5 things to know about Greater China’s Music Market with Vincent Li
In 2022, China Mainland overtook France as the 5th largest market in the world, marking the first time ever that the list of the world's top five markets has changed. Ten years before that, it was not even in the top 10 markets. A strong symbol of the paradigm shift caused by the global digitization of music and the incredible growth of China Mainland’s digital music economy.
China Mainland’s digital economy had +100% growth between 2016 and 2021, rising from RMB22.6 trillion to RMB45.5 trillion and accounting for 39.8% of GDP by the end of 2021. One of the main reasons for this unprecedented growth? The intense development of the mobile internet network. In 2017, there were 3.28 million 4G stations. By the end of 2021, there were 5.9 million. Plus 1.4 million 5G stations serving about 360 million 5G phone users. As a result, China Mainland’s internet penetration rose to 73% in 20211. At the same time, the local music industry was accelerating its digital transformation through new audio and video services.
We asked Vincent Li, Believe Greater China Business Head about the importance of these transformations, what's currently changing, and the prospects for the GC music market at the local and global level.
Following IFPI’S 2023 Global Report2, China Mainland is now the 5th largest music market in the world, relegating France to 6th place. And it was only in 2017 that it entered the Top 10. What has enabled this spectacular growth in just a few years?
The Greater China music market includes three territories: Mainland China, Taiwan, and Hong Kong, all of which are witnessing growth. Taiwan and Hong Kong are relatively more mature music markets, exhibiting market growth of 10% and 7% respectively. As revealed in the latest IFPI report, Mainland China's market has been progressively expanding over the past decade, a surge driven by several factors.
The dimensions of the music market are determined by more than just the population and the region's economic development; there are more profound dynamics at work. Of course, Mainland China's swift economic expansion significantly influenced the adoption of high-speed internet and mobile devices. It's a very interesting lesson in seeing that more than 1.4 billion people can communicate in the same language, helping the spread of culture and content However, while digitalization is indeed a vital factor, as it has been for other markets, there's more to consider, especially on the music publishing side.
A significant factor is the enhancement of general copyright awareness and policy evolution across the region. This understanding has permeated the market, influencing entities from companies to labels to artists, and even the public, thereby augmenting monetization. Artists without offline revenue streams have reaped the benefits of digital platforms and, in some instances, have bolstered the growth of overall streaming revenue. This means that digital revenue in Mainland China has more than doubled from its level three years ago.
These elements have undoubtedly contributed to the local music market's growth, and if our predictions hold true, it's only a matter of time before the Greater China music market ascends further into the top 5.
We know that the China Mainland music streaming market is only composed of local players, who are they? What is less known, however, are the specificities of local streaming, and what is the profile of users. Can you tell us more?
Taiwan and Hong Kong resemble Western markets in terms of consumption habits and digital service providers (DSPs), with key audio platforms like Spotify, Apple Music, and YouTube being prevalent. Whereas in Mainland China's major DSP players are Tencent Music Entertainment (TME) and NetEase Cloud Music.
TME commands the most substantial market share and user base, operating three distinct services - QQ Music, Kugou Music, and Kuwo Music. These TME services house most of the original content or content produced exclusively for the platforms. The age demographics of TME's user base vary considerably from one service to another.
Kugou Music appeals to an older audience, typically those over 35. QQ Music attracts a younger crowd, though slightly older than NetEase's user base, generally between the ages of 23 and 28. NetEase Cloud Music holds about half of TME's market share. Its audience is very young, between 18 and 23, with a preference for indie or niche music genres and artists.
The video streaming market exhibits a different landscape. While there are numerous local services offering content in the same manner as Netflix (original or licensed long-form content), there isn't a true equivalent to YouTube in Mainland China. The main user-generated content platform is Bilibili, whose primary selling point is its ad-free environment. Consequently, the concept of video monetization is fundamentally different. Regarding short videos, Douyin stands as the most significant platform. Currently, video monetization opportunities are quite limited for the music industry, yet it remains vitally important for promoting releases or boosting an artist's career.
Presently, the paid-subscription rate for NetEase Music Cloud is around 20%, and TME's rate is slightly lower at around 18%. Thus, there is significant potential for revenue growth for DSPs. This can be achieved in one of two ways: either by increasing the number of subscribers or by raising the subscription fees. Notably, local DSPs in Mainland China have some of the lowest subscription fees globally, starting at around €1 per month (significantly higher in Taiwan and Hong Kong).
For now, DSPs are concentrating on expanding their paid subscriber base, a task they have performed exceptionally well over the past five years. We believe that until they reach critical mass, they won't be inclined to increase prices. It may be a slow process, but ultimately, they are likely to succeed. The generation born between 2000 and 2010 is more accustomed to music streaming and more willing to pay for music.
