Sound Revenue Streams

It was the first Tencent Music Entertainment Awards, a star-studded gala that featured artists from home and abroad, including singer-songwriter Lay Zhang, Chinese pop idols TFBoys and Ireland’s mega boy band Westlife. 　

Among the screaming fans, a man in the audience watched the show with quiet satisfaction. He was Peng Jiaxin, the CEO of Tencent Music Entertainment Group (TME) and mastermind of the event. 　

Themed “It’s Time For Music,” the gala marked the music giant’s efforts to boost its original content and celebrate a turning point for the paid music model. 　

The Chinese music industry has come a long way from illegal bootlegs and imports of partially destroyed cassettes (known as dakou) and the pirated downloads that nearly destroyed it. 　

But over the past six years, Peng has led Tencent to become a pioneering force in developing China’s digital music business. When others blamed illegal downloads for decimating sales, Peng embraced the internet, insisting the technology would inevitably save the industry and reward its hardworking musicians. 　 

“I always believed that technology and the internet could bring a better life to musicians. If artists can’t get fairly paid, the industry would stagnate without hope,” Peng said.　

Labels such as UFO Records and Rock Records ushered in the era of Mandopop, or Mandarin-language music produced mainly in Hong Kong and Taiwan. 　

Chinese mainland artists hit their stride in the mid to late 80s. Cui Jian, the “godfather” of Chinese rock, spoke for an entire generation with his arena anthem Nothing To My Name (1986). Notable artists followed such as heavy metal bands Tang Dynasty and Black Panther, and singer-songwriters He Yong and Zhang Chu. 　

With the deepened reform and opening-up of the 1990s, Western pop music officially arrived on the Chinese mainland in the form of rejected cassettes and CDs legally imported in bulk from overseas record companies. They often were marked with a chunk cut out from the case or the cassette body, earning the name dakou, or “cut-out.” 　

Peng’s listening habits developed during the dakou era of physical media. “It was a time when there was a strong sense of ritual in listening to music. You’d put a cassette into the tape player, listen to songs in order while closely reading along with the lyrics, and pay attention to the songwriters, bands and producers. Listening to a song was like having a conversation with every creator involved in it,” Peng said. 　

But the internet changed everything. 　

The period from 2003 to 2005 saw the rise of China’s first streaming platforms, including Tencent’s QQ Music, Baidu Music, NetEase Music, Kugou and Kuwo. 　

But pirated music and movies prevailed. “Pirates have already killed China’s music industry dead,” Mandopop superstar Wang Leehom said during a 2003 interview with the International Herald Tribune (now the International New York Times). “It frustrates my life and destroys China’s creative future.” 　

This situation would persist for more than a decade, striking a hard blow to the fledgling domestic music industry. 　

In December 2014, Tencent collaborated with JVR Music – Mandopop superstar Jay Chou’s label – to release China’s first paid digital album Aiyo, Not Bad. It sold over 200,000 downloads, a triumph at the time. The success bolstered Peng’s confidence. 　

Today music streaming is standard. On major music streaming platforms (QQ Music, NetEase Music, Kugo Music and Kuwo Music) as of August 2019, Jay Chou’s 2016 album Jay Chou’s Bedtime Stories had sold a total of 1.9 million copies, Taylor Swift’s 2017 album Reputation sold 1.56 million, and singer Kun’s 2019 single “YOUNG” has sold over six million copies. 　

“The Chinese music market has made it through the pains of ‘getting it for free’ and regained its value. For content creators, value means dignity,” Peng said. 　

In July 2015, the National Copyright Administration of China ordered all music platforms to “stop sharing unauthorized works” and to take down any media that might infringe on copyrights. Soon after that, major Chinese streaming platforms and label companies, together with international labels, signed a mandate pledging to enforce music copyrights. 　

After two years of escalating lawsuits and copyright bidding laws, the National Copyright Administration of China stepped in to block exclusive licenses in the music industry. In 2017, they interviewed all of the major music platforms and record companies, and led the discussions that eventually broke most of the copyright barriers between TME, NetEase and Alibaba Music in 2018. Now these music platforms share 99 percent of their owned copyrights. 　

Tencent Music Entertainment Group is the 2016 merger of Tencent Music (owners of QQ Music and karaoke app KG) and China Music Corp (a copyright agency and owners of streaming services Kugou and Kuwo). Together, QQ Music, Kuwo and Kugo have a 75 percent market share, according to a report by the Data Center of China Internet (DCCI). 　

Slowly but surely, China is becoming a market where people are paying for music. According to TME’s third quarter 2019 financial report, the company has 35.4 million paid subscribers, up 42 percent from last year. 　

On December 12, 2018, TME went public on the New York Stock Exchange – a milestone for Chinese digital music. 　

“We are proud to be a key contributor to the movement that has led to a thriving music ecosystem in which copyright is respected and protected,” Peng said during a speech at the NYSE bell-ringing ceremony. “This has significantly benefited all music constituents – music labels, musicians and artists – allowing them to be fully rewarded for their efforts. This has enabled creativity to thrive, and stimulated the continued creation of quality music and memorable songs.” 　

According to The 2019 Report of the Development of Chinese Music Industry by the Communication University of China (CUC), China’s music industry in 2018 reached 374.7 billion yuan (US$53.7b), up 7.98 percent year-on-year for a five-year high. The scale of the digital music industry reached 61.2 billion yuan (US$8.8b). 　

“The environment for China’s music industry has been improving thanks to the great achievements in copyright protection and business model innovation as well as the continuous emergence of quality original work. Companies have increased their support for original music. Technological innovations have brought new growth and vitality to our music production, consumption and experience,” Zhao Zhi’an, associate dean of the Music and Recording College, CUC, said at a press conference for the report’s release in Beijing on November 8, 2019. 　

In the information age, everything seems disposable, even music. However, Peng is convinced that the collective feelings and personal memories attached to songs are what increase their value. 　

Peng cites the sales of Mandopop stars such as Jay Chou, Lay Zhang and Chris Lee as examples. “These cases proved that my judgment is right. Our listeners are willing to pay for music that really moves them,” Peng told NewsChina. “The public’s criteria for good music is always the same. Good music is music that touches the heart.” 　

At 11pm on September 16, 2019, Jay Chou released his rock ballad “Won’t Cry.” The song sold over two million copies across three streaming platforms within 25 minutes, and 10 million copies in two weeks. The spike in traffic crashed QQ Music’s servers. More than 12 million people have sang the song on karaoke app WeSing. 　

 “This song brings us back to the youthful days at school. That is the charm of music, it’s an art of time and memory,” Peng said. “I think all music lovers are like me. Our heartstrings will surely be plucked by the soft memories in the melody,” he said.　

Peng believes industry sustainability requires strong support for original Chinese music. 　

Since July 2017, TME’s “Tencent Musicians Plan” campaign has helped original music composers and musicians collect royalties through their platforms while striking deals with content owners and musicians to draw more listeners and subscribers. In December 2019, the company launched its “Billion Incentive Plan,” which aims to increase revenue for its musicians.