Chinese tech giants Alibaba and Tencent to swap music licensing – will it grow the fast-expanding market?

In a rare move, rival Chinese multi-billion dollar tech conglomerates Alibaba Music and Tencent Music have agreed to swap rights on music streaming in that country.

They said in a joint statement that it would allow the industry to move forward in protecting copyright and encouraging more high quality, original music.

The move is said to be at the urging of multinational record labels. It could eventually be the end of the era of free music streaming, according to analysts.

Alibaba Music is estimated to be worth around US$3 billion.

As a result of this partnership, Tencent Music is in a position to seek new funding in a pre-IPO round which values it at $10 billion. Its strategy is to use original music in its quest to become the Chinese Spotify.

Alibaba’s Xiami service will now gain the right to stream music from 200 labels including the three majors,which had exclusive deals with Tencent.

As part of the swap, Tencent gets Alibaba’s catalogue of Chinese and Japanese music. The Chinese language tracks alone total 1 million.

Tencent, founded in Shenzhen in 1998, is one of the world’s largest platforms and social networks for music.

It offers over 17 million songs to 700 million monthly active users in China.

Its three music-streaming apps – QQ Music (used mostly by young people), the mass market Kugou, and Kuwo (specific music genres and deep personalisation) have a 75% share of the local music streaming market and 78% of its revenue.

They were the three most popular apps in terms of monthly active users (526 million) in the first quarter of 2017, according to a report by mobile market research firm QuestMobile.

Currently, according to iResearch, China’s digital music market to be worth only a few hundred million yuan. In comparison, its film industry generates over 40 billion yuan at the box office.

Nevertheless, its streaming market is growing faster than most of the world, with customers drifting away from usually pirated CDs to the more glamorous and integrated digital world.

Figures from the IFPI (International Federation of the Phonographic Industry) put its growth during 2016 at 20%, compared with a global average of 6%.

In his keynote address at Singapore’s Music Matters conference, Tencent CEO Cussion Pang declared, “It is an important and dynamic time for music in China.

“Technology advances are enabling more personalized and social music experiences.

“The market is developing quickly and we are on the cusp of a dramatic transformation. The opportunities for artists and publishers have never been greater.”

Pang identified four key trends driving the development of music in China.

These included greater content diversification (with user preferences a long-tail phenomenon and variety TV shows a significant source of content), the growing popularity of music sharing with friends and interaction with stars, a demand for off-line experience as concerts and tickets, and the use of technology to enhance fan experience with multiple use cases and improving it with video, audio and virtual reality enhancements.

Pang emphasised, “In China, unlike other markets, music streaming emerged at the same time as social networking and mainstream ecommerce, which means that consumers expect convenience and they expect integration.

“Anyone selling music, or using music to market their products in China should explore the possibilities of this deeply integrated landscape.”