Is being copied by QQ Music the reason for NetEase Cloud Music's decline?

Author/Noblemen

Produced by/New Pick Business Review

NetEase Cloud Music has accused QQ Music again.

On November 25, NetEase Cloud Music suddenly posted a long article on its official Weibo account accusing QQ Music of copying multiple functions, designs, and planning from NetEase Cloud Music, including the "DIY function" launched on the music player and the vinyl style creative competition event. NetEase Cloud Music also called on the other side to immediately stop plagiaristic "innovation", imitative "creativity", and follow-up "updates". After the long article was published, it immediately topped the trending topics.

This is not the first time NetEase Cloud Music has confronted QQ Music. In 2020, NetEase Cloud Music launched the "Listen Together" function, and at the end of that year, QQ Music followed suit with a "Music Room" function with the same features, later renaming it to "Listen Together". NetEase Cloud Music also criticized QQ Music at that time. In the November 25th statement, NetEase Cloud Music also mentioned other copying behaviors by QQ Music, such as copying the vinyl playback page and the Forbidden City-themed player.

Currently, QQ Music has not directly responded, but has posted a meaningful dynamic: QQ Music's "Custom Player" has been upgraded again, introducing multiple industry-first features! KuGou Music, which belongs to the same Tencent Music Group as QQ Music, responded more directly, stating that KuGou Music launched the music player DIY function as early as October 2023 and also held a DIY player contest, implying that NetEase Cloud Music is the plagiarist.

Objectively speaking, plagiarists should naturally be criticized. But strangely, NetEase Cloud Music's latest accusation did not win public support. Most netizens' attitudes were, "NetEase Cloud Music should buy more copyrights", "I only care about listening to music", and "I support whoever gives me a membership". Perhaps NetEase Cloud Music should stop "going crazy" and think carefully about the real reasons behind its grievances.

1. Accusing and suing: NetEase Cloud Music has long been unhappy with QQ Music

Summarizing the statements issued by NetEase Cloud Music (hereinafter referred to as NetEase Cloud) over the years, its accusations against QQ Music mainly focus on two areas. One is design plagiarism, and the other is infringement of song copyrights. In fact, NetEase Cloud also upgraded its measures in 2022, suing Tencent Music Group (which owns QQ Music, KuGou/KuWo Music, etc.) for unfair competition.

It can be seen that accusations of plagiarism of product features have been mentioned multiple times. In fact, accusing Tencent Music of plagiarism and infringement is only a superficial phenomenon. The underlying reason for NetEase Cloud's actions is that it can no longer catch up with Tencent Music and maintain high growth through other means.

As the only two domestic online music players, NetEase Cloud and Tencent Music share the same business model, with revenue mainly coming from online music (memberships, advertisements, etc.) and social entertainment businesses (mainly live streaming).

First, let's look at the online music business. The core logic of this part is that the platform provides songs, and then users consume them. Theoretically, the more songs a platform provides, the larger its user base will be. Currently, due to its copyright advantages, Tencent Music leads NetEase Cloud in terms of users. In 2023, NetEase Cloud had 205 million monthly active users in its online music business, while Tencent Music had 576 million. At the same time, NetEase Cloud had 44 million paid users in its online music business, while Tencent Music had 107 million. In terms of per capita payments, NetEase Cloud was at 6.9 yuan, while Tencent Music was at 10.7 yuan.

It is not difficult to see that NetEase Cloud's online music business lags behind Tencent Music in all user data, which also makes the revenue scale of this business less than one-third of Tencent Music's online music business (in 2023).

If we consider the industry situation, NetEase Cloud's anxiety is even more severe. According to statistics from Cinno Research, the number of online music users in China was 744 million in 2023, with a year-on-year increase of only 3.7%, which means that the industry has passed the stage of rapid growth, and it is becoming increasingly difficult for all platforms to acquire incremental users. NetEase Cloud's social entertainment business is slightly better off, but both NetEase Cloud and Tencent Music are shrinking this business, making it no longer a focus for NetEase Cloud's future development.

Objectively speaking, now that various apps are constantly borrowing ideas from each other, the boundaries of originality have become increasingly blurred. If NetEase Cloud has really applied for patents for certain designs and can obtain legal evidence, then it can certainly sue Tencent Music. However, NetEase Cloud chose to initiate a public relations war, indicating that it does not have the confidence in this regard. Judging from the reactions of netizens, this public relations war has had little effect. After NetEase Cloud posted an accusation against QQ Music, some users took screenshots of songs turning gray (indicating that the platform does not have the copyright to the song). Other users said that when searching for songs on NetEase Cloud, they can find versions sung by anyone except the original singer.

For example, Wei San's version of "North Suburb", which recently went viral on Douyin, has content that resonates well with working people's emotions. Some netizens began listening to this song on music platforms, but could not find this version on NetEase Cloud, only on Tencent Music.

