TME dominates in China's booming digital music industry, but concerns over sector copyright and sustainability linger
China's ever-expanding digital music industry was one of the hottest on the agenda during global music industry event "Music Matters" held in Singapore from Monday to Tuesday, with worldwide company representatives all highlighting the sector's huge market potential in the near future. As a firm owner of music copyrights in the domestic market, Tencent Music Entertainment Group (TME), Tencent's music unit, has been leading the industry.
For China's online music industry, the best era may have just arrived.
"If I use several keywords to summarize China's music industry in the first half of 2017, it's upgrading and growing as well as expanding the industry ecosystem," Cussion Pang, CEO of Tencent Music Entertainment (TME) Group, told the Global Times on the sidelines of global music industry event "Music Matters" in Singapore on Tuesday. TME was the sponsor of the event.
Upgrading refers to the integration of the traditional music sector with online momentum, Pang illustrated.
China is now home to the world's largest mobile phone user proportion. The huge online population, combined with the growing number of young music fans who are addicted to listening to music via their smartphones, has led to the rapid explosion of the digital music sector.
In 2016, China's music industry was valued at 285.15 billion yuan ($43.7 billion), up 4.73 percent compared with the number in 2013, according to a report released by the State Administration of Press, Publication, Radio, Film and Television. Among which, the market volume of the digital music sector stood at 48.13 billion yuan, maintaining a robust annual growth rate of 50 percent from 2015, said the report.
The ballooning expansion was also partly thanks to new rules copyright regulators unveiled in July 2015, known as a ''watershed'' moment for the digital music sector, an industry insider pointed out. The new regulations require online streaming services to stop providing unlicensed music to users.
"Prior to 2015, the digital music sector was in chaos, whereby piracy was rampant and consumers lacked awareness of paying for intellectual property," Pang said, noting that the new rules have created a healthier and more legitimate environment for the industry's long-term development.
During the event, industry representatives also highlighted the enormous untapped potential of the nation's online music sector.
"China is still at the early stage compared with foreign countries such as the US and UK, which not only have larger user numbers, but also a higher paying subscriber ratio," Pang said, noting that this phenomenon heralds a promising market prospect for China.
For example, about 30 percent of users in foreign markets such as the US and UK are paying subscribers, compared with a one-digit percentage in China, said Pang, citing an industry report.
The booming domestic online music sector has drawn in a flock of music platforms, which have received funding from China's leading tech conglomerates to vie for market shares.
As competition intensified, those music platforms have consolidated with each other and built up their own foothold, with Tencent-backed QQ Music, Kugou Music and Kowo Music occupying the majority of market shares.
And other players, including Netease Cloud Music - which raises funds from Shanghai Media Group - Alibaba-backed Xiami Music as well as Baidu-backed Taihe Music and Baidu Music, are taking up the remaining small market stakes, experts said.
According to the Data Center of China Internet, Tencent's three music-streaming apps now control a whopping 75 percent of the total market shares. This is followed by Netease Cloud Music and Baidu Music, holding 16 percent and 4.3 percent of the total market share, respectively.
"Tencent's competitive edge over rivals lies in its firm control of copyrights, as the success of the online music industry now hinges on copyrights," Liu Dingding, a Beijing-based industry analyst, told the Global Times on Tuesday.
Over the past two years, a turf war over copyrights has intensified, with QQ Music and Netease Cloud Music aggressively and regularly suing each other over copyright infringements, according to media reports.
But now, Tencent's streaming rights in China have become unrivaled.
In May, Tencent sealed an exclusive music licensing deal with US-based Universal Music Group, completing its exclusive cooperation agreement with the "Big Three" global record labels, according to a statement TME sent to the Global Times on Tuesday.
TME also signed sub-licensing agreements with other platforms including Netease Cloud Music, Xiami Music and Taihe Music, said the statement.
However, Liu noted that other players will not be squeezed out of the market because they can still win the hearts of music fans in niche markets while Tencent targets the mass population.
In fact, latecomers like Netease Cloud, which especially appeals to China's young generation, is catching up quickly. The platform's accumulation of active users stood at 300 million in April of this year, compared with 200 million in July 2016.
Wang Xinmiao, a 29-year-old Beijing-based white-collar worker, who identified herself as a ''loyal fan'' of Netease Cloud Music, said she will stick to the platform, despite a number of songs being sheltered.
"I am impressed by the platform's personalized features, which offer me emotional, interactive experiences," she told the Global Times on Tuesday.
Tencent's dominating market position comes after the company spent great amounts of incomes on purchasing copyrights, which in turn sparked concerns as to whether this kind of capital-driven expansion model would generate sustainable profits.
How to cultivate payment habits for quality content among Chinese consumers, who have gotten used to getting music for free, is one of the many difficulties that may hinder the industry's ability to drive profits, Liu noted.
Pang also expressed worries over the negative influences of "potential piracy cases."
He noted that while licensing fees can easily eat up revenue bulks, an increase in piracy cases could easily pour money down the drain.
Globally, profitability has been a pressing issue that all music services face. Spotify, Tencent's counterpart in the West, with 20 million paying customers, has not claimed to make a profit, as much of its revenues go toward licensing, media reports said.
Domestically, TME has successfully reaped profits last year.
But Pang, the company's CEO, did not give details on the income figures during the interview.
"In addition to monthly subscriptions, we also have sales incomes from other diversified businesses such as video live streaming, WeSing and digital albums," he said.
WeSing is a mobile application that allows users to sing Karaoke on the phone and then share a recording with friends.
Andy Ng, vice president of TME, also told the Global Times that there is an array of innovative business models the company can explore based on its social network empires as well as online-offline connections.
"In the long term, Chinese companies such as Tencent should also consider merging their music branches with other entertainment industries, including film and TV drama, drawing on the Hollywood model," Liu suggested.