Tencent leads China's online music streaming market with NetEase a distant second

 By Emmanuel Legrand

And the winner of China's streaming war is...Tencent Music Entertainment Group (TME). That's not really a surprise, but what is surprising is how quick it happened, and how dominating the company has become in just five years, to a point where it has a quasi-monopoly of the music streaming market in China.

 

  A recent study by EqualOcean allocates Tencent Music’s platforms with an 88% share of the online music market in China, where it operates music streaming services QQ Music, Kugou Music and Kuwo Music. The second largest competitor is NeatEase Music with a 22% share, followed by Migu at 4% and Alibaba's Xiami at 1%, but since then Xiami has been retired (the total is over 100% as some consumers use multiple apps). 

 

China's online music platform penetration rate
 

(Source: Qianfan/EqualOcean)

 

  Five years ago, Xiami was the one everybody's was betting on: it had a solid parent (Alibaba) and an artist-friendly approach. Tencent were more the underdog, and eventually picked up traction. They were quick to license international content and build strong communities. Today, over 600 million people in China are using TME's streaming services, and engagement is growing quarter over quarter. 

 

Monetising music services

 

  The company has also become profitable, with revenues of $4.47 billion in 2020, up 15% year-on-year, and profits of $637 m, stable year-on-year.

  In a recent analysis, Seeking Alpha noted that "running online music is certainly a cash-burning business. Fortunately, it is getting more profitable nowadays. In the past, monetising music services was a difficult thing to achieve due to weak rights protection and reduced purchasing power and willingness of consumers. But the landscape has been improving gradually."

 
  For Seeking Alpha, TME’s major competitor, NetEase, "is deploying strategy with insufficient results and is showing signs of declining competitiveness under pressure."  Added Seeking Alpha: "e believe that what NetEase has been good at is building communities, interactions with users, supporting independent brands and having better functioning app logic. But all of these business tactics can be replicated by TME."

 

The defined winner

  Seeking Alpha believes that TME is "the defined winner of the duopoly war between it and NetEase Music."

  However, such a dominance might catch the attention of China's regulators. "Rumors have circulated that the Tencent group is likely to be the next target of Beijing," wrote Seeking Alpha. "Tencent Music is also facing the same risks as part of the conglomerate. As the company gains more market share, it may be a potential object of investigation."