China Tech Newsletter – April 8, 2015

Meitu, the developer of the massively popular photo editing and sharing app Meitu Xiuxiu (or Meitu Pic), releases its fourth Android phone M4 and a couple of gadgets. The selling point of the new model is the ability of taking selfies in the dark.

The company claims combined 980 million users, having its apps in 680 mobile devices. Meitu Xiuxiu has had 440 million users. Meipai, a video clip sharing app, has had 130 million users. These numbers show big jump since two months ago.


Alibaba Group launches business unit for automobile. A marketplace for new cars, used cars and auto-related products and services will be launched. Over 50 car brands, 10,000 auto 4S shops and 20,000 auto service stores have got on board, according to the company.

Alibaba’s Tmall, the business-to-consumer marketplace, held its first Car Shopping Festival in 2014, during which over 3000 cars were sold in half a month. 50,000 more cars were later ordered during its annual shopping festival in November.


Today is Xiaomi’s annual “Fan Day”. 2.11 million phones, 38,600 smart TVs, 79,000 WiFi routers and other gadgets had been sold by 11pm that generated a total of RMB2.08 billion (about US$335M) .


Sesame Credit, the online credit scoring service developed by Ant Financial Services Group (the finance arm of Alibaba Group), begins to power Huabei and Jiebei, two online  credit services of Ant Financial, and Haoqidai, a consumer credit service of MUCFC.com (a finance company jointly established by Chinese telco China Unicom and China Merchants Bank).

Users scored over 600 can take out month-to-month loans of up to RMB30,000 for shopping on Tmall or Taobao with Huabei, or 12-month loans of RMB1000 – 50,000 with Jiebei. Offerings from Haoqidai requires Sesame Scores to be higher than 700.


Drone maker DJI, or Dajiang, launches two new models, Phantom 3 Professional and Phantom 3 Advanced.


58.com officially launches its on-demand moving service which became available in 15 big and mid-sized Chinese cities during the testing phase.


7. Wowo Ltd. got listed on the NASDAQ. Starting off as a group-buying service, the company now positions as a marketplace for local lifestyle services.

The company only raised US$40 million in the IPO while having raised a total of some US$150 million in financing by 2012.


Mazhan.com, an online investment loan lender, announces US$10 million funding from Bluerun Ventures.


Qingchifan, a meal sharing service, announces US$17 million in Series B round of funding, led by Vertex Venture Holdings and joined by Sequoia Capital.


Qufenqi.com,  which provides undergraduates with installment payment options, announces approximately US$100 million new funding, led by Chinese gaming company Kunlun, aka Kalends, and joined by Bluerun Ventures and Source Code Capital.


Qingqing Jiajiao, a mobile app connecting private tutors and K-12 students, announces US$15 million in Series B funding, led by Sequoia Capital and participated by TBP and IDG Capital Partners.


Yirendai.com, the peer-to-peer lending site of CreditEase, will reportedly be spun off and IPO in the U.S. (report in Chinese)

(Note: Inflating funding figures or user metrics are believed to be popular in today’s China.)


About China Tech Newsletter

China Tech Newsletter compiles hand-curated business news from the China tech market.

A Brief History of Digital Music in China

As expected, free online music providers in mainland China rolled out subscription-based premium services at the beginning of 2013. Although Chinese users still have access to pirated digital music, the most visited legitimate music services can already meet the needs of mainstream users’. When even the public enemy, Baidu, established a legitimate music service and also launched a five-yuan monthly subscription last month, the music industry targeting at China market came to believe that the spring, finally, is coming.

In the long winter the music industry has been through, they tried out all kinds of monetization approaches and worked hard to make what seemed impossible to happen. It’s unknown whether premium offerings would finally satisfy the industry who always cried poor mouth after the emergence of pirated digital music, but what’s for sure is the previous value chain has changed completely.

The Internet isn’t the only culprit 

The Internet wasn’t the first in China that disrupted music industry with piracy. In cassette tape and CD times, the pirated were widely available. Nor was the Internet the first that used copyrighted music for free — Karaoke clubs were sued now and then for not paying royalties since 2007 when a regulation that requires so went effect. About one year ago TV station just began paying for broadcasting copy-righted music.

