Chinese music-streaming service NetEase Cloud Music has 600 million registered users, having added 200 million of them in the last 12 months. Now the service has completed a huge round of funding: $600m raised from investors including Chinese tech giant Baidu and VC firms General Atlantic and Boyu Capital. Parent company NetEase will still be the ‘controlling shareholder’ in the business.

NetEase didn’t give many details about its plans for the funding beyond saying that it “aids NetEase’s efforts to further penetrate the market and leverage its strong industry position”. It will certainly give it some capital to continue competing against the streaming services of Tencent Music, which recently postponed its plans to raise $2bn by going public.

A comment from General Atlantic’s Eric Zhang – “Pay-for-content is a growing trend, especially among Generation Z users, driven by increasing affordability and improving protection of intellectual property” – hints that NetEase is keen to drive more paid subscriptions from its large user-base. That would chime with music rightsholders’ desire to shift more listeners from free tiers to paid subscriptions in China.

“From the [record] companies’ perspective, the real question is how do we get them to switch from legal and free to legal and paid?” said the IFPI’s regional director for Asia KT Ang earlier this year at The Great Escape conference, on that point. Ang noted that recorded-music revenues grew by 35.3% to $292.3m in China in 2017, including a 26.5% increase in streaming revenues to $204.5m.

Baidu’s involvement in NetEase Cloud Music’s funding round is interesting, given that the former company (often described as ‘China’s Google’ thanks to its search engine) used to be the main digital-music player in China. Albeit at a time when this was based on unlicensed music. “Baidu has always been committed to creating the most powerful content ecosystem. We have found that Chinese users still have a lot of room for online music,” said Baidu’s VP Wang Lu today. “NetEase Cloud Music has made a name for itself in terms of its differentiated user offering, together with Baidu’s leadership in feed business, search content distribution capabilities in China, we look forward to working together to provide users with enhanced service through the strongest content distribution, and the highest quality content ecosystem.”

Baidu and NetEase Cloud Music teaming up to battle Tencent’s QQ Music, KuGou and Kuwo should be healthy for the Chinese market – and also for western artists, who over-index on NetEase’s service compared to Tencent’s. In June, NetEase said that more than 30% of activity on its service – streams, but also comments, playlisting and favouriting by users – involved international music. The service has also made a push for independent music: it now has more than 70,000 independent musicians on its platform, who have uploaded more than 1.2m songs.

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