gold rush can be heavily contrasted with attempts from the West, where the music streaming market is starting to become more generic with the same apps offering the same catalogs of options.
This musical gold rush has resulted in a diverse ecosystem dominated not just by Tencent Music. China boasts around two dozen audio streaming platforms that have at least 1 million active users each day. This includes radio streaming and the karaoke services held dear by millennials and middle-aged businessmen alike. Alibaba and Baidu also are engaged in competition with Tencent, in the form of Xiami Music and Baidu Music, respectively.
Another factor in the difference between East and West is the price. Chinese listeners can enjoy online content largely unrestricted by premiums for as little as $2 per month, a solid bargain compared with the average $10 per month that US users pay for Spotify, or even more for lovers of community-based underground music genres accessible through SoundCloud. An unlimited genre selection of SoundCloud rap, drill music and drum-and-bass content will set you back as much as ￡10 per month in the UK. However, all this extra subscription cost for Apple Music, Spotify and SoundCloud has not helped them turn a profit so far.
Despite being much younger, China’s music streaming industry is coming along in leaps and bounds and learning fast. Tencent Music’s upcoming IPO will be an exciting new stage for the industry, and the diversity and low cost of Chinese options will secure music streaming in the country as a world-leading enterprise. Famous Western music artists may be a huge import to the East, but the confident industry models in China may mean that in the next few years, Asian artists and their own music culture will start a reverse osmosis to the rest of the world.
The author is a London-based columnist. Contact the writer at [email protected]
(China Daily European Weekly 11/16/2018 page10)