Inheriting the ＂music heritage＂ of Ali and Baidu, is Netease Cloud Music worth 50 billion？

Text | Node Finance Six Gold

The listing of Netease Cloud Music caused an uproar in the market, and many people denied this "loss-making business" almost at the first time.

Some people think that it has lost 7 billion in the past three years and still holds a valuation of nearly 50 billion, which is not worth it at all.

Some people think that a company with a negative gross profit margin dares to go public?

Others think that this is another sentimental listing, which is really too weak!

These voices are all reasonable, but they are not quite right when they are placed on Netease Cloud Music.

　Do you think a grid of electricity is weak?

Judging from the "birthday" of Netease Cloud Music, it is definitely a "sweeping monk".

In April 2013, Netease Cloud Music was launched, and people said that Netease Cloud Music was "willing to be cannon fodder".

Because the predecessor of Baidu Music Qianqian Jingting was established in 2003; Cool dog music was founded in 2004; QQ Music was founded in 2005; Kuwo Music and Xiami Music were established in 2006; Tiantianyingmei was founded in 2008 …

When Netease Cloud Music entered the market, cool dogs and QQ music were already big names, and shrimp was not weak. But in this crack, Netease Cloud Music still made 100 million users in two years; Made 200 million users in 3 years; Three years after its launch, Netease Cloud Music also killed Xiami Music, Everyday Music, Douban Music (FM), Domi Music, Baidu Music and Kuwo Music, ranking third in the music category, with only QQ Music and Cool Dog ahead.

Why? Because Netease has seized the dividend of the mobile Internet era-socialization. During the cold start, Netease Cloud Music started a function of importing songs and downloading them for free, which attracted a large number of users of Douban FM and Shrimp at a very low cost.

From the beginning, Netease Cloud Music didn’t intend to be just a "quiet" music player. Instead, we let go of the right to comment on every song, album, song list and mv, giving users a lot of room to play, listening to songs and writing comments, a simple community function, which has captured users.

If we want to evaluate the development of Netease Cloud Music, its success in music APP is just like Pinduoduo’s surprise attack on Taobao.

Although I caught a late episode, I gained a lot. However, late episodes certainly have shortcomings. From the beginning, Netease Cloud Music did not seem to pay too much attention to the importance of "copyright" for itself.

But at that time, the music copyright market was already divided into three parts:

Source: Online public information.

Moreover, compared with Netease Cloud Music, other online players and copyright distribution; There are artist brokers, performance activities and integrated marketing offline, all of which are not just music.

Tencent Music is even richer in the acquisition of copyright. Before Netease Cloud Music reacted, Tencent bought almost all the music copyrights in the world. For example, Tencent is the exclusive agent of Warner, Universal and Sony. There are also the agency rights of companies such as Emperor, Fumao and Jewell.

When Tencent Music was interviewed by the media, it was evenTo say: "We don’t want to monopolize, but they can’t afford it", we can see how strong Tencent’s dominance is.

However, I never expected that Baidu Music had disappeared a few years later, and Ali had closed the shrimp bet.Netease cloud. There are only two forces in the music market, one is Tencent Music, and the other is Netease Cloud.

Although the disparity in strength is relatively large, Netease Cloud actually filled the audience with a grid of electricity like Duanfei in the biography of Zhen Huan.

What’s more, due to the plundering of users’ time by short videos, Tencent Music had 615 million monthly users in the first quarter of 2021, down 6.4% year-on-year. Since last year, the monthly activities of Tencent Music have been declining.

Source: Tencent Music Financial Report

In contrast, from 2018 to 2020, the monthly users of online music services of Netease Cloud Music were 105 million, 147 million and 181 million respectively, which also showed a continuous growth trend, and the compound annual growth rate was 31%; In addition, the number of online music paying users is also rising, reaching 4.2 million, 8.63 million and 16 million respectively, with a compound annual growth rate of 95%.

So if you want to say that Netease Cloud Music is not competitive, then someone will definitely not agree.

　Why did Ali and Baidu bet on a company with negative gross profit margin?

