On December 2nd, NetEase Cloud Music (09899.HK) ushered in the bell ringing day on the Hong Kong Stock Exchange, and Ding Lei, the founder of NetEase (09999.HK), once again boarded the bell ringing "stage".

In his listing speech, Ding Lei said: "This is the fourth time I have participated in the listing ceremony of NetEase. Four times to knock the gong, four moods. If you want to use four songs to express, I think the first one is Li Zongsheng's "Comprehension ", after the pain, you will gain; the second song is "Broad Sea and Sky" by Xin Orchestra, let go (DAO.US), to indulge in love; the third song is Wang Jie's "Going Home", which will be listed on the market. See you late; today’s fourth song, I think it’s Gala’s "Dream Pursuing My Heart", just run forward, there are infinite possibilities."

  However, NetEase Cloud Music broke on the first day of listing and closed down 2.49% to HK$199.90.

  Hard things to do

  From the break of NetEase Cloud Music on the first day of listing, it seems that the market does not lack negative opinions on the future of NetEase Cloud Music.

From the two aspects of "how to expand revenue" and "how to reduce costs" after the listing of NetEase Cloud Music, the Red Star Capital Bureau will talk about the difficulties of the business of NetEase Cloud Music.

  (1) How to increase revenue?

  At present, NetEase Cloud Music's revenue sources are mainly divided into two major sectors, one is online music service revenue, and the other is social entertainment services and other revenues.

The prospectus shows that NetEase Cloud Music's social entertainment services and other revenues accounted for only 10.6% of total revenue in 2018; by the first half of 2021, this revenue accounted for 49.6% of total revenue.

The contribution of the two revenues to NetEase Cloud Music's revenue has been basically the same.

  ① Member fees drive revenue, with limited room for future growth

  NetEase Cloud Music's online music service segment is broken down and can be divided into membership subscription revenue, advertising revenue, and other revenue (concert sales, etc.).

Among this income, membership subscription income is the main source of income, accounting for 66.4% of online music service income in the first half of 2021.

  According to the prospectus, in the first three quarters of 2021, NetEase Cloud Music’s monthly active users (MAU) were 184 million, and it was 180 million in the same period in 2020; the number of online music paying users was 27.52 million, an increase of over 93% year-on-year; online music payment rate Reached 14.9%.

  It looks very good. In 2021, the membership payment rate of NetEase Cloud Music will increase gratifyingly.

But after careful study, you will find that in the first half of 2020, NetEase Cloud Music’s monthly revenue per paying user was 9.3 yuan; and in the first half of 2021, this figure fell to 6.8 yuan.

In other words, many of this growth of paying users are short-term stimulus from discounts on promotions and cannot show a natural growth trend.

On the other hand, it is not difficult to find that the number of monthly active users of NetEase Cloud Music has grown somewhat sluggish.

The total user base is difficult to increase, which to a certain extent limits the "big cake" of NetEase Cloud Music's future membership fee income.

  In fact, from the perspective of the general environment of audio and video streaming media payment, my country's online audio and video streaming media have experienced a long period of industry chaos, and users have developed a payment habit relatively late.

  Therefore, the Red Star Capital Bureau believes that NetEase Cloud Music wants to increase users' willingness to pay, but it is still relatively limited in the long run.

Although "price reduction" is a good way to increase the payment rate in a short period of time, it is actually "injury to the enemy one thousand and self-defeating eight hundred", and it is difficult to fundamentally solve the problem.

  ②Social entertainment business may not be a good track

  As mentioned above, in recent years, the social entertainment service business of NetEase Cloud Music has grown rapidly.

The prospectus shows that from 2018 to 2020, the revenue of NetEase Cloud Music's "Social Entertainment Services and Others" segment will be 120 million yuan, 540 million yuan, and 2.27 billion yuan respectively; the revenue of this business in 2020 is 18.6 in 2018. In the first half of 2021, this revenue accounted for 49.6% of total revenue.

  NetEase Cloud Music's social entertainment service business has achieved rapid development, on the one hand, thanks to the platform's marketing promotion in recent years, on the other hand, it benefits from the early community atmosphere of the platform.

  But is the show business really that easy to do?

  From the perspective of users, in the era of pan-entertainment, attention is easily shifted, and show live broadcasts are easily replaced by more diversified live broadcast integrated services.

