Investors who focus on China TMT startup, don’t give yourself a hard time if it’s the first time you heard of a company dubbed YY Inc. “is filing with SEC to go public” on TechNode couple days ago. Even for many Chinese locals, the China southern Guangzhou-based company could catch too much of their attention before.

Now with the surprising IPO prospectus, many finally jumped to the startup to dig out what it is really up to. One interesting finding, is that though few Chinese music-related startup are making money given problems in record industry like piracy, YY’s music business seems to be doing well with stunning revenue and growth.

In the first half of 2012, YY’s music business reached RMB 33.76m(Q1) and RMB 58.96m(Q2) in revenue respectively. When many are complaining about Chinese users just won’t pay, YY Music has already 26.57million monthly active users while 355,000 out of them are paying (data: as of Sep 31th, 2012).

Apart from the premium users and some related value-added services, YY Music also sells virtual items on its platform. Users can purchase items like roses and give away them to performers they love and the performers then can actually cash in on these roses. Some grassroots musicians are very popular among the YY community. So the platform will even hold mini concerts or campaigns for them through which they share profits.

We once wrote that The No.1 Rule for music startups is not to tell people you are funded. So true and recently some insiders pointed that the business model of YY music may have involved some copyright infringement. “If the songs that have been performed by users are not original, whose copyright is owned by other musicians, the profits that are derived should be distributed to the copyright owner. It is true that many owners now are unaware of their IP being infringed, but this behavior still can be called plagiarism,” said one insider.

Wang Bin, a lawyer also said that if YY music is profiting in this way without any agreement with copyright owners, this is illegal. However voice from the music industry sounds different, producer Zhong Sheng thought that YY Music makes pop music available to every one and is also a good publicizing channel. As to the business model, he said that YY Music could help develop users’ consuming habits, which is unique among peers.

It is also said that YY Music has been signing agreements with record industries to obtain copyrighted contents, a move to clear hurdles beforehand.

YY Music home page