Ocean Music's IPO in the United States raises 300 million to 600 million yuan or becomes China's first music listed company

A company owned by China Internet giant Tencent Holdings Ltd. Supported music streaming service is planning its first IPO in the United States. The institutions they hired were Goldman Sachs and Morgan Stanley, with a financing scale of US$300 million to US$600 million. The so-called music streaming service provider "ChinaMusicCorp" is called Ocean Music Group in Chinese.

Original title: Why is the ocean music company that owns cool dogs and cool me going public in the United States?

On the morning of May 12, almost all major domestic websites quoted a seemingly sensational piece of news from the Wall Street Journal.

The news read this: A company owned by China Internet giant Tencent Holdings Ltd. Supported music streaming service is planning its first IPO in the United States. The institutions they hired were Goldman Sachs and Morgan Stanley, with a financing scale of US$300 million to US$600 million.

The so-called music streaming service provider "ChinaMusicCorp" is called Ocean Music Group in Chinese.

An investor in Ocean Music confirmed the news to us-they have been preparing to list in the United States since last year. In contrast, its competitors Shrimp Music, QQ Music, and Netease Cloud Music are backed by listed companies such as Alibaba, Tencent, and Netease, but they are not listed independently. If Ocean Music's IPO in the United States is successful, it will become the first listed company in China to focus on music entertainment.

However, things may not be as simple as the message described.

It is not just a streaming media company

. The perception that Ocean Music is a "streaming media service provider" comes from its two products: Cool Me Music and Cool Dog Music.

Ocean Music was originally established in May 2012 as a music copyright company. At the end of 2013, it acquired Kuwo Music for nearly 100 million US dollars and began discussing a stock exchange and merger with Kugou Music. The two completed the merger in April 2014 and formed a new music group, Ocean Music Group, with the original Ocean Music.

The two streaming media platforms, Kugou and Kume, are indeed the focus of ocean music. Currently, Ocean Music has two co-CEOs. In addition to founder Xie Guomin, the other is Xie Zhenyu, founder and CEO of Cool Dog Music. The company's president is Lei Ming, CEO of Kuwo Music.

But Ocean Music has a wide range of businesses, which is far more than just streaming media.

They have their own fan economy and artist management. With the integration of Cool Dog Music into Ocean Music, the three star-making businesses of the original Cool Dog, namely Star Network, Star Live Broadcast and 5sing, have also been transferred to Ocean Music.

Fanxing. com and Fanxing Live Broadcast are mainly platforms for artists, anchors and fans to interact. They also recommend artists 'singles and MVs on the Cool Dog Player. 5sing is an original music sharing platform that packages and promotes some songs and artists.

At the same time, they also try to build a complete artist brokerage industry chain by learning from overseas experience, and cooperate with Japan's AKS (AKB48 brokerage company) and South Korea's JYP to learn from their artist training models and send students to their offline art schools and brokerage companies.

In April this year, Ocean Music and JYP jointly established Beijing Xinsheng Entertainment Co., Ltd. to cooperate in indoor amusement facility operation, organization of cultural and artistic exchange activities, and film and television planning. In addition, they also invested in Tianhao Shengshi Entertainment Group, which is also an entertainment company that develops artist agencies. It already has artists such as Tan Weiwei, Hang Gai, Sha Baoliang, Yang Zongwei, Jike Junyi, Man Wenjun, Jinsha, South Korea SARA and other artists.

In addition, Kugou Music and Kuwo Music also launched K1 and M1 headphones respectively in 2015 to enter the field of hardware equipment. In addition, a large number of cool KTV and cool I scenes are also opened offline. They are the KTV and Livehouse opened offline by Ocean Music.

They even cover music on radio and television. This is about Rainbow Music, a subsidiary of Ocean Music. It is a music platform built on interactive TV, the Internet and mobile phones. Its business mainly covers the digital TV field in mainland China including IPTV networks, cable TV networks, licensee platforms, smart TV terminals and OTT terminals.

The business is both large and numerous, but it also faces dangers

. For the current China music market, many people will describe it as a "three-legged confrontation". These "three-legged" are Tencent, Ali, and Ocean Music.

It is not difficult to draw this conclusion, as you can see from their market share.

According to relevant data, in the second quarter of 2014, the domestic mobile music market share pattern was as follows: Kugou Music led others with a 17% share, Kuwo Music accounted for 14.6%, Tencent's QQ Music accounted for 14.2%, and Ali's Tiantian Music and Shrimp Shimi accounted for 14.1% and 3.1% respectively.

In 2015, the penetration rate of QQ music market was 40.0%, Kugou Music and Kume Music were 32.4% and 23.3% respectively, and Tiantian Tianmei Music and Xiami Music were 7.1% and 2.0% respectively. This year, the rankings of China's music service apps were from top to bottom, including Cool Dog Music, QQ Music, Cool Me Music, Netease Cloud Music, Tiantian Music, Domi Music, Baidu Music and Shrimp Music.

