NetEase music spinout completes $449m Hong Kong IPO

The company sold 16 million shares at HK$220 apiece, the top end of the indicative range, according to a filing. Three cornerstone investors – NetEase itself, Sony Music Entertainment, and Orbis Investments – covered $350 million of the offering.

NetEase is the largest post-IPO investor with 57.65%, followed by Alibaba Group on 9.98%. Other pre-IPO investors referenced in the prospectus include CMC Capital Group, Baidu, General Atlantic, Boyu Capital, and Yunfeng Capital.

The company 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 and Yunfeng.

The Series A featured Loyal Valley Capital, CMC, Shanghai Media Group, and Hunan Broadcasting System-owned Mango Media, among others. General Atlantic, Boyu, Baidu, Taiwan’s HIM International Music, and BAI participated in different parts of the Series B, with Alibaba and Yunfeng.

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 – such as subscription packages, advertising, digital album sales, and sub-licensing content to other platforms – and social entertainment services. 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. The company offered more than 60 million music tracks, of which more than one million were created by registered independent artists.

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), which went public in the US in 2018. The company 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.

TME was implicated in an antimonopoly investigation launched into its parent earlier this year. This resulted in the company being fined and ordered to relinquish its exclusive label rights. Regulators said Tencent and its affiliates owned more than 80% of exclusive music library resources in China, giving them an unfair advantage over competitors.

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• Topics
• Greater China
• IPO
• Media
• Technology
• China
• TMT
• IPO
• Yunfeng Capital
• Alibaba Group
• Boyu Capital
• CMC Capital
• Loyal Valley Capital
• Bertelsmann Asia Investments