Behind the rapid rise of NetEase cloud music in the past 8 years, there is a beautiful past concerning Ding Lei's personal taste, product design, etc.; and the commercial cash problem faced by NetEase cloud music is another kind of naked reality. Tencent music by the antitrust investigation, the online music competition pattern has been subtle changes.
Editor Li Wei
Photographer Shi Xiaobing
NetEase Cloud Music is on the verge of going public, but it has stopped.
Recently, NetEase cloud music to the "Chinese entrepreneurs" confirmed that, based on the consideration of the current market environment and other comprehensive factors, the company's management decided to suspend the NetEase cloud music IPO. subsequent will choose a better time, as soon as possible to promote the IPO related matters. Previously, in May 2021, NetEase Cloud Music launched to the Hong Kong Stock Exchange. on August 1, NetEase Cloud Music through the Hong Kong Stock Exchange hearing.
The rise of NetEase Cloud Music seems to be a business alternative story.
In 2000, after NetEase went public in the US, People's Daily interviewed founder Ding Lei and asked him what he most wanted to do at the time, and Ding said he wanted to start a record label.
After 13 years, in February 2013, NetEase Cloud Music was officially launched. As a new product, NetEase Cloud Music is facing competitors who have been in business for 5 to 10 years: Cool Music, QQ Music and so on, and each of them has more than 100 million users. But NetEase cloud music is still from a sea of red to stand out.
By 2018, NetEase Cloud Music had exceeded 500 million users in just 5 years. in November 2018, NetEase Cloud Music received more than $600 million in financing, with investors including Baidu, General Atlantic, Boyu Capital, and others.
Turning over the prospectus of NetEase Cloud Music, it seems that you can find the answer to Ding Lei's hold off on listing: product, NetEase Cloud Music revenue doubled for two consecutive years, with 181 million monthly users, and the ratio of paid users reached 8.8%; but on the commercial side, NetEase Cloud Music has been losing money and the magnitude has been increasing, and the three-year loss of more than 7 billion yuan from 2018 to 2020, and the loss of more than 1.7 billion yuan in the year 2021. March loss has reached 1.7 billion yuan, the same period of the previous year only lost 500 million yuan.
In addition, the prospectus specifically states, "We expect losses to continue for the years ending December 31, 2021, 2022 and 2023."
Behind the rapid rise of NetEase cloud music in the past 8 years, it is a beautiful past concerning Ding Lei's personal taste, product design, etc.; and the commercial cash problem faced by NetEase cloud music is another naked reality.
NetEase has a number of businesses that are strongly associated with Ding Lei's personal interests, and NetEase Cloud Music and NetEase Yanshan can be counted among them.
In addition, within NetEase, there is a tradition that if Ding Lei attaches great importance to a project for a period of time, the project team will "enjoy" to sit in Ding Lei's office outside the office of the "preferential treatment", NetEase Cloud Music has enjoyed this "treatment". "treatment".
The rapid development of NetEase Yunmusic has increased its importance within the company, and in April 2016, NetEase Yunmusic was upgraded from the Music Product Center, a second-tier department of NetEase's Hangzhou Research Institute, to the first-tier NetEase Music Division, and then began to operate independently.
Before the launch of NetEase Cloud Music, NetEase did a serious internal study of Internet music products. In their view, the products on the market are library-type products, just a tool, users know the song elsewhere to search here.
"The competition of library-type products is zero-sum competition, the competition between platforms is the number of libraries, and NetEase Cloud Music wants to emphasize the efficiency of discovering music." An early NetEase Cloud Music employee told China Entrepreneur.
In order to achieve product differentiation and improve the efficiency of discovering music, the first thing NetEase Cloud Music did was to mobilize users who like music, forming a huge network of relationships among users and allowing spontaneous dissemination among users. Therefore, the earliest point of dissemination after the launch of NetEase Cloud Music is "music socialization". The first time I saw this was when I was a kid, and it was the first time I'd ever seen a kid in a movie, and I'd never seen a kid in a movie before.
