NetEase helps China’s indie artists out-sell Taylor Swift on its interactive music-streaming platform

  • NetEase has been investing heavily to support the budding careers of independent musicians with the aim of generating a fresh supply of high-quality content
  • Chinese technology companies are rushing into the country’s burgeoning online entertainment space with more consumers prepared to pay for content
PUBLISHED : Sunday, 04 November, 2018, 6:02am
UPDATED : Sunday, 04 November, 2018, 10:56pm

Music is known for its struggling artists – not everyone makes it big like Adele, Kanye West or Rihanna.

When The Landlord’s Cat, a Chinese indie folk duo formed by university friends in Wuchang city, planned to break up in 2016 to take on “serious jobs” after finding it hard to make ends meet, a friend encouraged them to give it a final try by selling their album through Chinese streaming platform NetEase Cloud Music after fan requests.

The response turned out to be overwhelming with over 2,400 albums sold, more than six times their initial expectations. Two years later and after follow up tracks the duo has garnered over 1.3 million followers on its Cloud Music channel. The band can survive thanks to the suggestion of their friend, Li Xiancheng, who now manages The Landlord’s Cat.

“NetEase Cloud Music has given us exposure on the app by writing about us, featuring us in music shows and recommending our music to users. That helped us grow our followers by over 700,000 within a year … and brought us a decent income from royalties,” said Li, who declined to specify the exact amount.

Behind this platform for indie bands is New York-listed Chinese gaming company NetEase, which has been investing heavily to support the budding careers of independent musicians with the aim of generating a fresh supply of high-quality content for its service amid rising competition in the music streaming arena.

NetEase Cloud Music offers a similar streaming service to Spotify, the No 1 music subscription service in the world, with tracks, albums and personalised playlists. However, it differentiates itself by creating an interactive music community for musicians and the users, with a comment section for each song that allows users to share their feedback and thoughts. More than 640,000 comments are posted daily, and it had accumulated over 400 million comments by early 2017, according to the company.

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Its bigger rival Tencent Music Entertainment, which recently postponed a US IPO due to adverse market conditions according to people familiar with the situation, operates three music apps QQ Music, Kugou Music and Kuwo Music. It has around 800 million users in total, and uses live broadcasting and karaoke features to appeal to consumers and generate revenue.

Chinese technology companies are rushing into the country’s burgeoning online entertainment space to catch the growing trend where users are prepared to pay for original music and ditch pirated content, which has plagued the market for years. China’s entertainment and media industry has been stirred into life amid a broad crackdown by Beijing on black market activities.

“The rise of millennials, smartphones, 4G, lower data rates, original content and heavy investment by internet companies are ushering in a golden age,” said Elinor Leung, managing director of Asia Telecom and Internet Research of CLSA, in a September report.

China’s online music market was worth about 17.5 billion yuan in 2017, with growth of 22 per cent compared to the previous year, according to April data from China’s National Copyright Administration. The number of online music users in China reached 555 million in June, accounting for 70 per cent of all internet users in the country, according to an August report by state agency China Internet Network Information Centre.

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“The Chinese music industry lost its mojo in terms of fostering new talent, and music tastes have changed a lot in the past few years,” said Huang Jun, operations director of NetEase Cloud Music. “There’s growing demand for diverse music genres and new musicians, and we hope to help aspiring artists to fill that gap.”

Indie musicians, who produce music independently as opposed to signing a deal with commercial record labels, have benefited from the rise of online music streaming platforms, although the majority of them still struggle to make a decent living.

Up to 70 per cent of independent artists in China earn less than 1,000 yuan (US$145) each month from their music and less than 5 per cent of indie musicians make over 10,000 yuan a month, according to a NetEase Cloud Music survey in 2016. To change this situation, musicians need a platform, marketing resources, gigs and record production support, the report revealed.

An indie folk band called Yanba’er, which translates as ‘cigarette butts’ in English, was able to take a cut of the over 50,000 yuan in advertising revenue generated by their comment section on NetEase Cloud Music in half a month, after their song about lost love went viral, according to Huang.

Mao Buyi, who started out as an indie singer-songwriter before being signed by a major music label, sold over 10.9 million downloads of his new album Perfect Day, surpassing Taylor Swift’s Reputation to top the charts just three months after its release in May.

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The problem for new artists is not distribution – it’s awareness and recognition.

“As the music industry makes the shift to streaming services, it’s becoming harder for good music and new talent to be noticed,” he said. “What they need are better platforms to reach the right audience, and that is where we come in.”

Over 70,000 independent musicians had joined NetEase Cloud Music as of September, making it the biggest platform for independent artists in China with 400 million users, according to the company. It also invested 200 million yuan in the first edition of Project Stone in 2016, which assists up-and-coming musicians with promotion, live performances and royalties management.

Other Chinese music platforms have also announced projects to nurture independent artists, including Alibaba-owned Xiami Music, which has run two seasons of ‘Search for Light’ contests for indie artists.

Tencent Music, which is being spun off from Chinese internet giant Tencent Holdings, announced a Musician Project in 2017 that offers artists access to digital albums, revenue sharing on live broadcasting and karaoke among other monetisation opportunities.

Moreover, the so-called ‘pay ratio’ for China online music platforms – the proportion of users who pay for content – at 5 per cent is still well behind global peers at 20 to 30 per cent, but the younger generation who are more accustomed to paying online for content are expected to boost both the pay ratio and overall spending, according to the CLSA report.

Tencent overtakes NetEase to grab top spot in mobile app revenue

China may be in more of a “sweet spot” than western markets, with many music streaming services still struggling to find a sustained path to profitability, relying on member subscriptions and advertising as their main source of revenue. Spotify this week reported a disappointing third quarter outlook despite reporting its first-ever profit.

In contrast, Tencent Music has achieved profitability prior to its planned IPO, deriving 70 per cent of total revenue in the first half from social entertainment services, such as virtual gifts on karaoke and online broadcasting services, while music streaming accounted for the rest.

Last month China’s biggest search engine operator Baidu led an investment round for an undisclosed amount in NetEase Cloud Music that it said would drive in-depth cooperation on content, copyright issues and traffic sharing between the two companies, as Baidu steps up its efforts to build a quality content ecosystem as consumers upgrade their spending habits.

“Audiences now have access to a much wider range of music genres and works, they are less obsessed with the music of mainstream ‘superstars’,” said Huang. “Instead they’re searching for diversity and new blood.”

Alibaba Group Holding is the parent company of the South China Morning Post.