Back in 1990’s, a pirated cassette tape was at about half price of the legitimate. But my middle school classmates and I’d rather buy the latter anyway for the quality. The album choicesin the brick-and-mortar stores in my hometown were limited, so we’d buy directly from music labels in cities like Shanghai through mail orders.

It’s also not true that you couldn’t sell digi-music directly to users. The ringtones China Mobile sold to consumers generated a fortune for the telecom company.

But it was the Internet that made illegitimate, free digital music ubiquitous. Specifically, Baidu MP3, the digital music search service launched in 2002 that made accessing pirated music so easy and flagrant, enraged the music labels and musicians who would claim they couldn’t make a living from music anymore.

Ringtones 

A8, a music vendor, and China Mobile’s provincial division in Guangdong were the first on record, in 2001, to sell ringtones for feature phones. 2003 seemed to be the year the nationwide operator started testing the business.

A ringtone download was for 1 yuan and 50% of sales revenues went to copyright holders. It is, so far, the most successful model for selling legitimate digital music in China. It is reported that it became a 20 bn-yuan business on China Mobile platform in 2012. And the 50% revenue cut is the highest rate music companies can get from digital sales through third-party channels.

Public Enemy — Baidu music search

Baidu, the largest search engine by market share and revenue in China, released a music search service in November 2002. From then on, Chinese users couldn’t find anything easier than it to get free music downloads, few of which were legitimate back then.

Music labels, big and small, ran after it. The law suits with the Big Four labels weren’t settled until 2011.

Struggling Legitimate Music Services

A8, 9sky.com and top100.cn were the first independent legitimate digi-music providers. They’ve been paying labels or copyright holders money and, at the same time, tried out all kinds of monetization models, without luck.

Around 2005 – 2006, several music services, including A8, tried to apply iTunes-style model. A8 charged 0.5 yuan — a reasonable price, for a song. A8 also had a 15-yuan monthly subscription service and even set up an original music platform trying to have musicians sell music directly to consumers on it.

9sky.com charged for both streaming and downloads at first but stopped charging for streaming later.

After all the consumer-facing efforts failed, A8, 9sky.com and top100.cn gave in charging users and turned to advertising from 2006.

A8 Digital Music Holdings Ltd. (HK:00800) went public in 2008 as the first and the only digital music company in China. But its earnings have kept decreasing since 2010. As a beneficiary of ringtone model in 2G – 2.5G mobile times, it, together with many others, hasn’t figured out a way to leverage 3G.

top100.cn & Google Music 

From 2006-2008, top100.cn, with support from Google China, managed to convince the Big Four labels and most of Chinese independent labels, by promising to share advertising revenues, to offer free downloads, including DRMed(digital-rights-managed) music, through Google China’s music search.

Google shut down the service in October 2012, saying it didn’t perform as well as expected. Chen Ge, founder of top100.cn, wrote a book about how hard he’d worked to make what’s impossible happen.

Rye Music 

Rye Music, later renamed Taihe Rye, is one of the few local labels that have been trying to leverage the digital all these years. It was founded by Song Ke, a veteran in music production and distribution industry, and Gao Xiaosong, one of the most famous Chinese-language musicians.

In 2003, the company bought the digital rights of a song, The First Snow in 2002, and made it into a ringtone. That song became a national hit and the millions of ringtone downloads made Taihe Rye a fortune.

In 2005, they tried to sell the digital version of a new song by a famous singer directly on their website. Four yuan for a download — a similar price for a song in a ten-song album then. Downloads reached one million soon. At the same time, servers and payment solutions became considerable costs, about 30% of the sales revenues. Finally Taihe Rye dropped the direct sales model.

In the same year the company launched Tailenet, an online community including all kinds of digital music services you can think of. “The timing didn’t come” … “how to collect money on the Internet was a big problem”, Song Ke concluded when looking back at its failure.

Going forward to 2011, digi-music became 80% of Taihe Rye’s business. In 2012, the founders of Rye  established Heng Da Music who bought a number of song copyrights and tries to come up with new models for digital music.

