9158, who is recognized as the inventor of the profitable online live music show, reportedly made one billion yuan in revenue in 2011. The company denied it. But the founder did tell media last year that the costs, revenue cuts going to performers and related cost, were about 300-400 million yuan and gross margin was 20%. If we take it literally, its annual revenue could be 375-500 million yuan. That’s several times of what YY Music made (RMB52.9 mn) in the same year (YY Music was launched in March 2011). It was reported that , 6.cn, who took the model earlier than YY, made more than YY Music then.
Back then, CEO of 9158, Fu Zhengjun, with seven-year experience into the business, saw the market no bigger than 2 bn yuan.
One year later, YY reported RMB 286.4 million (US$ 46.0 million) in music revenue, over four times of that in the previous year. It’s unclear whether the whole market grew at the same rate, but what’s for sure is the it is now known as a lucrative business — partly thanks to YY’s listing on the NASDAQ — that more players, Kuwo and 51.com, followed suit. Taking all the factors into consideration, the extreme scenario must be that the market has already reached the peak as Mr. Fu with 9158 estimated.
And we see some signs. In Q4 2012, the revenue growth with YY Music is, thanks to the increased ARPU, RMB 312, up 176% year-over-year and 23% from previous quarter, while paying users decreased by 4% quarter-over-quarter. This high ARPU was only seen before in the web game sector. Though YY Music has offerings as expensive as 120 thousand yuan worth of monthly subscription, it sounds high enough to have users spend so much money buying performers virtual flowers or other virtual items. If the revenue cannot be driven by expanded paying user base, it’s hard to imagine what would drive the existing paying users spend increasingly more.
For platform operators, their income will possibly be driven down by a foreseeable fight for star performers, as audiences visit those sites for performers. YY Music shared US$7.3 million, 43% of the total revenue, with performers and channel owners in Q4 2012. That’s much higher than before. It was reported that only 20% went to YY performers previously. Though YY CFO explained that that’s because they couldn’t recognize some revenue until the first quarter of 2013 due to US GAAP regulations, it is widely believed that YY has to increase revenue cuts with third-party contributors as its competitors have shared more. It is said performers on 9158 and 6.cn shares more than 50% of their total revenues.
It’s hard to know whether those services can manage to have paying users grow at a considerable rate and how far this live music show business can go. But YY seems to have another way around. It turns out more and more boys, who used to watch recorded replays on video sites such as Youku, are watching game broadcasting on YY. It is said that YY invited talented game players who could attract tens of thousands viewers in one broadcasting room. The revenue streams are the same with those on YY Music: paid membership cards; virtual flowers for sale to be gifted to broadcasters. Game gambling, however, is believed to be the bigger money. YY CFO disclosed that they’d started monetizing game broadcasting at the latest earnings conference call.
image credit: newhua.com