For NetEase Cloud, the real strategy to alleviate anxiety is not to initiate a public relations war, but to focus on copyrights and win users with content.

2. Accusing competitors of "plagiarism" is only superficial; NetEase Cloud has its own anxieties

The copyright battle in the online music platform industry has raged for many years, during which there was a key milestone. In 2018, the National Copyright Administration announced that with its active coordination and promotion, Tencent Music and NetEase Cloud reached an agreement on online music copyright cooperation, authorizing each other with more than 99% of their exclusive copyrights, indicating that the copyright battle in the online music industry has temporarily come to an end.

Since there is no public data in this regard, and it is impossible for the two major platforms to disclose such core data, we can only get a glimpse from what is available. Among the operating cost structures of NetEase Cloud and Tencent Music, one cost has always accounted for the largest proportion, which is service cost, mainly including copyright cost, payments to creators, and live streaming revenue sharing. Before Tencent Music went public, the proportion of service cost in operating costs gradually increased, reaching 87.5% in 2018 (when Tencent Music went public). The situation for NetEase Cloud is the same as Tencent Music, with this proportion being 86.7% when it went public.

Judging from the cost structure of NetEase Cloud and Tencent Music when they went public, NetEase Cloud did not neglect copyrights during its land grab phase. Like Tencent Music, it allocated the largest cost to purchasing copyrights. However, it cannot be ignored that Tencent Music's copyright purchasing efforts were far greater than those of NetEase Cloud.

Taking 2021, the year of NetEase Cloud's IPO, as an example, its content cost was 2.76 billion yuan, while Tencent Music's was 4.67 billion yuan. Combining user feedback and the copyright ownership of top singers like Jay Chou, it can be seen that Tencent Music is the winner of this copyright battle. In other words, the direct reason for NetEase Cloud's weak position in copyrights is that its absolute investment is much lower than that of Tencent Music.

This cannot be blamed on NetEase Cloud. Tencent's main business is social networking and entertainment, with Tencent Music located on the entertainment line, while NetEase's main business is gaming, and NetEase Cloud is not in a core position, so it naturally receives less support. In addition, NetEase Cloud did not become profitable until 2023 and needs to be frugal, which also limits its cost expenditure.

The fundamental reason why NetEase Cloud lags behind Tencent Music in copyrights is that it did not consider copyrights as a breakthrough when it was first launched. Instead, it chose to build a music community. After positioning itself as a mobile music community, NetEase Cloud gradually introduced a series of socially oriented features such as personalized recommendations, music reviews, listening together, star review halls, and fan clubs. Among them, the music review culture has successfully gone viral and become a topic of discussion throughout society. With the support of its community positioning and operation, NetEase Cloud achieved rapid growth, reaching 400 million users in less than four years and successfully entering the first tier of the domestic online music industry.

Now it seems that this strategy has both advantages and disadvantages. It helped NetEase Cloud find a differentiated advantage in an industry already dominated by giants, thereby securing a place. At the same time, it also caused NetEase Cloud to miss the best opportunity to accumulate copyrights. Now, even though Tencent Music has shared 99% of its exclusive copyrights, NetEase Cloud's copyright position is still lagging, showing how large the copyright gap is.

Referring to the development process of the long-form video industry, various platforms have also engaged in copyright battles, with distorted competition even driving up the prices of content copyrights. However, iQIYI and Tencent Video still chose to make significant purchases. If they had not insisted on purchasing content copyrights, they would not have their current status. In contrast, the main reason why NetEase Cloud is so passive in terms of copyrights lies within itself; it chose the wrong answer at the right time.

Currently, NetEase Cloud has taken remedial measures. On the one hand, NetEase Cloud is still purchasing copyrights. In 2023, NetEase Cloud entered into new cooperation with labels such as Believe Music, Makoto Shinkai, Yu Ding Si, and RYCE Entertainment (represented by Wang Jiar), adding songs by artists such as Mayday, Sodagreen, Wang Jiar, Karen Mok, Phoenix Legend, and Cui Jian to its platform. NetEase Cloud has also focused on purchasing the copyrights of overseas labels, such as DREAMUS (represented by popular musicians like Shinhwa) and JTBC (known for its extensive library of film and television soundtracks).

NetEase Cloud is also expanding its inventory of long-form audio content such as audiobooks and radio dramas to supplement its music content and meet user needs. In 2023, the total listening time for NetEase Cloud's long-form audio content increased by 70.9% year-on-year, showing initial success.

On the other hand, NetEase Cloud has introduced AIGC technology, which has already been applied to music production, consumption, and recommendation processes.

Currently, these strategies seem to be on the right track, and Tencent Music has also adopted similar strategies. However, they still cannot help NetEase Cloud win the competition. For NetEase Cloud, surpassing Tencent Music will be a long and arduous journey.