The first profitable streaming music company in the world could come from China.
Spotify, despite beating out Apple Music and other competitors with 30 million paid subscribers, is actually bleeding money. While the company boasts high annual salaries for full-time workers, reported at over $168,000, the company reported last year a loss of over $194 million, way up from just $28 million in 2010. This might show that music streaming may not be as profitable as some think. But recently, QQ Music, better known as China’s Spotify, is reported to be turning a profit. According to general manager of the music division for parent company Tencent, Wu Weilin, the company is turning a profit. But why is it Spotify’s sinking and QQ Music’s riding high? The answer lies in taking a closer look at parent company Tencent, an e-commerce and tech giant in China.
Fresh off merging QQ Music and China Music Corporation in mid-July, a deal which was valued by the Wall Street Journal at $2.7 billion, TenCent seems to be dominating China’s online music market. QQ Music and China Music Corporation’s KuGou both claim to have over 800 million users each. TenCent doesn’t focus only on the music streaming industry, but also manages a social network, a gaming platform, and the immensely popular messenger WeChat, with more than 700 million active users. All of this gives TenCent a huge advantage when negotiating deals with record labels due to its substantial reach it has with the Chinese market. Spotify’s unprofitability can be, in part, because of the amount of revenue it has to pay to the music industry. Just last year, Spotify paid out over $1.796 billion on royalty payments.
Despite having claimed to have over 800 million users, about half of those are active monthly users for QQ Music, which makes for a substantial active user base of 400 million, 4 times the current size of Spotify’s active monthly user base. Unlike Spotify, QQ Music also offers other music services, like selling concert tickets, as well as offering an ad-free listening subscription of just 10 Chinese Yuan. Given that the average Chinese laborer earns 62,029 Chinese yuan a year, which is roughly just over $9,300 a year, 10 Chinese Yuan is really cheap.
Top Chinese music artist SeungRi image by BigB_Art_LIFE, licensed under Creative Commons Attribution 2.0 Generic (CC by 2.0).