How can you make money with Qzone

"I'm brainwashed" Interview: Andy NG teaches Chinese teenagers how to stream music legally

June 20, 2017 • Society - Interview & Photos: Thaddeus Herrmann

China and Copyright? Difficult topic. Nowhere has so much been pirated in the past. Copyright, royalty, respect? Do not fit the cultural habitus. At least that's the cliché. The fact is: A remarkable transformation process is currently taking place in the Middle Kingdom. A process in which Andy NG is actively involved. He is the head of the "Tencent Music Entertainment Group", the largest streaming provider in the country. 600 million customers use the service, 15 million of whom pay monthly. Ascending trend. “Tencent” is the tenth largest company in the world and controls the regulated Chinese Internet with platforms such as “WeChat” and the Facebook equivalent “Qzone”. Music only plays one role among many, but: It is a market with great growth potential. Because Andy NG and his around 2,500 employees not only have deals with the majors from the West, but also actively investigate in order to drive out piracy nonsense from the Chinese youth. Apparently very successful: at MIDEM, the industry meeting of the music industry in Cannes, the manager met with smaller labels and associations to further enlarge the catalog for “QQ Music”. With great success. In an interview with Das Filter, Andy NG explains a market that we still know far too little about in Europe.

When it became clear that we would meet for an interview here at MIDEM, something struck me. I had never thought about the music industry in China until then. How it works there.
Oh yeah? Hmm I still get the standard answer: bad experiences, bad memories.

Piracy.
There were and are, yes. But that's our turn.

That should of course also be the subject of this conversation. But first please declare “Tencent” as a company.
Tencent is now the 10th largest company in the world and is currently valued at $ 320 billion. We are number one worldwide in online gaming and for games on smartphones. But we also offer many other services that mainly revolve around social media. Since Facebook didn't make it to China, we are very well positioned there. “Qzone” is the Chinese alternative to Facebook and was developed by us: 700 million users every month. We also made "WeChat", which is also known in Europe.

As a messenger. And there is a large selection. In China, however, practically everything can be handled in daily life with the app.
There's a lot in there, yes.

"We work hand in hand with the labels, but also with the government."

Now you can offer many services and still not earn any money. It's different with “Tencent”.
We're back to piracy. In gaming, for example, we took copyright very seriously from the start. We partnered with the studios to protect and defend intellectual property. And also with the government. We work hand in hand. It became evident pretty quickly that this alliance was indeed successful. We then extended the same strategy to the film industry in the early 2010s. That worked too. It is progressing. If our team discovers a website today that offers illegal content, we can jointly take it offline within a few minutes. This also applies to music, an area in which we are of course also active with “QQ Music”. I'll take care of that. I am the boss. We took over two competitors and spun off the music business into the “Tencent Music Entertainment Group”. Our “TME” is already valued at around ten billion US dollars.

Streaming to 600 million people

That sounds like a lot of customers.
600 million active users every month, 200 million of whom use the service every day. If you look back on the situation in China around ten years ago, when practically everything was pirated everywhere, it is an astonishing development.

Which Tencent was actively involved in, I assume. What did the music market in China look like ten years ago?
The CD, or more precisely the official CD, was dead. Pirated copies only cost a few cents, but the labels didn't make it. Fans discovered and consumed new music primarily through television and radio. And of course on the internet. Which was problematic, because everything was and is there as illegal stream and download. There was a precedent about 15 years ago when 20 major labels sued the Chinese search engine Baidu for precisely that reason. The music industry was - by necessity - already sensitized to the special situation in China. Because the judiciary didn't help them. It was a good starting point for us, because “Tencent” had already proven in games and films that it is possible to put the business on a legal footing. So we negotiated with the labels and convinced them to license their catalog to “QQ Music”.

With 600 million subscribers, this means, conversely, a radical change in cultural techniques and also for youth culture in China.

Absolutely. Especially for youth culture. Indeed, it is quite normal for teenagers in China today to pay for music and films. This attitude has not yet reached the older generations.

How do you set such a turnaround in motion?
For me, it's all about education. On the one hand, young people are not yet stuck in their attitudes. And of course they also grow up in other times when this paradigm shift is already noticeable. In my experience, this is difficult to convey to older people. You have to pay something for it: You often only get a shrug of your shoulders because there is still a lot to be found for free on the internet. But something has changed with the kids. And we're not giving up.

“The more direct the contact with the fans, the greater the effect. Is working!"

An example?
The program has now been running for around a year and a half. We work with many artists who convey this message to their fans over and over again. You want more songs from me? Then please pay for the music. We also bring the artists directly to schools so they can meet up with their fans.

And to talk to them about piracy? I can't really imagine that.
If Lady Gaga comes to our table right now and asks for $ 100. We'll both open our wallets, right? And we'll also take a selfie with her. The more direct the contact with the fans, the greater the effect. Is working! Of course, within the “Tencent” group we have the opportunity to spread this message on a wide variety of channels and in dozens of apps. In other words, I do this with brainwashing. But I have no problem with that at all.

Teenagers are a popular target group, but not yet particularly well-funded. Older people who already earn their own money are more attractive. They should bring sales.
That's exactly what I told my boss when we started the paid music subscriptions. The money comes from the 25-40 year olds. My words. I was completely wrong about that. They are already in their careers and don't want to spend any money on music.

"In China, I have to offer our service cheaply - the quantity makes it."

Let's stay with the money for a moment. There is the term “ARPU”, “average revenue per user”. It is one of the most important indicators in all industries that work with term contracts, whether mobile, Netflix or Spotify. This ARPU is comparatively low in China because services are offered at significantly lower prices and have to be offered in order to generate relevance. What do the western labels have to say about this, which are more fixated on profit maximization?
That is accepted. First, our goal is to keep increasing the ARPU. Our partners know that too. And secondly, one must not forget that there are so many people in China that the old calculation - the mass makes it - is also important. In the film industry, the studios have said goodbye to their other margins and it still works. That also has to do with the standard of living. For example, I live in Hong Kong. Seven million inhabitants. We have around 60,000 paying customers in Hong Kong. They pay around ten US dollars a month. In China I have to offer the service cheaper. But there are also more people living there, which balances out the price difference. I see it this way: If I only got 50 cents a month from all of my 600 million customers - it would be worth it. For everyone involved.

How many customers already have a paid subscription?
Currently around 15 million. We want to reach 18 million by the end of the year, and 25 million in 2019.

With which strategy?
I already mentioned at the beginning that “Tencent” had taken over two competitors. They have not merged into “QQ Music”, but have been preserved as independent portals. We are targeting different age groups with the three services, but above all we are looking at certain regions in China. "QQ Music" is especially for the big cities with a comparatively high standard of living. Different music is heard there than in the country. Although the catalog is practically identical on all three platforms, very specific things are featured within the apps, tailored to the prevailing taste on site.

The “QQ Music” catalog currently includes around 17 million tracks. What role does western music play in this?
Around 60 percent are licensed by Western labels, only four percent of our catalog is Chinese music. But: These four percent make up around 80 percent of all plays. That, in turn, is very different from region to region. In the big cities, the kids know Lady Gaga. Probably not in rural areas.

That's a surprising focus on local music. Does that apply to the entire youth culture?
The biggest non-Chinese influence on our youth culture so far has been Korea. But that is currently changing, not least because of the current political situation. We haven't had the opportunity to promote Korean music the way we used to for a long time. That is not wanted. Since then we have noticed that western pop music is growing in popularity. I can only speak for the music, to be honest. The kids always want something new. No oldies. Beatles, Bee Gees: No young Chinese want to hear that. They want idols they can feel close to.