Chinese media, gaming and technology conglomerate NetEase filed paperwork Wednesday (May 26) announcing its intention to spin off its Cloud Village wing — which houses its music streaming service, NetEase Cloud Music — in an initial public offering on the Hong Kong Stock Exchange. If the proposal goes through, NetEase intends to maintain more than 50% of the voting rights in the resulting company, meaning that Cloud Village will remain a NetEase subsidiary moving forward.
NetEase Cloud Music is a major competitor to Tencent’s various streaming services in China, and claims more than 180 million monthly active users and 16 million paid subscribers as of the end of 2020, according to the company. A Bloomberg report on the proposal suggests that NetEase could raise $1 billion with the IPO.
The timing of the proposal comes at a significant juncture for NetEase, which is expecting its music streaming service to “undergo relatively rapid business expansion” moving forward. Earlier this month, NetEase signed a first-ever digital distribution deal with Sony Music, following a similar deal with Universal Music, expanding its catalog significantly at a time when Tencent, its biggest rival, is facing regulatory scrutiny in China over its market dominance and exclusive deals with artists and labels. Reports suggest that regulators could force TME to offload two of its music streaming services and pay a hefty fine. Tencent’s music services claimed 615 million active users in the first quarter of 2021 and 61 million paying users, according to its financial filings.
The NetEase announcement also arrives at a time of significant growth in the Chinese music market. Streaming in the country, which is the seventh-largest music market in the world, grew 34% to $718.1 million in 2020, according to the IFPI. Globally, streaming revenues grew 19.9% in 2020 over the year before, according to the IFPI, reaching $13.4 billion and accounting for 62.1% of total revenue for the global recorded-music business.
Further details of the spinoff, including the number of shares and the price at which it would be offered, have yet to be finalized.