Search engine Baidu, Inc. (BIDU.US) has its dog paw, chat service Tencent Holdings Ltd.(00700.HK) has its QQ penguin and now online shopping giant Alibaba Group has its musical shrimp.
Alibaba’s music streaming and download site Xiami, which literally means dried shrimp, is the latest addition to the e-commerce animal kingdom, and while it’s no big fish, it is thriving and has ambitions to make music pay online in China.
The service has 20 million registered users, up five-fold from the previous year, Wang Hao, the unit’s chief executive and founder, told EJ Insight. And that number is expected to grow exponentially with the launch of tie-ups in November with Alibaba’s shopping platforms, he said.
“We plan to provide music broadcasting services for Taobao and Tmall retailers,” Wang said. From next month, operators of online shops will be able to broadcast music in their stores so shoppers can listen as they browse, a move that will boost Xiami’s user base and diversify its income, he said.
The Hangzhou-based unit, a part of the assets of its parent’s potential listing in the United States, was founded in 2008 by a musician and four ex-Alibaba employees, who rejoined the group when it bought Xiami in January.
Alibaba previously applied to go public in Hong Kong but was rejected by regulators due to its proposed partnership structure. The structure has been accepted by the New York Stock Exchange and NASDAQ Stock Exchange, news portal Sina.com reported Sunday, citing a spokesperson from the e-commerce giant. Alibaba’s partnership model fully complies with listing rules, the exchanges said in separate letters to the company.
Before its absorption into Alibaba, Xiami generated most of its income from online advertising. China Entrepreneur Magazine quoted Wang in September 2011 as saying that only 0.5 percent of Xiami users ever paid for music, bringing in just 400,000 yuan (US$65,622) in 2010. The rest used the free streaming service.
Xiami pioneered a peer-to-peer system in which users paid 80 fen to download a song via Xiami, half of which went to the record labels while the rest was shared by the uploader and the website, the report said.
The company abandoned online advertising this year and will rely purely on a user-pays music model. Wang said online advertising revenue was the tradeoff for being a pioneer in the sector and its loss will mean a slight contraction in revenue this year. Xiami’s total revenue grew 10-fold last year from 2011, he said, without offering further details.
“The paid music industry will not mature in the next few years and the copyright law did not have a big effect in fighting illegal downloading,” Wang said.
“We would like to be the pioneer in urging reform in the industry. Hopefully the Chinese people will over time get used to paying for music.”
He said the site has the financial backing to survive until that moment comes.
Beat of different drum
China’s online paid music market is fragmented but its biggest names include Baidu, Tencent and top100.cn, in which Google Inc. (GOOG.US) has a majority stake. Even with their business heft, each one of these players is struggling to become anything like the Chinese version of iTunes. That’s why Xiami is taking its own tack.
Xiami aims to lure in sophisticated music lovers and producers and slowly influence other users’ habits, said Wang, who played in his own band in university and helped promote underground bands.
The company has developed an online record label this year in the hope of using Xiami’s platform to distribute the works of individual musicians.
“At the moment we’re paying musicians whatever we earn because they are important and need to be backed. But we’re also looking out for a revenue model for the business,” Wang said.
In the meantime, Xiami has distribution agreements with almost every record label in China and the top three labels in the world, splitting the money it collects from distributing their music.
Xiami’s top mission now is not so much to make a profit but to improve the user experience.
“When Taobao and Tmall first started, they couldn’t make a profit either. It will take time for us to build a community that loves and respects music,” he said.
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