China's Home-Grown Version Of Spotify Shows How To Make Money In A World Of Digital Abundance

from the removing-obstacles dept

The fact that the best-known music streaming service, Spotify, is still struggling to turn a profit despite its huge popularity, is often held up as proof that making money in a world of digital abundance is almost impossible. Of course, here on Techdirt, we’ve published many posts about people and companies that have adopted various innovative strategies to get around the problem. But what about music streaming as a mass medium: will it ever be possible to make money in this sector?

A fascinating article on Mashable shows that it is already happening, but perhaps not where most people are looking. QQ Music is part of the extensive digital empire of the Chinese giant Tencent, best known for its messaging app WeChat, and now the largest Internet company in Asia. Last year, its turnover was $15.8 billion (pdf). As the Mashable article explains, QQ Music’s general manager revealed last week that the service is now profitable. One reason is the sheer scale of Tencent’s user base:

As one of China’s biggest dotcoms — WeChat has 762 million active users — the company has far better negotiating power at the table with record labels. Back in 2014, Tencent already used this to its advantage, striking exclusive Chinese distribution deals with large music producers the likes of Sony, Warner Music and South Korea’s YG Entertainment.

Similarly, QQ Music is itself large compared to Spotify:

QQ Music reports 100 million daily active users, and 400 million monthly actives.

Spotify, in comparison, has about 100 million monthly actives, although it has 30 million paying subscribers — three times QQ’s 10 million paying subscribers.

The secret to QQ Music’s profitability seems to be the following:

Chinese analyst iResearch estimates that over half of [QQ Music’s] users in China would have paid for something on their music apps this year. That could be a one-off purchase like an album or concert tickets, even if it’s not an ongoing subscription.

Moreover, beyond the 57% that already buy ancillary items, a further 20% said they were willing to do so at some point. That means over three-quarters of QQ Music’s users have or will buy other goods. Crucially, Tencent makes that as easy as possible by offering its own payment system as standard. That emphasizes a key point about making money in a world of digital abundance: success flows from removing as many barriers as possible, so that people can pay you for things they want at the moment they want them.

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Companies: qq music, spotify, tencent, wechat

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Comments on “China's Home-Grown Version Of Spotify Shows How To Make Money In A World Of Digital Abundance”

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14 Comments
PaulT (profile) says:

From the linked Mashable article:

“The main outflow of money goes to song royalties to record labels and copyright owners — more than 70 percent of Spotify’s revenue went to that… While QQ also has to deal with royalty payments, it’s had a number of advantages… For one, as one of China’s biggest dotcoms — WeChat has 762 million [pdf] active users — the company has far better negotiating power at the table with record labels.”

So, in other words it’s what we all know already. That Western labels are taking everything they can get away with, so long as they get paid they don’t care about the survivability of the services they screw over. Meanwhile, the Chinese ones have been forced to negotiate fairly, and both sides have come away doing well from the deal.

I’d also wonder how much regions have to do with this. Spotify has to deal in each country separately, in an extremely fragmented market. The labels have created a horrific system where crossing a border in a supposed free market leads to potentially vastly different licencing terms. Meanwhile, if QQ Music only has a single territory to deal with, their overhead must be far smaller. The is, of course, an assumption but it’s one that seems like it could be a major factor if true.

JBDragon (profile) says:

This being China, I wonder how music of the music they play is not paid for?

Spotify makes more and more money every year, but their costs go up even more every year and so they lose more and more money every year. All them FREE users are a huge drain to the company. They’ve never made a profit. They keep getting handed more and more money.

How is QQ doing it with only 10% paying users to Spotify’s 30% paying users? Are they even charging $10 a month. This being China, I wouldn’t even assume it was that much. They must not be paying out very much money to artists. As long as they stick inside China, they can get away with that.

Shilling says:

Spotify as a company is completely different then the Chinese one. Multiple labels are shareholders which they obtained during licensedeals. For these labels the incentive will always be to break even as a company and pay as much royalty as possible assuming they want Spotify to survive.

The number of subscriptions is artificially inflated as some providers of internet/cell phone plans have subscriptions that include a ‘free’ subscription of Spotify.

Plenty of other reasons that give tencent an advantage over Spotify.

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