Baidu spun off in-house music service
In 2015, Baidu (BIDU) spun off its Baidu Music service in a deal with Taihe Music Group. As a result, Baidu Music was rebranded as Qian Qian Music. This transaction occurred at a time when the company was lagging the competition. Baidu’s recent investment in NetEase Cloud Music appears to represent the company’s comeback to the streaming music industry.
The transaction with Taihe Music appeared to show that Baidu was working to minimize its exposure to the music market. Tencent (TCEHY) dominates China’s streaming music market through its Tencent Music Entertainment subsidiary, whose music brands include Kugou Music, QQ Music, and Kuwo Music.
$460 million in streaming music sales in China
There are several reasons why Baidu might want to increase its exposure to China’s music industry through an investment in NetEase Cloud Music. China’s streaming music is growing rapidly, widening the opportunity for Baidu to diversify its business beyond advertising.
According to PwC, China’s streaming music market was worth $27.0 million in 2011. However, the market is on track to hit $460.0 million by 2020. China’s overall digital music market is expected to generate $1.1 billion in revenues by 2020—a significant increase from $444.0 million in 2011.
The race for digital music revenues
The deepening penetration of Internet connectivity and smartphones is driving the global expansion of the digital music market, drawing interest from some of the world’s largest technology companies. Alphabet’s (GOOGL) Google launched a new music service called YouTube Music earlier this year. Among its competitors, Pandora (P) and Spotify (SPOT) have attracted 71.4 million and 180.0 million subscribers, respectively. In February, Amazon (AMZN) launched its streaming music service in India.