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Minimum fund raising HK$3.04 billion How NetEase Cloud Music makes money for nearly 200 million monthly live users

via:第一财经     time:2021/11/23 13:05:56     readed:90

On November 23rd NetEase Announced that it would issue 16 million common shares worldwide, with a price range of HK$190-220 per share, with a proposed capital raising of HK$3.04-3.52 billion and an over-allotment rights of no more than 15 per cent.

According to the plan, NetEase Cloud Music will launch a global sale on November 23, announce the final pricing and placement on December 1, and list on the Hong Kong Stock Exchange on December 2 under the ticker code "9899.HK". The company has brought in three cornerstone investors: NetEase, Sony Music Entertainment and Orbis Investment Management Ltd., to subscribe for a total of $350 million (about HK$2.73 billion) in shares for a six-month lock-up period.

The first financial reporter learned that NetEase Cloud Music's revenue sources are mainly divided into: online music, social entertainment services and other.

For the online music sector, the number of monthly active users in 2018-2020 and the first nine months of 2021 was 105.1 million, 147.2 million, 180.5 million and 184.2 million, respectively.

The growth in active users has been accompanied by an increase in the number of paid users in the company. From 2018 to 2020 and the first nine months of 2021, the number of monthly paid subscribers in the online music sector was 4.211 million, 8.6265 million, 15.9615 million and 27.5214 million, respectively, accounting for 4%, 5.8%, 8.8% and 14.9% of active users in the current period

Users are willing to pay mainly because the content construction of the platform to form a stickiness to it. NetEase Cloud music main "music social", to create a single song mode instead of the library mode, the opening of music review area, take the route of supporting original music, pay attention to connecting musicians and users. In 2018-2020 and the first nine months of 2021, the average monthly revenue per paying user in the online music sector will be 8.9 yuan, 9.3 yuan, 8.4 yuan and 6.8 yuan, respectively.

According to the prospectus, in the first half of 2021, NetEase Cloud Music Daily Listening Users listened to songs for an average of 76.9 minutes a day, bringing the total number of UGC songs to 2.8 billion. In June 2021, about 27% of monthly users actively working on UGC creations were recommended from the platform for 3 out of every 10 music plays.

For social entertainment services and other segments, the section is dominated by audio broadcasts and features live musicians. The number of active users in the first nine months of this year was 21.1 million. In 2019-2020 and the first nine months of 2021, the number of monthly paid users was 917,000, 327,100 and 583,700, respectively; The average monthly revenue per paid user is 477.6 yuan, 573.8 yuan and 504.1 yuan, respectively.

The rapid growth of live streaming services starts with the social nature of NetEase Cloud Music. Eight years ago, NetEase Cloud Music launched the "Friends" feature on its first day online.

Subsequently, NetEase Cloud Music community gradually built, live broadcast, online K songs and other social entertainment services have been launched. In recent years, NetEase Cloud Music has further strengthened the community function, online "cloud village" and "concern" two to strengthen the community people and people, people and content connected to the first-level page.

NetEase Cloud Music has become China's third largest podcasting platform while building content communities and enhancing user stickiness.

According to the PodFest China 2020 Chinese Podcast Listener and Consumption Survey, the top five channels used by Chinese podcast listeners are Apple Podcasts (49.7%), Himalaya (37.9%), NetEase Cloud Music (35.0%), WeChat Public Inline Audio (21.9%) and Peakets (19.5%).

In addition, with the expansion of music video business and long audio business, the company is expected to have some room for growth.

Take short video as an example, as early as 2017, NetEase Cloud Music has been launched short video function, become the first power video function of the music APP, and then upgraded to Mlog, gradually become an important part of NetEase Cloud Music "Cloud Village" community.

NetEase Cloud Music officially announced a partnership with Jiyin in August 2020 to focus on the ecological construction of "Music and Short Video" content. In September this year, NetEase Cloud Music launched its product feature", "Vinyl Story", which presents the story behind the song in the form of video on the vinyl playback page, giving the music more visual experience and further tapping into the value of short video for music.

In addition, with the opening of copyrights and the cancellation of high upfront payments, the company's costs will become more manageable.

From 2018 to 2020 and the first half of 2021, the Company's content service costs were RMB1,970.9 million, RMB2,853 million, RMB4,787.5 million and RMB2,759.4 million, respectively, accounting for 171.7%, 123.1%, 97.8% and 86.7% of the Company's current operating income, representing a year-on-year decline. The cost of content services mainly includes content licensing fees paid to music studios, independent musicians and other copyright partners, as well as revenue sharing fees paid to live performers and their live guilds.

Recently, NetEase Cloud Music has reached strategic cooperation with Modern Sky, Imperial Entertainment and China Recording Group. Previously, the latter had an exclusive copyright agreement with Tencent Music. In July, authorities asked Tencent and its affiliates to remove exclusive rights to music. With the termination of the exclusive copyright model of the domestic online music industry, Modern Sky, Imperial, China Recording Group and other previously "exclusive" music copyright is now being shared, copyright opening up to the market back to a reasonable state of competition.

In October this year, at the International Copyright Expo Digital Music Copyright Development Sub-Forum, NetEase CEO Ding Lei said that the development of China's music industry has entered a new stage, and the main theme of the copyright industry has changed from "bigger" to "stronger", from "closed" to "open". In his speech, he put forward his own ideas for the future development of the industry: through the establishment of a world-class copyright governance and distribution model, so that outstanding original musicians have success, income, while digging deep copyright value, play the spiritual cohesion of music, from a single economic benefits, to multi-dimensional social benefits.

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