Tencent built a paywall to convert listeners to paid subscriptions… and it’s working

Here’s something you won’t read every day. Tencent is copying Rupert Murdoch.

Sure, it’s not entirely accurate, which has been said for many of News Corp’s editorial decisions. But there’s a kernel of truth to it.

Tencent Music Entertainment is converting it’s massive “free” user base to paid subscriptions at a blistering rate, and it’s doing so with firewalls. Or more precisely, the Chinese streaming giant is dropping some of its best content content in the vault, which can only be unlocked by a paid-up subscription. And it’s actually working.

The company’s online music user count towers over every other platform. Spotify, which owns a stake in Tencent through a share swap, recently boasted 248 million users at the end of September, including 113 million paid subscribers.

Tencent, which operates such services as QQ Music, Kugou, Kuwo and WeSing, claimed 661 million free and paying users in the third quarter, up slightly year-on-year.

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Tim Ingram crunched Tencent’s numbers this week for MBW, and identified an important theme behind these whopping numbers. It’s pack of paying music subscribers is growing exponentially. In Q3, paid subscribers topped 35.4 million, up 42.2% year-on-year, generating revenues upwards of US$132 million in the three-month period, a 48.3% gain on Q3 in 2018.

Cussion Pang, CEO of Tencent Music Group, shared some of the magic with investors. “We are going to continually add in more content behind the paywall,” he said. “Right now, we’re just in the high single digits; we will continue to add on top of this… in a gradual manner.”

And there it is. Paywall. We’ve seen this before, and consumers hated it more than skinned knees and burnt toast.

In 2010, Murdoch took a gamble and built a content wall around on his highbrow U.K. titles The Times and Sunday Times. Entry was priced at £2 a week. It proved to be a wildly unpopular move.

Writing in The Guardian nearly a decade ago, Jeff Jarvis had this to say, “By building his paywall around Times Newspapers, he has said that he has no new ideas to build advertising. He has no new ideas to build deeper and more valuable relationships with readers and will send them away if they do not pay. Even he has no new ideas to find the efficiencies the internet can bring in content creation, marketing, and delivery.”

Instead, he continued, “Murdoch will milk his cash cow a pound at a time, leaving his children with a dry, dead beast, the remains of his once proud if not great newspaper empire.”

According to the Guardian, it was an instant fail with online readership down 90 percent.

The great experiment extended to Australia in 2011, where Murdoch’s sprawling News Corp empire includes the Daily Telegraph and The Australian.

The newspaper industry was either sinking or dying, depending on which analogy fit. And Murdoch, with his undying love of newspapers and his well-deep pockets, isn’t a wait-and-see type of guy.

He also wasn’t the first to try fencing off content. Microsoft online Slate launched way back in 1996 and soon after start charging its readers a $19.95 annual fee. Three years later, the paywall came down.

In 1997, The Wall Street Journal became the one of the first national newspapers to charge access ($50 a year) to its website. It was also one of the great early success stories, boasting 200,000 subs just a year later.

Today, most mainstream publishers have erected paywalls. Some, like News Corp allow leaving customers to get access to a handful of articles. Fighting with “free” is still the battlefront.

Tencent appears to have found the sweet spot. At the start of the year, none of its content was paywalled. Now, the percentage is in “high single digits,” explained Cussion Pang. In other words, less than 10 percent of its library. How they selected the content is a tale for another day.

What did we learn from this? With the right content, people will pay. And, yes, not all bad ideas are all-bad.

Tencent has taken a newspaper strategy and made it a feel-good story.

This article originally appeared on The Industry Observer, which is now part of The Music Network.