Summary in Plain Language
The recent surge in Red Fruit Short Videos, with daily active users exceeding the combined total of iQiyi, Youku, and Mango, has pierced through the facade of the existing competition in the internet industry. Everyone thought that all the users had been captured, and the only option was to try harder to get existing users to spend more money. However, Red Fruit successfully attracted 168 million daily active users, with an average of 2 hours of usage per day, proving that the “free” model is not outdated at all but a previously overlooked gold mine. Following this, Tencent Music launched a standalone app called “Free Music,” along with other lightweight products like Kugou Free Version and Bode Music, directly targeting users who are unwilling to pay for a subscription. The reason behind this is straightforward: Tencent Music’s growth had hit a ceiling by increasing the payment rate and selling premium memberships, while its existing products’ monthly active users were declining year by year. Moreover, a large portion of its lightweight users had been taken over by ByteDance’s services. Now, Tencent is catering to two different groups of users: it continues to offer high-value services and exclusive benefits to its paid users to tap into their spending potential, while for those who don’t want to pay, it uses an ad-based model to earn revenue from their attention. This is not a domestic phenomenon; streaming platforms around the world, such as Spotify and Amazon Music, are also reorganizing their free user segments. It means that the nearly decade-long “payment war” in the online music industry has officially entered a new phase where both paid and free models are being utilized.
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Detailed Explanation
1. Red Fruit Short Videos Set an Example for the Entire Industry: Free Users Are Not a Burden, but a Untapped Traffic Gold Mine
There was a common belief in the internet industry that the total number of users had reached its peak, and new users were hard to acquire, so platforms focused on extracting more money from existing users by raising subscription fees and adding paid features. Free users were seen as a unprofitable “marginal group” that didn’t deserve much attention. However, Red Fruit Short Videos turned this logic upside down. Instead of competing with other long-form video platforms on the amount of membership benefits, Red Fruit offered all its content for free, allowing users to watch 30 minutes of videos in exchange for watching 15 seconds of ads. As a result, it managed to attract 168 million daily active users, surpassing the combined total of the four major video platforms. This realization quickly struck Tencent Music: it held a vast amount of copyright, but by focusing on paid subscriptions, it had driven away many users who only occasionally listened to music and were unlikely to pay a monthly fee. These users were not valueless; it just hadn’t found a way to engage with them without requiring them to pay. By having them watch ads in exchange for music, the platform could still make money.
2. The New “Free Music” App Isn’t Just for Free Access; It Makes Unspoken Rules Explicit
Many thought Tencent’s new app was a charitable initiative, but its approach is straightforward and based on Red Fruit Short Videos’ model:
- There is no subscription option; the main features are easy song browsing (similar to TikTok) and a clear exchange system where users can watch 30 minutes of music for 15 seconds of ads or earn extra time by signing in or browsing ads.
- QQ Music also had an ad-based music feature, but it was hidden within its subscription system. Now, Tencent has made this model its own standalone app, clearly stating to users that if they don’t want to pay, they can spend some time watching ads in exchange for music. Tencent’s strategy is already layered: Bode Music targets young people who enjoy new things, Kugou Free Version targets existing Kugou users, and the new “Free Music” app targets a broader range of music listeners, making its targeting much more precise.
3. Tencent’s Urgency to Acquire Free Users Is Due to ByteDance’s Threat
Tencent Music previously ignored free users, but now it’s forced to act because ByteDance’s Music Service has reached 167 million monthly active users, just short of QQ Music’s 189 million. Tencent’s own Kugou and Kugui services are seeing annual declines in active users. Financial reports show that most of Tencent Music’s revenue growth this quarter came from its recent acquisition of Himalaya, while its original music business has almost stopped growing. Tencent’s growth strategy relied on controlling all the industry’s copyright and increasing the payment rate of its paid users. However, the number of core paid users is limited, and relying solely on them has reached a ceiling. If Tencent lets go of these free users, it will lose potential new customers. This means it previously blocked its own path to user growth.
4. The Current “Payment War” Is Completely Different from the Free Music Era of a Decade Ago
People complain that this is a step backward, reminiscent of the days of illegal piracy. But the two situations are different: ten years ago, there were no copyright laws, and platforms illegally streamed pirated music, resulting in a chaotic and unregulated industry where neither musicians nor platforms made money. Today’s free models are part of a mature copyright system where platforms design tiered services. Core users who are willing to pay get ad-free, high-quality music, and exclusive benefits, while those who don’t want to pay can use ads to access music. The revenue from ads is shared with copyright holders and musicians. Spotify has proven this model to be successful; 60% of its paid users originally came from free users. The domestic music industry previously focused solely on paid users, but now it realizes that retaining the 90% of users who don’t want to pay is the key to long-term success.
5. For Ordinary Users, This Competition Is Actually Good News
From the users’ perspective, Tencent’s new free music app offers more music options. Those who didn’t want to pay for a subscription could only listen to 60-second samples or search for illegal versions. Now, with dedicated lightweight apps, they can listen to full songs for free after watching a few seconds of ads, without the clutter of live streams or annoying digital album pop-ups. The downside is more ads, but for those who are already unwilling to pay a monthly fee, trading a few seconds of ads for the freedom to listen to music is a good deal. ByteDance will likely also improve the free features of its Music Service, benefiting ordinary users in the end.