QQ Music 

Along the way of building a full-fledged web service surrounding QQ, the instant messaging product the company started with, Tencent launched QQ Music and, later, a subscription-based premium service, Green Diamond, in 2006. QQ Music would become one of the largest online music services with 200million active users by June 2012. The subscription-based premium offering, called QQ membership, actually was the business model that brought Tencent its first income. QQ Music membership was just one of over twenty packages, covering offerings from games to online storage.

QQ Music subscription is for ten yuan a month, offering high-quality music download and others — for instance, music can be used as background music in Q-zone, a facebook-like social network under Tencent, or songs can be sent as gifts to contacts on QQ IM. Tencent shares user payments and advertising revenue with copyright providers.

Other value-added offerings were added to have more users or premium service subscribers. From 2008, services like online album debut, online shows and offline convert ticket sales were added onto the platform. Subscribers have privileges of buying concert tickets in advance or at discounts. QQ Music even started organizing offline concerts and events.

Big players share most with labels.

So far Tencent’s music service is a well-positioned example, but still it is estimated it cannot be profitable. For those Internet giants, however, profitibility of a music service isn’t a concern at the moment, and they are the major revenue sources for digital music to music companies for they have a majority of users.

Baidu established a legitimate music service in May 2011 and launched a five-yuan monthly subscription in Jan. 2013. The president of Haidie Music said Baidu Music and QQ Music contribute the majority of its digital revenues, the rest, a small part, is from advertising revenue cuts from third-party music sites such as 9sky.

Xiami, a business trial for digi-music ecosystem

Xiami was founded by a team of engineers from Alibaba in 2008. The business model Xiami came up with was based on peer-to-peer file sharing. On Xiami, any user can upload MP3 files — no matter where they get them — for others to download. But downloads are not for free.

One download is for 0.8 yuan. By its rule, 0.4 is supposed to go to copyright holder(s), 0.2 to the content provider and 0.2 to Xiami. Users are encouraged to promote songs with rebates; for instance, a user earns 0.1 when anyone downloads a song from a list he/she built. Transactions are conducted with Xiami’s virtual currency.

Wang Hao, one of the founders and CEO of Xiami, expected this model to encourage users to use Xiami more and at the same time not to seed other free music sites. He also expected copyright holders to be happy as they would get a dividend from every download of their music property.

Embarrassingly, Xiami’s revenue from downloading in 2010 was only RMB 400 000  —  merely 0.5 percent of its registered users ever downloaded songs. At the same time, some local record labels don’t buy Xiami’s idea and requires Xiami to pay millions in royalties.

In October 2010, Li Zhi, an independent singer, sued Xiami. Li Zhi accused Xiami for selling his songs without paying him a single penny. Xiami finally took down all songs by Li Zhi.

Advertising became another revenue source later. The latest news is it was acquired by Alibaba to form its music division.

Douban FM

Douban FM is an algorithsm-based music recommendation service. It turned out to be a popular service, one of the most well-known by the interst-based social network. In Jan. 2013, Douban FM PRO, a ten-yuan monthly premium service, was introduced to offer higher-quality of music and ad-free experience. Which is expected to be another category of payments, apart from royalties, that would go to music companies.

For not too long, almost all music services added a similar feature.

Along the way, a variety of companies also tested the water and failed; for instance, Aigo, the electronics manufacturer. There are also other music services, Kuwo, Kugoo and Duomi, that have considerable user bases. Most recently, big e-commerce players, 360Buy, Suning and even Alibaba (by acquiring Xiami), started selling digital music.

The music production industry also changed their way of publishing music, such as releasing singles, rather than albums, is another change that adapted to the digital age.

Sources,

  1. http://tech.sina.com.cn/focus/0800.HK/index.shtml
  2. http://tech.sina.com.cn/i/2012-09-24/14087650344.shtml
  3. http://tech.sina.com.cn/i/2012-12-03/07197851084.shtml
  4. http://tech.sina.com.cn/i/2012-12-20/13477907124.shtml