In the iOS Music Free List download rankings from January to March this year, QQ Music, Cool Dog Music, and Cool Me Music ranked among the top three.

Since the merger of Kugou and Kuwo, Ocean Music has occupied an important share of the China music market every year, enough to compete with Tencent and Ali. But behind this "three-legged confrontation", ocean music faces some difficulties.

The dilemma first comes from copyright issues. At present, in China, record company licensing fees are relatively low, and Ocean Music's initial strategy is to sign as many long-term exclusive agency rights as possible at a low price to have a sufficient copyright share in the music market.

In 2014, Ocean claimed that there were more than 40 music and copyright agencies that had been signed exclusively for a long time, the majority of which included EMl Records, Sea Butterfly Records, Sony Publishing, BMG Publishing and many online music companies, accounting for more than 15% of the market.

Currently, Ocean Music claims to have exclusive agency rights for 7.2 million songs. In January this year, Ocean Music also reached a copyright swap agreement with Tencent's QQ Music for a total of 1 million songs. News reports at the time stated: "Kugou Kuwo obtained most of the content copyrighted by QQ Music's exclusive agent... and accumulated nearly 20 million digital music licenses."

But these copyrights are now facing a crisis.

Just a few days after the news of Ocean Music's IPO in the United States broke, some QQ Music insiders said that due to Ocean's integrity issues, the copyright swap agreement between the two companies had expired at the end of April, and Tencent had no plans to renew the contract, and stated that most of Ocean's current music copyrights are actually open.

At the same time, Ocean Music's original copyright from Taihe Music will expire in the middle of the year. Insiders of Youtaihe claimed that "it is unclear whether the contract will be renewed, but it will definitely not be exclusive."

These copyrights include music resources from first-tier record companies such as Sony, Warner, YG, Jewell, Fumao, and Emperor. If the two companies no longer renew contracts with Ocean Music, then Kugou and Kuwo's existing Jay Chou, BIGBANG, Justin Timberlake and other resources will disappear collectively. This will be a heavy blow to streaming media platforms.

The future of other businesses is currently unknown. First of all, with the rapid development of Internet and mobile streaming media, it is hard to say whether the Rainbow Music TV music video-on-demand business can truly have its development space. At the same time, the current performance of K1 and M1 headphones in terms of hardware is not too good. As for the economics of artists and fans, since they have just started, there are no actual results yet.

IPO under crisis

We learned from a former Ocean Music employee that Ocean Music chose to go public in the United States now because it is facing a crisis-the company has spent too much money on offline KTV, Livehouse and other businesses. If it does not go public as soon as possible and increase its valuation, the company may face the risk of bankruptcy.

Judging from the market and investment environment, Ocean Music's IPO in the United States does not seem like a very wise and confident decision.

For example, Spotify, the streaming media "boss" who has been talking about an IPO but has never had a real IPO. In 10 years, Spotify has raised a total of US$1.56 billion from 26 investment institutions. In March this year, Spotify just completed its ninth financing of US$1 billion in convertible bonds and made several strict guarantees to investors related to the IPO. But so far there is no news of an IPO.

As well as Deezer, the French streaming media company, in October last year, Deezer planned to list on the Paris Euronext at an offering price range of US$36.40 to US$49.24 per share, with a global initial public offering of 300 million euros. Later, he judged that the capital market environment was not good and decided to postpone the listing plan.

In fact, Pandora is currently the only streaming media company in the world that has actually gone public, but its results are not ideal. After going public, Pandora's share price climbed from nearly $40 in 2014 to $70, and then fell to $8 today.

The Pandora share price change chart on investorplace.com

is synchronized with Pandora's results. In the year it went public in 2014, its overall revenue increased from US$920 million to US$1.164 billion, but the loss was even more significant, increasing from more than US$30 million to US$169 million.

In addition, Spotify, Deezer and Pandora are all streaming media with paid subscription models, and their revenue is much higher than free streaming media such as Kugou and Kume. According to estimates, for every 1,000 music pieces consumed, free streaming websites need to bear copyright costs of 2.5 yuan and bandwidth costs of 1.6 yuan, while advertising revenue is only 1 yuan, with a net loss of 3.1 yuan. Although Ocean Music itself has two copyright companies, it is impossible to solve all problems.

It seems that the current environment is not suitable for streaming media listings, and the location for Ocean Music's launch this time is in the United States. However, listing of Chinese stocks in the United States is generally considered to be undervalued and is not the best choice.

Because of its diverse business and the copyright issues it is facing, Ocean Music now seems to have no choice. As for the results after the IPO, we still need to wait for some time.

Editor: Nancy