Tencent (TCEHY) dominates music streaming in China. Now rival tech titan Alibaba (BABA) is forging an alliance that could help it knock the leader down a peg.
Alibaba is picking up a minority stake in NetEase (NTES) Cloud Music, a freemium streaming service, for $700 million.
Alibaba already owns its own music streaming app called Xiami. And the company has partnered with NetEase in the past to share music libraries.
But the latest deal, announced Thursday, significantly strengthens the relationship between the two — and that could be bad news for Tencent Music (TME), Citi Research analysts wrote in a research note on Friday.
Tencent Music had 652 million monthly active users and 31 million paying subscribers in the three months to June 30. The social networking giant has developed a stronghold in the market through its popular streaming platforms QQ Music, KuGou and Kuwo.
NetEase said in its most recent earnings report that its cloud music platform has more than 800 million “users,” though the Citi analysts pegged its monthly active user count at 139 million as of July. NetEase ranks fourth among active users after Tencent’s three services, the analysts added.
Recent statistics for Xiami’s monthly active userbase weren’t available. But at the end of 2017, the service had 18.4 million active users, according to the market research firm QuestMobile.
Yu Xue, an internet research analyst at IDC China, said Alibaba could help boost its new partner’s growth by sharing content and promoting the service through its other apps.
“Alibaba [needs an] alliance to compete with Tencent in the streaming music market,” Yu said.
The investment was disclosed alongside another deal between Alibaba and NetEase. Alibaba is buying Kaola, NetEase’s e-commerce platform, for $2 billion, to boost its online shopping business.
CNN Business’ Laura He contributed to this report.