However, this design, which violates users' previous habits, did not have the desired effect at first. Users who opened NetEase Cloud Music were surprised to find that the playlist was nowhere to be found, and the feature list only contained my favorite music and my favorite song list, "bad reviews, uninstalled", and a lot of grumbling in the early comments section of the product.
But NetEase Cloud Music still believes internally that there is nothing wrong with the design of the song list, but they have lowered the threshold for building a song list. Previously, saving a song list was more of a toy for a small group of people, such as music enthusiasts, and the revamped song list feature allows you to independently complete functions such as cover design, which greatly reduces the user threshold.
Early in the launch of NetEase cloud music, the official online collection of epic music song list, most of the magnificent, inspiring, and become most of the party of the college entrance exams and the party of the gathering of the exams, the microblogging and other social networks after the fermentation of the song list alone to help the NetEase cloud music to get nearly 200,000 users, the song list comments can be seen in the area of the party of the exams passed by +1, and there is another! energy!" The first time I've seen this, I've seen a lot of people who have been in the same boat.
NetEase cloud music really do the song list with the user's life together, and catch the microblogging the hottest time. 2016 Kobe retired, a lot of "Kobe honey" in the NetEase cloud music spontaneous creation of the song list, the comment area of the spontaneous discussion, some people to express love, some people to express regret, and the user data and even microblogging topic of discussion volume. The first time I've seen this, I've seen a lot of it.
Beyond the song list, the second killer feature of NetEase Cloud Music is personalized recommendations. After doing a lot of user research, the product design team summarized the characteristics of a Chinese user's listening to a song - may often hear a song, but do not know the name of the song and the name of the singer. These are exactly the same memories that we all grew up with.
At that time, NetEase Cloud Music's comment section was already active, and the tech team crawled through the comment section by setting up keywords such as "finally found", "memory", "surprise", and other user data.
Users feel that NetEase Cloud Music "understands me well", and through this very low-cost method, NetEase Cloud Music has formed a word of mouth among users.
Early employees of NetEase Cloud Music recalled to China Entrepreneur, "Previous market reports said that only 5% of users would read the reviews of online music products, but it turns out that 50% of NetEase Cloud Music's users read the reviews, and our product feature only has one review and one like."
In 2017, NetEase Cloud Music printed the content of the comment section as promotional materials, spreading throughout the Hangzhou subway, and then screen-swiped in social media to spark countless discussions. "Good songs every time with countless personal stories, rather than listening to music, rather than watching a moment of others, these moments bring out the music shock or clear sense of the picture. Music is life, and it comes through here, not just a music playing software." One user wrote.
If the previous Internet music products are programmers entrepreneurship, more of a tool programmed rationality, NetEase Cloud Music further tapped into the spiritual attributes and emotional value of music, through insights into the psychology of the user, landing the product, and users to reach a **** song.
Just when the development of NetEase Cloud Music was in full swing, it was suddenly hit by a copyright crisis.
In July 2015, the National Copyright Administration issued the Notice on Ordering Network Music Service Providers to Stop Unauthorized Dissemination of Musical Works, which is known as the "strictest copyright order in history". The notice requires each network music service provider to unauthorized dissemination of all the music works off the shelves, and then more than 2.2 million unauthorized music in January were all off the shelves.
The original intent of the copyright order was to crack down on piracy, protect copyrights, and standardize the authorization system for online music software, but it also objectively led to an uneven distribution of copyright resources among online music service providers.
Tencent's QQMusic, after sensing the crisis, started to seek more security in copyright on the basis of building its original music library resources. In July 2016, QQ Music merged with China Music Group (CMC), which owns two major music platforms, CoolMusic and KugouMusic, and the new Tencent Music Entertainment Group (TME) was born.
At the time, Kugou Music's market share was 28%, QQ Music's market share was 15%, and Koume's market share was 13%, for a combined market share of 56%. Together with Tencent's K-song app "All K-song", Tencent's influence in China's music market has exceeded half of the country.
