How to Run a Profitable Music Streaming Business, by QQ Music

Can SeungRi, a top Chinese artist, bolster sites like Tencent's QQ Music?

Will the world’s first profitable streaming music company come from China? QQ Music says it’s already in the black.

Spotify is beating out Apple Music with 40 million paying subscribers.  They have an impressive 100 million users.  But just one problem: Spotify is actually bleeding money.  And most other streaming platforms are also in financial trouble.  So who says QQ Music, based in China, will be any different?

Well, according to parent company Tencent, QQ Music is indeed turning a profit.  Wu Weilin, general manager of the music division for Tencent, proudly disclosed the accomplishment.

So what’s driving the difference?  Maybe this boils down to the fundamentals.  Spotify boasts high annual salaries for full-time workers, reported at over $168,000.  But those perks are expensive, and Spotify’s losses are staggering.  Last year, Spotify reported a loss of over $194 million, way up from ‘just’ $28 million in 2010.  Perhaps all of that cash burn is avoidable in a market like China.

QQ Music also enjoys the advantages that come from a giant parent company.  Enter Tencent, an e-commerce and tech giant in China.

TenCent now appears to be dominating China’s online music market.  In mid-July, the company merged QQ Music and China Music Corporation, a deal valued at $2.7 billion.  QQ Music and China Music Corporation’s KuGou both claim to have over 800 million users each.

But TenCent doesn’t focus only on the music streaming industry.  It also manages a social network, a gaming platform, and WeChat, which has more than 700 million active users.  All of which gives TenCent a huge advantage when negotiating deals with record labels, thanks to its substantial product reach.

Spotify’s unprofitability is largely due to 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.  The company pays 85% of their revenues back to rights owners, according to one analyst estimate.

Then there’s the user picture.  QQ Music claims to have over 800 million users, about half of which are active monthly users.  That makes for a substantial active user base of 400 million.  Or, roughly 4 times the current size of Spotify’s monthly user base.  Another question is whether Spotify’s 100 million are active or disengaged, though 40 million are now paying subscribers.

Unlike Spotify, QQ Music also offers other music services.  That includes selling concert tickets, and controlling more of the process.

But the bigger advantage may come from lowered pricing, enabled by the Chinese market.  QQ Music offers an ad-free listening subscription of just 10 Chinese Yuan.  Given that the average Chinese laborer earns 62,029 yuan a year (roughly $9,300 a year), 10 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).

5 Responses

  1. Reality

    They aren’t the first profitable streaming company. What you mean to say is they are the first profitable on-demand streaming service. And since this article has no real insight into their royalty structure, funding, Chinese government, Chinese consumers, Chinese musicians, or anything intelligent; it probably shouldn’t have been written. A simple tweet will suffice until you do a little research.

    Reply
  2. Vijay Jr.

    Agreed with the first poster. The original Mashable article this is copied from had no insight to support the claim, apart from mentioning “ticket sales!!!”, and now DMN just blindly re-writes the same content without adding anything further. Weak.

    The premise of this double-regurgitated claim relies on listing other mega-divisions of the Tencent family – Wechat, QQZone, gaming etc – which are all profitable, but very much adjacent to QQ Music, which is almost certainly not profitable. Just listing user numbers (also likely inflated) won’t cut it given the incredibly poor monetization of the free tier and the low price point and uptake of the paid tier (although this development is encouraging). Set amongst a fierce content licensing battle in China….QQ Music is profitable? No way. Big headline numbers + lazy journalism = free PR.

    Reply
    • Daniel Adrian Sanchez
      Daniel Adrian Sanchez

      Here would be the issue. You say the Tencent family is profitable, but QQ Music isn’t profitable. How so? Based on research done on the company, with over 400 million paid subscribers`, giving QQ Music the leverage it needs to lower royalty payments, unlike Spotify that has to agree to deals that heavily favor music companies, there is proof that supports Wu’s comments that this company is, in fact, profitable, unlike Spotify, which has only focused on this market. Combining that with a parent company that also has control on other top music services, and having recently joined with China Music Corp, it’s a no-brainer. As for the writing piece? Lazy journalism? We wish.

      Reply
  3. Kevin

    Daniel, you wish you were a lazy journalist? Interesting. But don’t worry, you’re not too far off. How about researching the percentage listening to Chinese music compared to US/European music on QQ? And the difference in royalty payments on domestic vs international. There’s a free hint to help you start learning how to write interesting articles. Don’t take these comments as attacks, that’s just your ego. We’re actually trying to help make DMN interesting and informative again.

    Reply
  4. Randomone

    Seungri (BIGBANG) is a top Korean artist btw, who is also promoting and famous in mainland China (not only).

    Reply

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