Alibaba shops minority stake in NetEase Cloud Music in catch-up with Tencent’s dominance

Alibaba ups the ante to challenge Tencent’s supremacy over online music sector.

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Chinese e-commerce powerhouse Alibaba just added two new items to its shopping bag in a move to help cement its e-commerce supremacy and play catch-up in the country’s music streaming market.

The Hangzhou-headquartered company, together with its founder Jack Ma’s Yunfeng Capital, will invest around USD 700 million in NetEase Cloud Music’s new Series B2 financing round. The investment was announced as part of the deal that saw Alibaba buying out Kaola, a cross-border e-tailer incubated by NetEase, China’s second-largest gaming developer by revenue, KrASIA reported earlier.

Alibaba will own around 20% of NetEase Cloud Music after the investment, according to local media citing people close to the deal, while NetEase remains the controlling stakeholder. The deal would value the music service at more than USD 9 billion, according to the same sources cited in the report.

The investment in NetEase Cloud Music is likely to benefit both.

Alibaba is no outlier to China’s music streaming market. It has long entered into the game through its acquisition of local streaming startup Xiami Music, which later on folded into Alibaba’s digital media and entertainment unit.

That said, Alibaba’s online music business has been lagging behind its nemesis Tencent, which owns four of the country’s top five music apps under its Tencent Music Entertainment Group (TME).

In March, TME’s Kugou, QQ music, We Sing and Kuwo were the four most popular music apps in China, with 2.64 billion, 1.96 billion, 1.72 billion and 1.48 billion monthly active users (MAUs) respectively, according to Chinese market intelligence agency QuestMobile, followed by the six-year-old NetEase Cloud Music.

Though ranked fifth with slightly an over 1.3 billion MAU, NetEase Cloud Music enjoys the fastest growth among the top 5 players, growing by 27.5% year-on-year.

The breakthrough of NetEase Cloud Music owes partly to its strong engagement among younger generations. More than 84% of its users are under 25, Aurora Mobile’s report revealed in August. Another factor that propelled NetEase Cloud Music’s growth trajectory, is that its app has been used as a social networking site by lots of its avid users. It’s not a rare thing to see some of the popular songs on the app attracting more than 100,000 comments, with listeners sharing their resonances.

The app also features a mini social networking function dubbed “Cloud Village,” which allows users to post the so-called “Mlog,” or music blog. The function has been gaining popularity since its release.

In addition, the NetEase Cloud Music app also has a focus on indie music, claiming more than 70,000 independent musicians on its platform, while TME has around 60,000.

Recently, TME has been under China antitrust authority’s investigation on its exclusive licensing deal with big music labels, including Universal Music Group, Sony Music Entertainment, and Warner Music Group, Bloomberg broke the news in August.