Baidu-Taihe merger takes on Tencent, Alibaba in fight for China’s digital music market

But pundits expect search engine giant will struggle to mount a formidable challenge to brands backed by its better established rivals, even with the support of the Chinese entertainment group.

PUBLISHED : Thursday, 03 December, 2015, 7:07pm
UPDATED : Thursday, 03 December, 2015, 7:25pm

Baidu, operator of China’s largest online search engine, is looking to carve out a big slice of the country’s fast-growing digital music market through a merger with domestic music company Taihe Entertainment Group.

The deal will combine Baidu Music, the Nasdaq-listed internet company’s Chinese-language music search platform, and Taihe’s traditional music publishing and artist development activities into a new digital music enterprise.

“The merger represents a breakthrough in the digital music industry — the first-ever full integration of a leading internet platform and a traditional music company,” Baidu spokesman Kaiser Kuo said on Thursday.

The new Baidu company will face strong competition from QQ Music, part of internet giant Tencent Holdings’ popular Mobile QQ social platform, which has about 576 million monthly active users.

Other major digital music-streaming services on the mainland include Kugou Music, NetEase Cloud Music, and the Alibaba Group-owned brands Xiami Music and Tiantian Dongting.

Apple Music was launched on the mainland in September, providing digital radio channels and programmed playlists curated by a local team of music experts.

Research firm Analysys forecast China’s digital music market to reach US$17.9 billion yuan (US$2.8 billion) in 2017, up from an estimated 13.7 billion yuan this year.

“As the intellectual property regime continues to improve in China and users are increasingly willing to pay for online content, prospects for the Chinese digital music industry look increasingly bright,” Kuo said.

According to Baidu, its existing music platform will bring more than 150 million monthly active users and its online distribution capabilities, as well as the power of its search and big data technologies to the new digital music service.

Taihe is one of China’s largest music companies, covering the mainland, Taiwan, Hong Kong, Macau and Singapore. It has 15 artists under contract and has signed cooperation agreements with about 100 other artists.

On top of its experience in music operations and licensing, Taihe holds the rights to more than 700,000 recordings, long-term cooperation agreements with hundreds of international and domestic music institutions and original rights to more than 10,000 compositions.

Financial terms of the merger were not disclosed.

Forrester Research analyst Jin Di, however, does not see the new Baidu digital music company becoming a threat to Tencent’s QQ Music or Alibaba’s rival brands.

“Baidu is late in entering the online music space, where other industry players already have significant market share,” Jin said.

She pointed out that Tencent’s vast mobile ecosystem, which includes its WeChat social messaging service, “powers its music business”.

Combined domestic and international monthly active users on WeChat, known as Weixin in China, totalled 650 million at the end of September.

“Baidu lacks a robust mobile ecosystem,” Jin said.

What the merger of Baidu Music and Taihe would immediately accomplish is to “open up quality assets to financial and strategic investment”, Kuo said.

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“This strategy, which has already opened properties like Baidu Takeout Delivery, 91 Desktop and Zuoyebang to outside investors, aims to promote the independent development of these quality assets, and to foster the development of Baidu’s open ecosystem to better connect people with services,” he said.

Those online-to-offline (O2O) initiatives are still at an early stage. As such, Baidu expects to remain in investment mode and pursue strategic partnerships.

Robin Li Yanhong, the chairman and chief executive of Baidu, said in July there was no timeline on when Baidu’s O2O investments would pay off.

“Whether that’s in three years or five years, it’s really hard to tell at this point,” Li said.