Alibaba, Tencent collaborate on music streaming, with potential to remake industry

The licensing between Alibaba and Tencent on music licensing may put an end to the era of free-to-stream music while reshaping the market, says analyst

PUBLISHED : Tuesday, 12 September, 2017, 6:33pm
UPDATED : Wednesday, 13 September, 2017, 6:18pm

In a rare move, China’s omnipresent technology giants Alibaba and Tencent have shaken hands on a music-streaming rights sharing deal.

Under the agreement, Tencent Music and Entertainment Group will sub-license music from Sony Music, Warner Music and Universal Music to Alibaba, while Ali Music Group will share with Tencent its exclusive content bought from Rock Records, the two announced on Tuesday.

Tencent’s three music-streaming apps – QQ Music, Kugou and Kuwo – are seen as having a dominant market share in China.

“Despite no disclosure of the transaction amounts, the deal appears to be on an equal footing,” said Xiong Hui, an analyst with independent research firm iResearch, adding that it will put big pressure on NetEase and smaller players in the field.

Tencent’s mobile messaging app WeChat blocked Alibaba-owned music streaming service Xiami on its platform in 2015, leaving users unable to share tracks directly with their friends. The block was later withdrawn after causing friction between the two firms.

The record labels involved are believed to be the major drivers behind the deal, said Xiong.

“Both Alibaba and Tencent are distributors on a contract basis”, he added, so if the two do not operate actively enough, the record labels can halt the licensing or decide not to renew.

Tencent banks on original music to become China’s Spotify

With the ownership and distribution rights now in place, the next step will be encouraging users to pay for music, in a market plagued by privacy, said the veteran analyst.

“Even Spotify, the world’s largest music-streaming provider, is unable to chalk up a profit using subscription as well as advertisement fees generated from free users. It’s inevitable for the platforms to start charging users.”

Alibaba and Tencent said in their statement that their alliance will enable the industry to move forward in terms of protecting copyright and encourage more high-quality, original music.

The two companies still stream most of their music for free via their apps, such as QQ Music and Xiami, but both also offer paid-for services by subscription.

As for the ongoing competition between the pair, Xiong said the focus will likely shift to improving user experience with tailored recommendations and concerts.

While Alibaba Music is believed to have been given a valuation of around US$3 billion during its first round of financing, known as a series A-round, last year, according to Bloomberg, Tencent Music is seeking new funding in a pre-IPO round which values the company at US$10 billion.

The market for paid music is relatively new in China, even though Apple launched its iTunes service as early as 2003, Xiong said.

iResearch estimates China’s digital music market to be worth only a few hundred million yuan. That compares with annual movie box office receipts of over 40 billion yuan.

Xiong said he doubted if the global industry would ever return to its peak around the year 2000.

“The music industry worldwide hasn’t fully recovered since the appearance of rampant piracy enabled by the booming internet.

“The growth of paid users is still too weak. The number is very limited in China, with 10 to 20 million at most.”

Alibaba Group is the owner of South China Morning Post.