With Spotify and its competitors making huge losses, does China’s QQ Music hold the secrets to streaming’s future?

Tidal has 3 million users. Spotify has 100 million. QQ Music has 480 million. But numbers aren’t the only reason western streaming platforms should be jealous of their Chinese counterpart. Unlike Tidal or Spotify, QQ Music actually makes money. So how does it do this, and what does this mean for the future of streaming around the world?

Why Western Streaming Services Don’t Make Money

Despite their large user bases and music catalogues, neither Spotify, Tidal, Apple Music, Soundcloud or any of their rivals have ever turned a profit. In fact, recent earnings show that as Spotify has gained users and revenue, the company’s losses are increasing.

Spotify said 2015 was their “best ever year” as their revenue reached nearly €2bn, an 80% rise, but the service still made an overall loss of €173m, up 10% from last year. That the biggest streaming service in the West is hailing a 10% larger loss than before as their finest year to date just goes to show what dire financial straits streaming companies are in.

The heart of this profit problem lies in Spotify’s business model. The service’s ‘freemium’ tier may help bring in subscribers, but every non-paying customer is loss-making, and there are not enough paying customers, and the paying customers do not pay enough, to balance them out. On top of that there are the fees to artists and publishers, which are already astonishingly low, that also drain Spotify’s income.

So if Spotify and its competitors struggle to make money thanks to ‘freemium’ tiers, low prices, and royalty payments, what does QQ Music do to get a different result?

How QQ Music Makes Money

QQ Music also has a ‘freemium’ tier. In fact, it has fewer paying users than Spotify. QQ Music reported 10 million monthly paying subscribers last year, whereas Spotify reported 30 million. The difference is that QQ Music offers users other ways to pay. QQ Music gives artists the ability to release downloadable music, as well as streamable music. Singaporean singer-songwriter JJ Lin sold 610,000 copies of his single ‘Twilight’ on QQ Music in just one week.

QQ Music also offers concert tickets and merchandise, something no major Western service has yet tried in a meaningful way. So though QQ Music’s subscriber numbers are low, 57% of the 480 million-strong user base have paid for music through the service.

These added purchase options are what allows QQ Music to make more money once listeners have signed up, but how did they become so popular in the first place?
The answer is this: QQ Music is just one small part of Tencent, the Chinese internet giant behind WeChat, the messaging app with 762 million users. WeChat has far outgrown its original purpose and it now the go-to option for booking tickets, cabs and other day-to-day services for its colossal usership. Since Tencent is already so central to many Chinese customers’ lives, QQ Music is the natural streaming service of choice.

Will Western Companies Follow Suit?

Though streaming services all offer social network integration, none of them are as closely linked as QQ Music is to the QQ social network and Tencent’s other services. Last year it was reported that Facebook were planning to expand into the music streaming sector. Considering QQ’s success, it would likely be a fruitful move for the social network. Nonetheless, Facebook denied these reports, and it appears they have no plans to do this.

The closest thing we have to QQ Music in the West is Apple Music. The platform was launched by a huge corporation, already embedded in people’s lives through software, hardware, mobile phones, and digital music downloads. And while Apple Music is yet to turn a profit, it is still in its earliest phase. Some have even suggested that Apple’s success in other fields will allow it to plough money into streaming without worrying about losses, perhaps even until they eventually make money from it.

Is This Good for Artists?

Unfortunately enough, Western streaming services learning from QQ Music will not benefit artists in any way. The extremely low royalty rates paid by Spotify mean that streaming services do not benefit artists in the West already, and though the terms are not public, Tencent’s huge built-in user base allowed the company to strike even better deals. Better for QQ Music, not better for artists and labels. If an artist or label refuses to put their music on QQ, they risk cutting themselves off from swathes of listeners, so they have very little choice but to accept these deals.

WeChat photo by chatimemalaysia [CC BY-SA 2.0], via Wikimedia Commons