After the establishment of Tencent Music Entertainment Group, Peng Jaxin became the first CEO, and during his tenure, he continued the previous copyright ideas, took the music library of the world's largest record label Universal Music, and gained a decisive advantage in the copyright war, which ultimately drove the Tencent Music Entertainment Group to be listed on the New York Stock Exchange in the United States on December 12, 2018.
Tencent Music Entertainment Group is the world's largest record label and the largest music library in the world.
Before the IPO, Tencent Music Entertainment Group drew on the business model of Spotify overseas, allowing record companies to hold shares, and the three major record companies Universal Music, Warner Music and Sony Music all hold stakes in them; after the IPO, Tencent Music Entertainment Group acquired 10% of the shares of Universal Music in December 2019, and in June 2020, it acquired part of the shares of Warner Music. Since then, it has formed a strategic pattern that is inseparable and intertwined with each other.
In terms of music copyright, Tencent's music platforms (QQ, Cool Me, Cool Dog) hold 30 million copyrighted songs, with copyright partners including Jewel, Warner Records, Emperor Entertainment and China Records, Sony Music, and so on; and copyright partners include top artists such as Jay Chou, Leslie Cheung, Eason Chan, Taylor Swift, Lady Gaga, and so on.
NetEase Cloud Music has 10 million copyrighted songs, and its copyright partners are Tian Entertainment Media, China Research International, and Fung Hwa Records. Its artists include SHE, Sun Yanzi, Yoga Lin, and Mao Yi.
Shrimp music platform also defected to Ali in 2016, grabbing 20 million copyright song resources. Its partners include Rolling Stone Records and Huan Ya, and its artists include Liu Ruoying and Mayday. However, on February 5, 2021, Shrimp Music officially shut down. The 2020 China Online Music Industry Report shows that the monthly activity data of shrimp music is only 10 million, which is even less than one tenth of QQ music.In September 2019, Ali became the lead investor in the $700 million financing of NetEase Cloud Music.
Contrary to the story of Tencent music's smooth listing through capital mergers and acquisitions, on April 1, 2018, because Tencent no longer resells some of its copyrights to NetEase Cloud Music, NetEase Cloud Music lost the copyright authorization of Jay Chou's songs, and the song Rainbow's comment area of more than 100,000 users complained, and there was a wail.
Exclusive copyright is something that Ding Lei hates very much, and he has repeatedly denounced this matter at earnings meetings.In May 2019, during NetEase's first quarter earnings call, Ding Lei mentioned that some companies are monopolizing the hoarding of copyrights at a high price, which is not conducive to the benign development of music in China.
On NetEase's first quarter earnings call this year, Ding Lei again mentioned exclusive copyrights, saying that the exclusive sales model adopted by the world's three largest record companies in China over the past few years has made Chinese music operators, including NetEase, Huawei, Xiaomi, and other companies that need to buy music copyrights, pay more than two to three times the cost over the reasonable price.
On July 24, 2021, the State Administration of Market Supervision (SAMS) issued a "State Administration of Market Supervision (SAMS) Penalties on Tencent for Ordering the Release of Exclusive Online Music Copyrights and Other Penalties," published on the website of the General Administration of Market Supervision (GAMS), stating that the GAMS had opened a file for investigation into Tencent's acquisition of the China Music Group (CMG) in 2016.Tencent and the CMG had a market share in the relevant markets of about 30% and 40% respectively, and Tencent gained a higher market share by merging with its main competitors in the market, with the entity occupying more than 80% of the exclusive song library resources after centralization.
According to Article 48 of the Anti-Monopoly Law and Article 57 of the Interim Provisions on the Review of Concentration of Operators, the General Administration of Market Supervision (GAMS) issued an administrative penalty decision in accordance with the law, ordering Tencent and its affiliates to take measures to restore the state of market competition by releasing the exclusive music copyrights within 30 days, stopping the payment methods of copyright fees such as the high pre-payment fee, and not requesting that the upstream copyright holders grant them conditions better than those of their competitors without justifiable reasons. TME's shares fell from $36 to $10 on the same day, shrinking its market value by 60%.