Therefore, from the perspective of industry competition, the short video platform is the strongest opponent.

The short video platform already has a large number of user deposits and continues to occupy user time. With the deployment of Kuaishou and Douyin in the live broadcast industry, it is actually more difficult to rely on single music categories to attract users' long-term attention.

  From a regulatory perspective, the show business is also an area subject to key supervision.

Nationwide K song has been affected by negative news such as "pornography", which not only affects the image of the company, but may even cause the platform to be shut down.

  Finally, in terms of the live broadcast business model, the show business is divided into larger ones.

Each income needs to be shared by the anchor or MCN organization, and the platform is actually difficult to control the absolute right to speak.

  It is worth mentioning that the prospectus shows that in the first three quarters of 2020, NetEase cloud music social entertainment service single-paying users pay 552.3 yuan per month; and in the same period of 2021, this figure fell to 504.1 yuan.

In other words, in the social entertainment service sector, the payment quality of paying users has declined to a certain extent.

Vigorously digging out the show business can indeed increase revenue, but in the long run, this is not a good business, and there are many limitations in the future.

  (2) How to reduce costs?

  The music streaming media platform, like the video streaming media platform, has always been inseparable from the content cost, which is more reflected in the copyright cost.

  ① Content cost that is too "burning money"

  Before 2018, domestic online music streaming platforms had set off a copyright battle.

  In 2018, the National Copyright Administration promoted the mutual authorization of more than 99% of music copyrights by various platforms, and the remaining 1% was used as the core content of each platform's competition.

Although 99% of music is currently shared by various platforms, it is still difficult to grasp the core dominance if you do not buy the copyright yourself and resell it through other platforms. Some high-quality resources are still difficult to reach by NetEase Cloud Music, such as Jay Chou's music copyright.

  In other words, the "copyright war" seems to be gradually subsiding, but in fact it is not, this 1% exclusive copyright has become "a battleground for military strategists."

  Of course, the content cost behind copyright is also very "expensive."

The prospectus shows that from 2018 to 2020, the content cost of NetEase Cloud Music will be 1.971 billion yuan, 2.853 billion yuan and 4.787 billion yuan respectively.

In 2018 and 2019, its content costs were 1.7 times and 1.2 times the revenue of the year; in 2020, content costs accounted for 97.8% of total revenue for that year; in the first half of 2021, content costs accounted for the proportion of total revenue. Reach 88.63%.

  Even in the "post-copyright era," copyright prices remain high, mainly due to the concentration of the music record market for upstream copyright owners.

Global giants include Universal, Warner, and Sony, and Chinese language giants are Emperor, Huayi, and Haidie. The high-quality copyrights are still in the hands of these head record companies.

  ②It is difficult for independent musicians to tell big stories

  The music copyrights of record companies are expensive, and the music platform itself lacks dominant power, so NetEase Cloud Music began to try to "throttling" in the upper reaches of the industry chain.

In 2014, NetEase Cloud Music launched a series of support plans for original musicians, launched the original artist channel and original song list, and explored and settled in original musicians.

  NetEase Cloud Music has successfully captured the upper reaches of the industrial chain in terms of operations and brought a series of positive cycles. Up to now, the number of registered independent musicians in NetEase Cloud Music has reached 300,000.

But it must be noted that the platform is "burning money" to support these independent musicians, the content ecology is still mixed, and the living environment of original musicians is not optimistic.

  According to the "Report on the Living Conditions of Chinese Musicians in 2019" released by the Communication University of China, the vast majority of independent musicians are still struggling to survive. Nearly half of the independent musicians have monthly income before tax of less than 2,000 yuan.

And these independent musicians have limited income through the music platform.

This report shows that independent musicians who have received income from the platform have a relatively large annual income in the range of 1-99 yuan, which is 24.45%.

For most indie musicians, it is "luxury" to support themselves by music.

  In addition, the platform wants to expand the copyright territory through independent musicians, but in the early days on social platforms such as Zhihu and Weibo, many musicians accused NetEase Cloud Music's agreement of being a kingly clause — not only to grant NetEase to use or even modify The right to the work, as well as the acceptance of authorization, is permanently free and irrevocable.

  Netease Cloud Music’s original artist plan has also been resisted by many musicians.

At the same time, many so-called "original music" have been pointed out in plagiarism and other incidents in recent years, which has also caused the original music market to not be very healthy.