The online music market in China is almost the one with the highest "monopoly" of Tencent except WeChat in the social field. Since Tencent "wooed Cool Dog" and "Cool Me", no one can shake the position of the market leader. This is not to blame Tencent Music. It acted too early and did not give others a chance to surpass it.

There are still fast hand vibrato in the short video field; There are Taobao, JD.COM and Pinduoduo in the field of e-commerce; Iqiyi and Tencent video in the field of long video (film and television drama).

Netease cloud music is preserved like a "kindling", and its strategic shareholders includeAlibabaAnd Baidu, Ding Lei personally served as executive director and CEO. In addition, when the shrimp was shut down at the beginning of this year, Netease Cloud also inherited a large amount of "legacy" of shrimp.

It can be seen that on the music track, the big brothers attach importance to Netease Cloud.

Of course, the bosses can see that Netease Cloud Music does not make money. Supporting it is definitely not just about feelings, mainly because Netease Cloud Music and Tencent Music are still very different in essence.

From the perspective of revenue composition, Netease Cloud Music once paid more attention to online music services. In 2018, the revenue of this sector reached 1.026 billion, accounting for 89.4% of the total revenue. Social entertainment services and other businesses only contributed 122 million yuan in revenue, accounting for a very small proportion of the total revenue. This shows that Netease Cloud Music was still a "teenager with a musical dream" three years ago.

Source: Netease Cloud Music Prospectus

The social entertainment and other income of Tencent Music has always accounted for about 70-80% of the revenue, and the contribution of online music services is only 20-30%. Focus: Tencent Music has made a profit.

In order to increase income, Netease Cloud has also begun to increase the income of social entertainment services and other businesses, and speaking people’s words is to rely on rewards.

Rewarding is always the most effective way to generate income on the Internet. By 2019, the income of Netease Cloud Music Social Entertainment Service and other parts soared by 343.44%, reaching 541 million yuan; In 2020, social entertainment services will once again increase this part of revenue to 2.273 billion yuan with a growth rate of 320.15%, and the proportion of revenue will increase to 46.4%.

At this point, the revenue structure of Netease Cloud Music is gradually balanced in the eyes of capital.

In addition, in 2020, the monthly ARPPU (income per paying user) of Netease Cloud Music in the social entertainment field reached 573.8 yuan, which can be described as "high and scary", but in the same period, the amount of its online music service was only 8.4 yuan, with a gap of nearly 70 times (it seems that making music really doesn’t make money), and the monthly ARPPU of Tencent Music.It is 141.1 yuan.

In other words, the value of a paying user watching live broadcast on Netease Cloud Music is equal to the value of four paying users of Tencent Music, which is the reason why the big brothers are optimistic about the momentum of Netease Cloud Music.

The brilliance of Netease Cloud Music is once again reflected. Who said that the community is useless? Its community stickiness is easy to have a heavy effect in rewarding, while Tencent music must be accumulated through time.

Since its establishment, Netease Cloud Music has received three rounds of financing:

　Source: Online public information.

Among them, in April 2017, it happened to be the day when Netease Cloud Music broke through 300 million users, and accessed Mango and SMG to obtain some pan-entertainment copyrights; In October 2018, it happened to be the moment when Baidu was in all in AI and allowed small speakers to grab the market independently. After joining Baidu, Netease Cloud could get the coveted Taihe copyright.

Here, let’s take a look at Taihe Music Group, which is the "music copyright dynasty" in mainland China besides the big three, Fumao and Emperor. Taihe owns a company called ocean butterflies, and Vae, the big three QQ music company, has joined ocean butterflies for more than 10 years. The elephant intangible music, which is a partnership between Silence Wang and Xu Liang, is also distributed by ocean butterflies in the mainland. Boy, I didn’t expect the big three QQ music companies to become half Netease cloud music people.

In September 2019, Ali won the koala and Netease Cloud Music, and the same year was also the moment when Netease Cloud ARPPU broke out.

Judging from the time nodes of these investments, Netease Cloud really bears the "music renaissance" plan of Ali and Baidu.

　If you want to make money, don’t be a second-hand dealer.