For now, DSPs are concentrating on expanding their paid subscriber base, a task they have performed exceptionally well over the past five years. We believe that until they reach critical mass, they won't be inclined to increase prices
According to Meta’s Culture Rising Report3, C-pop, or Chinese Pop, was one of the conversation topics with the most rising popularity on Instagram in 2022, indicating the rising success of Chinese music overseas. Is this a trend you have seen growing locally as well? And what genres of music are favored by the Chinese public?
The Meta ecosystem – Instagram and Facebook – is unavailable in Mainland China, meaning that the data largely applies outside of this territory. Nevertheless, it remains relevant in the sense that music companies in the market strive to expand their artists both domestically and internationally. Given China's vast territory and population, a multitude of popular genres exist, encompassing hip-hop, rock, and various derivatives of modern pop that have been adapted into local Chinese languages.
The genre known as "antique style" is quite popular among both younger and older audiences in Mainland China. While the arrangements are largely Westernized, the melodies and lyrics stem from traditional Chinese music. The instrumentals blend Western sounds with typical instruments, such as flutes and percussion. We distribute numerous labels and artists within this genre, and a notable example of a band in this genre is Tailor Shop.
This musical blending isn't confined to pop; we're also observing artists blending Chinese melodies with rap. This is what the rapper Capper does for instance. We're closely monitoring this emerging trend, as we believe it holds significant potential.
Another burgeoning genre is what we call "Douyin Hot Track". This new style of music is characterized by catchy hooks and lower production quality, designed expressly to serve as background music for TikTok users. These tracks are produced in large quantities and typically have a very short lifespan. Owing to promotional opportunities on Douyin, these songs stand a higher chance of becoming hits, hence many labels are keen on exploring this avenue. According to our estimates, the market share of “Douyin Hot Track” ranges from 35 to 40%. From a revenue standpoint, it currently ranks as one of the most significant genres.
You mentioned Douyin several times, which is the original version of what is known outside China Mainland as TikTok, an app that profoundly changed the global digital music market. Did it have, as well as other short-form video apps, the same effect on the local music market?
If they are similar on a fundamental level, there are significant differences between the original Douyin and TikTok. When considering monetization, Douyin offers far more comprehensive development tools than TikTok. Both ad revenue and local service revenue surpass those on TikTok, even though the local music sector has yet to benefit substantially from direct income. Moreover, Douyin covers many aspects of people's lives, offering numerous e-commerce tools for brands and restaurants. Its usage and user base outstrip those of TikTok; Douyin recently surpassed the 1 billion user milestone4.
In the context of the music business, Douyin can be regarded as a crucial digital channel for nurturing an artist and their fanbase. To understanding Douyin's significance to the music industry, it’s worth remembering music labels and independent artists often allocate 80% or more of their marketing promotion budget to the platform. Promotional efficiency is also notably higher on Douyin, which provides an official platform for matching companies, brands, or labels with key opinion leaders (also locally referred to as "uploaders"). Therefore, a label wishing to promote a song or an artist need only pay the "uploaders" who are interested in promoting it to their community. Increasingly, services are emerging that aid labels in finding the most suitable "uploader."
Although there are other short-form video apps such as Kuaishou, Douyin outperforms these applications, dominating much of the local Internet ecosystem in Mainland China. Its importance for music promotion is crucial, as Douyin appeals to all audiences potentially interested in music. I would even argue that Douyin surpasses local DSPs for music discovery, thanks to its superior algorithms. It's no exaggeration to assert that the entire local music industry is reliant on Douyin.
To understanding Douyin's significance to the music industry, it’s worth remembering music labels and independent artists often allocate 80% or more of their marketing promotion budget to the platform
The global music market has changed dramatically in what we now call the post-Covid era, what about China's local music market?
We foresee an acceleration in the structuring of the Domestic Market, marked by a more diverse range of music genres and the emergence of more defined music scenes, such as the rapidly expanding Urban/Hip Hop scene, which is establishing its own ecosystem. This evolution will create opportunities for new artists and labels to develop in the market, fostering a more diverse, dynamic, and robust industry. As has been our practice in other markets, our primary mission as Believe is to be an active player in shaping the evolution of the local music industry, working hand in hand with our artists and labels as well as DSPs, to contribute to this acceleration. In addition, Believe Greater China will continue to collaborate with top local labels such as Modern Sky or Hikoon Music to help them reach a global audience beyond Mainland China.
Given the current landscape, we are very optimistic that the Greater China market will continue to grow and mature, both locally and internationally, and that its influence on the international music market will only strengthen.
Hailing from the Technology, Media, and Telecommunications industries and Venture Capital sector, Vincent Li has joined Believe Greater China in 2019. Prior to his current position as Business Head for Greater China, Vincent worked with Greater China's leading recruitment agency, holding key responsibilities in the business team. Vincent also acted as COO for a local family office specialized in sports-related industries, managing the post-investing business of the company.
1. Source: China’s Digital Economy: Full Steam Ahead | HKTDC Research
2. Source: IFPI GLOBAL MUSIC REPORT 2023
3. Source: Meta’s Culture Rising Report
4. Source: China surpasses 1 billion short video users · TechNode