China’s Version Of Spotify Shows How To Be Profitable In A World Of Digital Abundance
Despite being the most well known streaming service in the game, Spotify continues to have a difficult time turning any kind of a profit. It's a different story with QQ Music however, a division of Asian tech giant Tencent.
Guest Post by Glyn Moody on Techdirt
The fact that the best-known music streaming service, Spotify, is still struggling to turn a profit despite its huge popularity, is often held up as proof that making money in a world of digital abundance is almost impossible. Of course, here on Techdirt, we've published many posts about people and companies that have adopted various innovative strategies to get around the problem. But what about music streaming as a mass medium: will it ever be possible to make money in this sector?
A fascinating article on Mashable shows that it is already happening, but perhaps not where most people are looking. QQ Music is part of the extensive digital empire of the Chinese giant Tencent, best known for its messaging app WeChat, and now the largest Internet company in Asia. Last year, its turnover was $15.8 billion (pdf). As the Mashable article explains, QQ Music's general manager revealed last week that the service is now profitable. One reason is the sheer scale of Tencent's user base:
As one of China's biggest dotcoms — WeChat has 762 million active users — the company has far better negotiating power at the table with record labels. Back in 2014, Tencent already used this to its advantage, striking exclusive Chinese distribution deals with large music producers the likes of Sony, Warner Music and South Korea's YG Entertainment.
Similarly, QQ Music is itself large compared to Spotify:
QQ Music reports 100 million daily active users, and 400 million monthly actives.
Spotify, in comparison, has about 100 million monthly actives, although it has 30 million paying subscribers — three times QQ's 10 million paying subscribers.
The secret to QQ Music's profitability seems to be the following:
Chinese analyst iResearch estimates that over half of [QQ Music's] users in China would have paid for something on their music apps this year. That could be a one-off purchase like an album or concert tickets, even if it's not an ongoing subscription.
Moreover, beyond the 57% that already buy ancillary items, a further 20% said they were willing to do so at some point. That means over three-quarters of QQ Music's users have or will buy other goods. Crucially, Tencent makes that as easy as possible by offering its own payment system as standard. That emphasizes a key point about making money in a world of digital abundance: success flows from removing as many barriers as possible, so that people can pay you for things they want at the moment they want them.