In fact, as early as September 2017, the State Copyright Administration had interviewed the people in charge of Tencent Music, Ali Music, NetEase Cloud Music and Baidu Taihe Music, and also gave a hands-on solution - actively promoting sublicensing. Eventually, Tencent music and NetEase cloud music mutual authorization of music copyright reached more than 99%, but even 1% of the copyright difference still allows Tencent music to maintain the advantage.
An Internet music practitioner told China Entrepreneur, "It is still possible that Tencent Music will not easily release Jay Chou's copyright after this regulation."
However, copyright is only one of the factors that hindered the development of NetEase cloud music, the bigger problem is that NetEase cloud music has not explored a better business model.
Throughout 2020, Tencent music annual net profit of 4.16 billion yuan, while NetEase cloud music annual net loss of 3 billion yuan. The key to Tencent music's heavy investment in exclusive copyrights but still able to achieve profitability before listing is that Tencent music's main source of revenue is the social entertainment business, such as the national K song and live broadcasting, rather than online music services.
In fact, as early as 2018, Ding Lei also realized this, NetEase cloud music has launched products such as LOOK live and electro-acoustic label put prick.
But a comparison of the prospectuses of Tencent Music and NetEase Cloud Music reveals that the revenue sources of the two sides are nearly the same, both divided into online music services and social entertainment services. The former includes membership fees, music sub-licensing fees, advertising revenue, etc., and the latter is mainly live reward income.
The two companies have very different revenue shares from one company to another. Tencent music 2020 total revenue of 29.15 billion yuan, of which revenue from online music services is 9.35 billion yuan, accounting for 32%; revenue from social entertainment services and other businesses is 19.80 billion yuan, accounting for 68%. NetEase Cloud Music 2020 revenue of 4.9 billion yuan, of which 2.6 billion yuan, or 53%, from online music services; 2.3 billion yuan, or 47%, from social entertainment services and other revenues.
In addition, the gap between NetEase Cloud Music and Tencent Music's user payment rate is not large. Tencent music in the fourth quarter of 2020 paid users for 56 million, the payment rate of 9%; NetEase cloud music 2020 online music service monthly paid users for 15.96 million, the payment rate of 8.8%. However, due to the gap in the user base, the number of paid users of NetEase Cloud Music is nearly 16 million less than Tencent Music.
In NetEase Cloud Music's prospectus, it says its losses were mainly due to business expansion, which led to an increase in marketing expenses and research and development costs. At the same time, the prospectus also said that the company's profitability is still uncertain, due to the company's continued investment in content, research and development, marketing activities, etc., it is expected to continue to lose money in the next three years.
Ding Lei also seems to realize the seriousness of the problem, from the end of 2020, he began to personally helm NetEase Cloud Music, the former NetEase Cloud Music CEO Zhu Yiwen was rumored to be demoted. However, it has not yet been seen that Ding Lei has made big moves on cloud music.
In April 2021, organizational changes began within Tencent Music Group, the first management team adjustment since Tencent Music was listed on the New York Stock Exchange. Liang Zhu, the former general manager of QQ Music, began to serve as CEO of Tencent Music.
Liang Zhu worked for Huawei in his early years, and joined Tencent in 2003, the first executive ever to hold a doctoral degree in Tencent's history, and previously had a lot of interactions with Tencent's entertainment business.
Liang Zhu, who was the general manager of QQ Music in 2014~2016, won the copyright battle and launched the national K song APP, which also entered Tencent's "K Song" in 2017. In 2017, the product entered the Tencent "Hall of Fame", and is still one of the important sources of income for Tencent music. Before returning to Tencent music, Liang Zhu was the vice president of PCG platform and content business group, QQ head, and led the development direction of QQ rejuvenation during his tenure.
Behind the change of hands, the search for commercial profitability for NetEase cloud music is still a vicious battle, and more crucially, the former NetEase cloud music product leader Wang Shimu, who led the NetEase cloud music review subway ads bursting the social network of the vice president of marketing, Li Yin, and other executives have left.
Tencent Music's exclusive copyrights can no longer continue, Ding Lei should think harder about how to monetize NetEase Cloud Music.