Have Apple And Spotify Already Lost The Chinese Music Market?

Most Western music streaming companies look at China as sort of a golden goose. It’s not laying any eggs at the moment, but you think that one might come at any time. That goose may be stolen even before it makes its first deposit though, as the Chinese mega-company Alibaba  recently announced that it will combine two of its music properties, Tiantian and Xiami, into a new as-of-yet unnamed music service.

The Chinese music market is potentially huge, with an estimated 471 million people currently listening to music online already. That said, the revenue is relatively minuscule at only $91 million last year compared to $3.5 billion in the U.S, according to the IFPI.

The reason is that Chinese consumers are used to getting their music for free, thanks to over a hundred pirate sites in the territory. Yet in a country of nearly 1.4 billion people, it wouldn’t take a significant portion to really make a difference in the music industry’s bottom line if they indeed did pay for their music.

Western companies know that, of course, and eye China as the final frontier of music distribution. That’s easier said than done though.

For instance, Spotify is available in over 50 countries, but it’s still not officially available on the Chinese mainland (it is in Hong Kong). Some premium tier users who have subscribed to the service elsewhere say that coverage around the country is spotty at best, with speculation that it may be due to government censorship. Even the recently launched Apple Music is available just about everywhere in the world except China at the moment.

Although you can almost hear the corporate wheels turning in board rooms of streaming countries everywhere in the West, China remains a tough market to crack, and with Alibaba entering the picture, it just got tougher.

That company may be one of the few in the world with the financial strength to go toe to toe with the likes of Apple and Google (when YouTube Music Key launches). Besides, having a native grasp of the language and culture can prevent any mistakes in the sector that a Western company is likely to make.

One thing that is potentially holding Alibaba music back though is a limited catalog. Even though the company signed a deal with BMG for its catalog of 2.5 million songs, that’s still a drop in the bucket compared to most Western streaming services (which have catalogs that go north of 20 million songs) or even the home-grown pirate sites.

The company may not need to do business with the 3 major Western record labels if Chinese music consumers only want native music, but it's a good bet that they're getting a taste of that music already from the pirates.

Then there’s the equally market-cap muscular Chinese Internet company Tencent with its QQ music service, which currently offers a Spotify-like service for a cost of only about $1.60 USD per month. Although Tencent doesn’t disclose numbers, it’s estimated that QQ has about 80 million monthly users (Spotify has about 75 million total, with about 20 million of them paid subscribers), but it has a significant head start that both Alibaba and the Western streamers have to match before they can compete. It also has license deals with both Sony Music and Warner Music Group in place, although market-share leader Universal Music has yet to come on board.

That said, the Apple brand carries significant weight with Chinese consumers, thanks to the widespread popularity of the iPhone. One would think that, considering the premium one spends to buy an iPhone in the first place, it should be but a small step to an Apple Music monthly fee, but that step looks like a crevasse at this time.

A real uptick in revenue from the Chinese market could mean a big boost for a music industry that badly needs it as well as some lucky service's bottom line, but there are numerous major hurdles to overcome before it gets to that happy place. Right now the big question is, which company will be able to capitalize first?