Summary of Key Points
NetEase Cloud Music saw a slight increase in revenue but a significant decline in profits in the first half of the year, mainly due to soaring customer acquisition costs. Tencent Music is also facing competitive pressure and has begun to collaborate with its WeChat ecosystem to defend its user base. ByteDance's music platform, Soda Music, has risen rapidly thanks to the traffic from Douyin, reigniting the fierce competition for users in the online music market. At the same time, established platforms are shifting from simply competing for users to focusing on maximizing user value, with the industry competition evolving from a focus on copyright to a battle for user engagement and experience.
1. NetEase Cloud: Revenue Up, but Profits Down
NetEase Cloud's revenue for the first half of the year was 3.96 billion yuan, an increase of only 3.4% year-on-year. Although gross profit increased by 5.9%, operating profit dropped from 840 million yuan last year to 750 million yuan (a decrease of 11.6%), and adjusted net profit plummeted by 55.8%. The problem lies in the nearly doubling of customer acquisition costs—sales and marketing expenses rose from 163 million yuan to 295 million yuan, with the additional 132 million yuan spent on advertising and acquiring new users.
Although membership subscription revenue increased from 2.47 billion yuan to 2.6 billion yuan (due to an expansion of the membership base), the increase in new users has lowered the average revenue per paid user (ARPPU). In other words, while the volume of users has grown, the revenue per user has not kept pace, resulting in reduced profits.
2. Soda Music as a disruptor
The online music market was traditionally considered a "stagnant market" with a relatively stable total number of users, but Soda Music has made a significant impact: its monthly active users (MAU) reached 139 million in June, a year-on-year increase of 45.3% and a month-on-month increase of 1.51%, surpassing NetEase Cloud Music. Tencent Music has also acknowledged the competitive pressure, especially due to significant losses of low-value users (with minimal impact on high-value SVIP users).
Soda Music's advantage is clear: it leverages the traffic and content from Douyin. Users can listen to their favorite songs on Douyin and then directly jump to Soda Music to listen to the full versions, creating a seamless experience that has helped it rapidly gain followers and challenge the existing market dominance held by Tencent Music (Kuwo, QQ, and Kugou, which together account for 68.1% of the market) and NetEase Cloud.
3. Tencent Music's defensive strategy: Leveraging the WeChat ecosystem
In response to Soda Music's threat, Tencent Music has deployed its WeChat ecosystem as a strategic tool:
- Collaborating with Video Accounts: It has introduced its artists and labels into Video Accounts, allowing users to listen to music content directly on Video Accounts and then jump to Tencent Music to hear the full tracks, thus retaining user traffic.
- Integrating with WeChat Pay: This makes it easier for users to make payments.
- Using the AI assistant Xiaowei: Users can now use WeChat's voice assistant to request music playback.
Tencent Music states that sales expenses will increase slightly, but the company aims for targeted marketing to extract more value from users through the WeChat ecosystem, such as converting low-value users into paid members.
4. Shifting from competing for users to retaining and maximizing user value
With high customer acquisition costs, established platforms are focusing on better managing their existing user base:
- NetEase Cloud: Expanding its audio content offerings (audiobooks, radio dramas, podcasts) and collaborating with platforms like Tomato Novel and Chinese Online to increase users' listening time and encourage them to spend more money.
- Tencent Music: Acquiring Ximalaya to create a comprehensive "music + audio" ecosystem; it is also strengthening IP management by extending song and artist IPs to offline events and merchandise, as well as enhancing the benefits for premium members (e.g., providing more exclusive content to SVIP users).
The goal is to retain low-value users with lower barriers to entry (e.g., offering free access to some songs) and extract more revenue from high-value users through various services (e.g., listening to books, attending events, purchasing merchandise).
5. The changing landscape of the industry: From copyright to user experience
The competition in the online music industry has shifted from who owns the most exclusive song copyrights to how many consumption scenarios a song can create. For example, a song can now be used as an entry point for various activities such as attending concerts, purchasing related merchandise, or listening to podcasts.
This change requires platforms to understand their users better: they need to retain ordinary users with affordable or free content while offering high-value services (e.g., exclusive IP benefits) to their most valuable customers. The future competition will not be about who has the songs but about how much and how long users are willing to spend on them.
In summary, the rise of Soda Music has intensified competition in the online music market, but the focus is no longer on copyright alone; it's about user engagement and innovative experiences. Established platforms must find a balance between acquiring new users and maximizing user value to stay competitive in this new landscape.