Netease to spin out PE-backed music streaming business

The company has raised $1.46 billion in private funding: a $133 million Series A round in mid-2018 and a $1.33 billion Series B completed across three tranches between mid-2018 and late 2019. The last of these – a $701.6 million commitment – came from Alibaba Group and Yunfeng Capital, a private equity firm established by Alibaba founder Jack Ma.

The Series A featured Loyal Valley Capital, CMC Capital, Shanghai Media Group, and Hunan Broadcasting System-owned Mango Media, among others. General Atlantic, Boyu, Baidu, Taiwan’s HIM International Music label, and Bertelsmann Asia Investments participated in different parts of the Series B, alongside Alibaba and Yunfeng. Percentage stakes are not given in the prospectus.

Cloud Village’s core product, streaming platform NetEase Cloud Music, launched in 2013. The company has sought to build an interactive content community in and around this app, offering customized content and creating areas for users to post comments and engage with one another.

It introduced Look Live Streaming, an app through which registered independent artists can hold online concerts and upload recordings. According to China Insights Consulting, it is the largest online incubator for independent artists in China, with 230,000 members signed up to date. Independent artists accounted for 45% of all Cloud Village’s music streams in December 2020.

Cloud Village generates revenue through online music services and social entertainment services. The former comprises monthly subscription packages allowing a certain number of downloads and access to premium content, advertising, sales of digital albums and singles, and sub-licensing content to other platforms. The latter is dominated by livestreaming, with revenue coming through gifting and the sale of virtual items, as well as membership packages.

There were 181 million online music monthly active users (MAUs) at the end of last year, including 16 million paid subscribers. There were also 327,100 monthly paying users of social entertainment services. Nearly nine in 10 users were born in 1990 or later. The company offered more than 60 million music tracks, of which more than one million were created by registered independent artists. One-quarter of MAUs contribute their own content to the platform.

Cloud Village posted RMB4.89 billion ($767 million) in revenue for 2020, up from RMB2.32 billion the previous year. There was a near 50-50 split between online music services and social entertainment services, compared to 77-33 a year earlier. The company’s net loss rose from RMB2 billion in 2019 to RMB3 billion in 2020. However, gross loss margins are narrowing.

The dominant player in China’s music streaming industry is Tencent Music Entertainment Group (TME), operator of the QQ Music, Kugou and Kuwo platforms. Kugou and Kuwo were absorbed through the acquisition of China Music Corporation in 2016. TME went public in the US in 2018. It has 850 million users across online music and social entertainment, of which 67 million are paying users. Revenue came to RMB29.2 billion in 2020.

Alibaba has a direct interest in music streaming through Ali Music Group, although Xiami, its largest streaming app, was discontinued earlier this year.

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• Topics
• Greater China
• Media
• IPO
• Technology
• China
• TMT
• Yunfeng Capital
• Boyu Capital
• General Atlantic
• China Media Capital
• Loyal Valley Capital