Is Music the Next Hot Thing on the Chinese Internet?

While the global community is neck-deep in discussing China’s advances in 5G and AI, there’s heat accumulating in a totally different industry often overlooked by highbrow tech bros – entertainment. China has grown from a third world underachiever to a country that is establishing game rules globally in various industries. And music might be next up to join the list.

With a population of roughly 1.4 billion, China might house more people than any other country in the world, but it still struggles to keep pace with some smaller players in the domain of music. It was only in 2018 that China surpassed Australia as the 7th biggest music market, and, mind you, Australia’s population is just around 24 million people. China still lags behind Germany, France, South Korea and other countries, most of which couldn’t compare to it in economic might, but somehow kick ass in music revenues. Yet, this is about to change. The local music market was estimated to be worth around $865 million in 2015, and according to PWC predictions, it is expected to grow almost twofold to $1,37 billion by 2020.

The Chinese music market has long been marred by rampant piracy, back in 2012 as much as 99% of music downloads in China were in some way infringing copyright. The issue was only curbed in 2015 with the introduction of an anti-piracy initiative named Sword Net. That same year the industry saw a mind-blowing 113% spike in revenue. By August, more than 2,2 million illegal record files were swept off the Chinese streaming platforms, according to the National Copyright Administration of China (NCAC). And while piracy is still a problem, it is not large enough in scale to stop the industry from moving forward.

Back in 2017, 75% of all industry revenue came from digital music, and this trend is on the rise. With only 3% of the market, physical products are hardly a thing in China, where even paper money is considered retrograde. Digital platforms garnered around $634 million in sales in 2015, a big leap from $444 million in 2011. If the current growth rate remains, their total revenue will soar to $1.06 billion in 2020.

Top local companies cashing in on the growing industry are Tencent, NetEase, Baidu and Alibaba. Tencent bit off the biggest chunk of the cake and currently boasts a user base of roughly 800 million. NetEase, with 600 million users, has the biggest user-generated content platform. The company urges people to share music reviews and playlists, and its efforts have been paying off. On top of that, NetEase also got a large investment from Baidu, who gave up on their own platform.

Xiami, Alibaba’s music branch, lags far behind in terms of user numbers, but is far ahead in user loyalty. This might owe to the fact that the app focuses mostly on niche quality music. As one user put it, “it’s just for people with better taste”.

Xiami music (source: Quora)

Nonetheless, while the user metrics seem impressive on the surface, a deeper look reveals that only 5.3% of streamers bother to get a subscription, which is equal to roughly 225 million people. Consumers in China are not used to paying for music even when it costs as little as 2-3 dollars a month, and tech firms had been struggling to make the subscription model work. A breakthrough came with the introduction of Wechat Pay and Alipay, the apps made paying for music as easy as buying a sandwich in a convenience store.

Nowadays companies have three main revenue streams: advertising, user payments and copyright. The latter two have seen continuous growth, but the first one is rapidly losing importance, mainly because of its limited nature. Advertising through music is not an easy feat.

As for copyright, all major players involved in the music game share 99% of them, meaning their catalogues are virtually the same. Yet, the remaining 1% seems significant enough to make people download more than one app. NetEase, for instance, has exclusive deals with some international labels like Kobalt Music, Armada music or South Korean CUBE Entertainment.

To combat Chinese mentality, companies have gone creative and found innovative ways to ensure a stable influx of money. Pretty much all music apps now feature a video-streaming section (Tencent even has a separate karaoke app). While paying for music is still perceived as an anomaly by some Chinese, tipping streamers is part of the local web-etiquette, and music services are acting on it.

The growing Interest for music can be witnessed on other platforms as well, Rap of China, a hip-hop talent show that premiered on iQiyi, the local analog of Netflix, made huge numbers and inspired other companies to give music shows a try. Shortly after, Tencent premiered RAVE, a talent show focused on EDM and The Coming One, a more down to earth and inclusive production. NetEase also followed suit with shows of its own. Not to mention that most major Chinese tech companies now operate music labels. Even TikTok is starting one.

Chinese music industry is already gaining attention from foreign investors and it might be on the right track to going global. With the success of media companies like 88rising, spreading the word about Asian artists around the world, or individual achievements by the likes of Kris Wu (no matter how controversial), China, having almost tamed Hollywood, might soon break into the worldwide music game. To make it clear, it was TikTok that made Lil Nas X’s ‘Old town road’ a number one hit on the Billboard Hot 100 chart.

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