Apple, Google and Amazon’s music strategies generate a huge amount of chatter in the west, but our industry should also be talking about the ambitions of Chinese tech giant Tencent, through its Tencent Music Entertainment Group.
Its VP Andy Ng talked about what Tencent is doing within China and outside in a keynote session at the Midem conference in Cannes today. Ng was interviewed by Billboard’s Asia bureau chief Rob Schwartz.
Ng talked about . “Five years ago, if I had talked to you about China, I guess nobody even cares about China, because I don’t think anybody is making any money from the music services. But in the last three years everybody has been eyeing the China market,” he said.
“The market has been getting a lot healthier than the previous situation, where there was a lot of piracy and giving music away for free. Free streaming, free downloads…”
Ng said that the market is in no way mature yet, but “it is getting much better… on the recording side, they are getting a lot better for the past two years. The publishing side? We still need to work on. Tencent has been working very closely with the publishers to try to fix the market… Publishing will be the next focus that we really need to change the market around.”
Ng shared some information on how Tencent is approaching the market. Its three main services have been QQ Music, Kugou Music and Kuwo Music, which together form Tencent Music Entertainment Group. “We have about 2,400 employees, and the three portals are remaining running individually… the user age groups are different on each of the music portals,” said Ng.
“The users in QQ Music tend to be living in the first-tier cities in China, whereas Kugou and Kuwo, the users actually live in the second and third-tier cities… We are seeing some differentiation there,” he continued.
Tencent has 600 million monthly active users and 200 million daily active users for its music services, with a music library of more than 17m tracks, according to Ng. Around 60% of those tracks are Anglo-American, whereas only around 4% is Chinese music. “However, over 80% of our users are only listening to this 4% of Chinese catalogue!” said Ng.
Tencent has signed up more than 200 music labels in recent years, with 30-40 of them counted as ‘strategic partners’ – Universal Music included, following a recent partnership announcement, as well as the other two major labels.
“We are helping them to sub-license their content in China. Number two, we will help them to fight against piracy, because there are still a lot of pirate sites in China,” said Ng. “And numbr three, we are also working very closely with these strategic partners in building up a substantial business model in the China market.”
Ng added that currently, Tencent can get partners’ content taken down from pirate sites “within one hour”.
Ng talked about how Tencent’s music services make their money. Its base of premium subscribers has increased from five million people in 2015 to 10 million in 2016, 15 million now in mid-2017, and is expected to reach 25 million by 2019.
“These are pretty amazing figures compared to the rest of the world. I have to be honest with you guys: the ARPU in China is much lower than the rest of the world. In China we are basically looking at the volume: the population,” he said.
“In China, the lower [the price] the better. This is an educational thing that we have been communicating with the users, because they have been doing the piracy stuff for so many years, and they have been used to not paying for content. So right now, this is a very good start in having them realise that content has a value. We are charging them a small minimum in order to attract the users who will pay for the services.”
Tencent’s educational program included getting artists and labels to take part in putting forward that message that music has a value. “We are brainwashing them in a way that they have to start paying for music, instead of getting it freely from different pirated sites!” said Ng.
Another trend: total revenues from digital album sales has increased from 150m RMB in 2016 to an anticipated 300m RMB in 2017 (around $50m). When a big album is coming out, Tencent will launch it for sale, and remove it from its streaming services.
“The users will have to pay for this digital album in the first two or three months if they want to listen to it, and after this two or three months, we will migrate it back to the subscription services,” he said. Adele is one of the 50+ artists to have benefited from this initiative. It’s a kind of windowing that hasn’t really been seen in the west.
Tencent is also exploring other potential revenue streams, including live broadcasts of artists’ concerts. Ng also talked about the fact that nearly 80% of Tencent’s music users are aged between 15 and 27. “You also see that only the teenagers are willing to pay for the music services!” he said. Older users are “too used to piracy” in his opinion, but with so many younger people to target, there is still plenty more room for subscription growth.
“The youngsters in China are really getting a lot more educated than the older guys. They know content has a value, and they respected that, so they are willing to pay for the music services,” said Ng.
He went on to explain that Tencent is working hard to root its music services firmly in sharing: social features. “We tend to leverage all our social services and blend in the music elements to these social networks,” he said. “We have video services, all kinds of different social network services within Tencent, where we will be working together… we call it like a central hub, so we can easily share the music… That’s how we differentiate ourselves versus our competitors.”