Battle of the bands to defeat Tencent

Two Chinese internet giants have joined forces to support independent musicians and to face Tencent, the superpower in online music streaming.

NetEase Cloud Music has finally closed its Series B round of funding led by Baidu. It is a deal that has firmly tied the AI and internet conglomerate into the online music streaming battlefield. 

China Everbright, General Atlantic and Boyu Capital also participated in this more than $600 million investment. NetEase Cloud Music’s valuation has now more than tripled to $3.5 billion, up from a previous value of around $1.1 billion.

 

NetEase Cloud Music raised $108 million in its Series A fundraising last year led by municipal-backed Shanghai Media Group and two funds. There might be a new round of fundraising for NetEase Cloud Music in the first half of next year, sources familiar with the situation told FinanceAsia today.

Founded in 2013, NetEase Cloud Music's user base has increased by 200 million over the past 12 months, and has now topped 600 million.   

A rumour of Baidu’s investment in NetEase Cloud Music has been circulating since last month. As the leading investor of this round, Baidu rejected Tencent’s investment offer in NetEase Cloud Music. Now with the investment from China Everbright too, NetEase Cloud Music seems to have more confidence as competition hots up in the world of music streaming.

 

As an investor, China Everbright sees great opportunity for NetEase Cloud Music because of its unique social media features, accurate algorithm for music recommendations, and its support for Chinese original music. The platform specializes in user-generated music content, and it supports more than 70,000 individual musicians who have uploaded 1.2 million songs online. This is what has built NetEase Cloud Music’s unique character and has made it stand out in the online music streaming market. 

NetEase has been embroiled in a long-running licensing dispute with Tencent’s QQ Music about Taiwanese musician Jay Chou. Tencent has the exclusive rights to Jay Chou’s music and suspended NetEase's access due to unauthorized use. Even though Tencent and NetEase signed a cross-authorization agreement in February (after pressure from the National Copyright Administration) Jay Chou’s music still can’t be accessed by NetEase users. 

 

As the biggest player in the market, Tencent Music reported Rmb8.6 billion($1.2 billion) sales in the first half of this year. What helps is that it is the exclusive Chinese distributor for Universal Music Group. This brings large volumes of traffic when local music fans try to access the music of Taylor Swift, Rihanna, Lady Gaga, Maroon 5 and other international musicians. Tencent is also the top platform for paid subscriptions.

 

That is probably why NetEase is trying a different path. It might trail Tencent's paid user numbers, but it has differentiated itself by promoting independent Chinese musicians. And Baidu is willing to cooperate on such content distribution.

There is no doubt that the Chinese are prepared to pay for music. According to research firm iResearch, individual spending on music is likely to have doubled between 2017 and 2023, and annual sales of the Chinese music industry could reach $54 billion this year. But success for NetEase Cloud Music will be decided by how much individuals are prepared to pay for Chinese original music. 

 

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