  In summary, in terms of content, the copyright expenditures of several major record companies are hard investment that NetEase Cloud Music cannot escape. In terms of original music, there have also been user recognition and many contradictions with original musicians, making the platform fall into Under long-term cost pressure.

  Nice song

  NetEase Cloud Music and Ding Lei are walking on the road to chasing dreams

  There is a widely circulated story about NetEase Cloud Music and Ding Lei.

  It is said that many years ago, Ding Lei bought a lot of records when he went to Brazil on a business trip, and found that one of the songs was very good. After returning, he said to the executives: "The song I found is very good, but I can’t share it with you. It’s true. Too distressed."

  Not long after, Ding Lei held an internal meeting, and the NetEase Cloud Music Project was officially launched amidst the "not understanding" of the executives.

  In 2013, NetEase Cloud Music was officially launched.

As early as 2005, Tencent launched QQ Music; Baidu Ting, the predecessor of Baidu Music, was also launched in 2011; Ali acquired Xiami Music in 2012.

  Although NetEase Cloud Music started late, it was quickly sought after by many music enthusiasts with the innovative product positioning of "playlist + sharing" delineated by "music" Ding Lei.

  A few years later, the domestic online music platform has undergone earth-shaking changes: Xiami Music and Qianqian Music (Baidu Ting) have become lonely; Tencent Music (NYSE: TME) is the only one after acquiring Kuwo Music and Kugou Music; now, Netease Cloud Music, a middle-class student, also chose to go public under the pressure of "giant current".

  NetEase Cloud Music is moving towards capital with the concept of community, but capital does not seem to buy it.

At present, from the perspective of revenue, NetEase Cloud Music is quite limited in its services such as advertising, membership payment, and social rewards; and the high content cost has further restricted its imagination of "making money" in the future.

  "Run forward to have unlimited possibilities"

  Guotai Junan Securities issued a report that the listing of NetEase Cloud Music will help its further growth and enhance its competitiveness.

The report pointed out that the recovery of NetEase Cloud Music’s IPO process indicates that the market environment of the Internet industry is recovering; the bank believes that the in-depth cooperation with Sony Music Entertainment will help NetEase Cloud Music improve content quality and reduce its high content costs; and the company’s gross Interest rates are turning positive faster than the bank’s original estimate.

In the long run, as the industry environment becomes healthier and content costs are more reasonable and reduced, the bank remains confident that NetEase Cloud Music will grow faster than its peers and achieve profitability.

  The Sony Music Entertainment mentioned in the above report is one of the three "cornerstone investors" of NetEase Cloud Music (i.e. first-class institutional investors, large enterprise groups, etc.). Its introduction is an affirmation of the company's development prospects and brings confidence in the market; At the same time, cornerstone investors usually need to commit to purchase and lock it for 3 to 6 months after listing. The other two institutions are NetEase and Orbis Investment Management Co., Ltd., with a total subscription of US$350 million (approximately HK$2.73 billion) ), among which, NetEase subscribed for US$200 million (approximately HK$1.56 billion) shares, Sony Music Entertainment subscribed for US$100 million (approximately HK$780 million) shares, and Orbis subscribed for US$50 million (approximately HK$390 million) shares.

  The reporter learned that this is also the first time Sony Music Entertainment has acted as a cornerstone investor in the Hong Kong IPO of a Chinese digital music company, reflecting the long-term optimism of the upstream copyright owner of the music industry chain on the commercial value and development prospects of NetEase Cloud Music.

Sony Music Entertainment has always been the copyright holder of Jay Chou's works.

Exactly a year ago, the 14 classic vinyl records of Jay Chou's 20th anniversary, authorized and released by Sony Music, have been highly sought after by fans.

This time Sony Music has become a "cornerstone investor". For the majority of music fans, especially Jay Chou fans who are more accustomed to listening to songs on NetEase Cloud Music, they undoubtedly see the hope of hearing idol works on NetEase Cloud Music.

Up to now, many music fans can only listen to Jay Chou's genuine works online through platforms such as QQ Music under Tencent.

  Although the road ahead is quite bumpy, I hope that NetEase Cloud Music can be like Ding Lei said: "Still believe in music, believe in love, believe that we are doing the best things in the world, and can shine and heat the development of Chinese music."

  Chengdu Commercial Daily-Red Star News Reporter

  Yu Yao Liu Mi Ren Hongwei