Even Baidu and Ali are desperate for blood transfusion. In terms of copyright, Netease Cloud Music is still in a weak position.

There was such a hot comment in the comment area of Netease Cloud Music, which impressed the author deeply: "I like this community very much. There are touching comments, song lists with personalized recommendations, and bosses full of ghosts, but I finally turned on QQ music because … I want to listen to songs."

Netease Cloud Music has a very high user viscosity and feelings, and the other has a very high resource library and copyright, so the two sides are locked in a fight for users.

At first, the National Copyright Administration seemed to want to give Netease Cloud Music a chance. In October 2015, the National Copyright Administration promoted the strategic cooperation between Netease and Tencent, and QQ Music granted 1.5 million music copyrights to Netease Cloud Music.

However, these 1.5 million songs did not bring reconciliation, but made the record companies in the copyright war suddenly have the right to speak, and the copyright fees also rose, and the online music platform had to fall into an evil.Sexual cycle: buy copyright to attract users → get user traffic and membership benefits → buy copyright again → suck traffic again.

In essenceGenerally speaking, this cycle is not much different from the "second-hand peddler" who pours watermelons at the head of the village, and the right to speak is not in his own hands. The copyright fee is also a "big killer" that has always caused Netease Cloud’s gross profit margin to be negative and lost 7 billion yuan in the past three years. If Netease Cloud wants to make money in music, there is only one way to go-to be the "father" of the record company.

The position of the online music platform in the music market now is equivalent to the ancient "video store", but the video store at least has bargaining space for purchasing goods, but the music platform does not. Therefore, only by getting involved in music production and disintermediation can the music copyright be directly in your own hands and reduce the commercial pressure.

In terms of user quality, Netease Cloud Music should have a lot of music consumption potential, because it currently has 181 million people a month, 89% of whom were born in 1990 and later, and it has Netease’s social genes and a strong social atmosphere.

On the production side of music, the platform can help the pricing and distribution of music copyright, and the reference information is divided into the author’s mode, which adopts the guaranteed+divided mode; On the sales side, the music platform can also sell music copyrights or distribute and underwrite music, such as accessing advertisements, pre-installing mobile phone terminals, smart speakers, smart cars, providing music for short videos, games and other companies, etc. This is the direction for music to make money.

Although Netease Cloud has begun to take this road, it is a long way to cultivate a Jay Chou who can take away tens of millions of users among its original musicians, and it depends on luck. After all, it took decades for the Chinese music scene to produce a Jay Chou.

Of course, if this road goes well, the future music platform will not have to bear the pressure of high copyright fees, and at the same time it will be able to share the cake in the music copyright market. Independent musicians are also expected to earn the dividend of paying for listening to songs, and the entire music industry chain will be boosted.

　Netease Cloud lost Jay Chou, but Netease Cloud "Jay Chou per capita".

After losing the copyright, Netease Cloud Music can make money for music projects by cultivating independent musicians and community culture, which can achieve the effect of "Netease Cloud is Jay Chou per capita", which may be its best result on the music road.

But Netease Cloud Music is still a tangled body in the eyes of many users.

What do users hate most? I hate you talking about money with him, especially users in minority communities, such as Douban, and Netease Cloud Music, which has a seven-point ideal and three-point business. Users who don’t hate you talking about money with it will stare at how you spend money. For example, some users vomit: "Netease Cloud Music does H5 to spread every day. Isn’t it good to buy two more songs with that money?"

Therefore, Netease Cloud Music should balance the user’s experience and the crux before the money-making project, so as to prevent users from losing because they feel that Netease Cloud Music "lost its original heart", otherwise, not to mention the Jay Chou per capita, even the effect of Pangmailang per capita will not be realized, after all, the community is still very pure.

In addition, for Tencent Music, which is listed on the US stock market, the highest price of Netease Cloud listed on the Hong Kong stock market is as high as HK$ 330, while the current share price of Tencent Music is only a dozen dollars. In the music market, is "Jay Chou per capita" overvalued? Or is owning Jay Chou undervalued? Let investors vote.