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Today’s update covers what Spotify and others can learn from Tencent’s strategy, and why Russ’ new book is the most on-brand book release I’ve seen in a while.
Tencent is Playing a Different Game
Note – I covered the Tencent-Universal Music Group deal last month. This is about the company’s advantage and products offered.
This year, Tencent has reaped the rewards from paywalled songs as an additional revenue stream. Tim Ingham from Music Business Worldwide and Rolling Stone has been covering this extensively. Here’s what he wrote in October:
“The power of TME’s strategy was recently highlighted by Taiwanese singer-songwriter Jay Chou, whose “premium” music the company began putting behind its paywall at the start of this year. Flying in the face of a widespread U.S. music industry belief that pay-only releases harm an artist’s popularity, Chou’s latest single, “Won’t Cry,” caused QQ Music to crash under the strain of those trying to pay to access the song on September 16th. In terms of paid-for downloads, it was purchased 2.4 million times in its first hour on the site. (TME’s desire to “force” users to pay for access to the song was no doubt helped by the fact that YouTube, ultimately the world’s biggest free music streaming service, is blocked in China.)”
That last sentence is key. Tencent’s paywall succeeds for two reasons. First, The Great Firewall of China blocks competition. In most countries, YouTube has been an anchor in the pricing power that streaming services are warranted. Its lack of presence enables Tencent to charge additional fees for service, especially in countries like China where YouTube would likely be a predominant player if available.
Second, and related, Tencent has a monopoly on the Chinese music streaming market. It has 84% of the audio streaming market in China. With that much control, and no YouTube presence to anchor the price, it’s far easier to charge users for content.
According to Rolling Stone, execs from major record companies admire Tencent’s strategy regardless of its regulatory benefits:
“Over a recent dinner, one very senior U.S.-based major record company executive told me of their admiration for TME’s strategy of “attaining growth by [inventing] new revenue streams,” both across its digital music service and its Social Entertainment Services division. (For example, within the company’s social karaoke app WeSing, fans have gone wild for a new feature, “Grab the Mic,” which gives “winning” participants the chance to sing alongside local celebrities.) This was in stark contrast, he noted, to Spotify, whose profitability strategy, he said, was “centered on inventing ways to grab margin from its biggest customers.”
The point makes sense, but I disagreed with the entire premise of the Rolling Stone article. The article implied that this is a rationale for Spotify to further consider paywalled songs. I disagree.
Tencent has gone outside the box with its business model for audio streaming. WeSing and Grab the Mic capture the country’s popularity with karaoke and the logical alignment with a digital streaming provider.
Here’s an excerpt from Tencent’s Q2’19 earnings call:
“This quarter, we continued to build on the popularity of WeSing’s new product feature called Grab the Mic. Top-scoring users in that Grab the Mic singing game have the opportunity to play with collective celebrities that were invited to play. The new feature allows the cultivation of fun and engaging interactions between fans and idols, while also promoting social interactions among users. The new feature has been met with huge success, particularly with the younger demographics. For example, the participation of a Chinese female pop singer, attracted millions of users with nearly 100,000 fans competing to play the Grab the Mic singing game with her… But more importantly, based on the number of social connections among users on WeSing, we have over 40 billion social connections among users on WeSing.”
Yes, China is a large country, but those numbers are still no joke. It would be the equivalent of Spotify releasing (or acquiring) a product like TikTok. Or additionally, Spotify creating content like Rhythm + Flow (which would have been a damn perfect opportunity for Spotify’s RapCaviar). After Rhythm + Flow, many fans called the show a breath of fresh air. This means that the opportunity was overlooked and that there’s plenty of room for others to compete in this space.
There’s a lot to learn from Tencent, but there’s a lot that’s not replicable. Understanding the difference is essential. Spotify’s current podcast push makes sense from a revenue mix perspective, but the next additional growth must come from a product that thrives on social connections. At the end of the day, the companies that can effectively build community will succeed.
Russ Stays On-Brand With New Book
“It’s All In Your Head – Get Out of Your Way. An inspirational book by self-made musical superstar, Russ, reminding you that it starts with YOU, to believe in yourself, and to get out of your own way.
Twenty-seven-year-old rapper, songwriter, and producer Russ walks his own path, at his own pace. By doing so, he proved that he didn’t need a major label to surpass over a billion streams on Spotify/Apple Music, get on Forbes’ 2019 “30 Under 30,” make the Forbes‘ “30 Under 30 Cash Kings” at number 20 for most earned, sell out arenas across the U.S. and around the globe, and become one of the most popular and engaged rappers right now. His method was simple: love and believe in yourself absolutely and work hard no matter what. In this memoir, Russ inspires readers to walk to their individual rhythms and beat their biggest obstacles: themselves.”
Several rappers have released books this year. Rick Ross released Hurricanes: A Memoir in September. Logic released a novel Supermarket in March. Common released his memoir. But Russ’ book stands out because of its strong brand association.
Memoirs can be great reads (I’m reading one right now) but anyone can write one. Unless the artist has a truly unique or distinct life experience that’s shared, these types of books normally sell solely on the strength of the author’s name. It’s a product that’s tailored to the diehard fans who will buy anything from the author.
This is where branding comes in. Russ is arguably more famous for his brash statements than his music. His success outside the major label system has been an inspiration to many, but a frustration to others who aren’t here for his self-righteousness.
Here’s a short clip of Russ in a 2017 interview on how he built his fanbase. Russ has pushed the “it’s all in your head” narrative for a while:
It’s a natural extension of Russ’ brand. He will attract both existing fans and those who are less familiar with him but drawn into his strong message. It reminds me of Chance the Rapper. If Chance ever released a book, we are pretty sure it would either cover A) Chicago, B) Marriage, C) Christianity, or D) Independent Rappers. That’s the benefit of strong branding. The culture knows what your (hypothetical) book would be written about.
The book has topped a few Barnes & Noble charts, but nothing yet on the New York Times bestsellers list. That’s not a surprise, as Russ’ game has never been to top the Billboard charts for music. With that said. Russ did release this book through HarperCollins, one of the largest book publishers in the world.
On my podcast with Shea Serrano, he said that he took home 95% of revenue from every book sale from his independently released PDF about The Office, Conference Room, Five Minutes. But for his latest book, Movies (And Other Things) he earned about 17%. I assume that 17% number is similar to Russ’ margins as well. There’s an alternative world where Russ released this book as a purely independent project and took home more of the pie.
While there are several benefits to release a book through a traditional publisher, it shows that there’s a fair amount of nuance in the DIY approach. With his music, he partnered with Columbia to help distribute his album, but that was after building up leverage to make it happen on his terms.