In this article, let's join ThinkZone to learn about Ximalaya FM and the development strategies that bring success to this "giant".
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1. OVERVIEW OF XIMALAYA FM
Ximalaya FM is China's largest online audio sharing platform, headquartered in Shanghai. Through this platform, users can freely create and share non-music audio content (non-music audio such as podcasts, audiobooks, livestream audio) with hundreds of millions of other users.
In 2021, Ximalaya accounts for more 70% of the market audio in China, with more 5 million audio hosts (content creator) and more 600 million listeners.
According to iiMedia, the audio giant reached agreements with more than 80 publishers for audio adaptations of audiobooks, owning more than 70% of audiobook rights for best-selling titles in China, as well as 85% of adaptation rights for online literature, which is much higher than all podcast companies in China.
Since its establishment, Ximalaya FM has gone through 9 rounds of capital raising with a total investment of up to 460 million USD from many giants such as Goldman Sachs, New Horizon Capital, Tencent, Primavera Capital Group, etc. According to Reuters, Ximalaya's valuation reached $3.71 billion in 2018 and the company's 2020 revenue was $620.7 million, up more than 50% from 2019 figures.
2. CHINESE AUDIO MARKET POTENTIAL
In recent years, the online audio market in China has developed strongly. Chinese people often have to travel long distances, and they are increasingly accustomed to listening to audio content while traveling. Accompanying the increasing popularity of free audio content, audio listening has gradually become a habit in the daily lives of many young Chinese consumers.
In the early days of IoT adoption, tech companies relied heavily on free content to attract users. However, the sharp increase in content volume comes with a lot of poor quality content, creating a need to select quality content. At the same time, other objective factors such as increased average income of people, increasingly convenient online payment technology infrastructure, and people's increasing awareness of intellectual property have created favorable conditions for companies and individuals to make money from distributing high-quality and copyrighted audio content, opening up a golden age for the online audio "industry". Ximalaya FM was also born and developed in this trend.
According to research by iresearch.cn, the value of the paid content market (paid content) China's could increase from $736 million in 2017 to $3.5 billion in 2020.
By the end of 2021, revenue from the Chinese audio market reached about 22 billion yuan (nearly 3.3 billion USD), is one of the fastest growing markets in the world.
Statista statistics also show that China has about 13 million content creators and 640 million audio listeners in 2021, confirming the popularity and development potential of this market.
3. BUSINESS MODEL OF XIMALAYA FM
Is a huge platform with 600 million users (43% of China's population and 6 times the population of Vietnam), Ximalaya FM can make money through many revenue channels, including 5 main sources:
➤ Advertising: Ximalaya collects fees from image advertising, audio advertising and programmatic advertising (programmatic advertising, accounting for up to 50% of Ximalaya's total advertising revenue).
➤ Subscriptions: This is Ximalaya's largest source of revenue, consisting of two plans: (i) a monthly subscription plan that allows unlimited access to Ximalaya's content album store, and (ii) a one-time payment plan for specific albums or content (with costs as low as 50 cents). By 2021, Ximalaya has about 13.3 million paid users.
➤ Live-streaming: Ximalaya has about 3.5 million MAUs. These users often deposit money to buy giveaway items during their favorite host's livestream, Ximalaya cuts a portion of the revenue from these funds.
➤ Educational services: Recently, Ximalaya has built and sold training courses in many specialties, career guidance or educational programs for children. Among them, learning programs specifically for children under 12 years old are increasingly popular.
➤ Other: The remaining revenue comes from the sale of electronic devices or licensing fees to convert Ximalaya's audio content to text content.
In 2020, Ximalaya's total revenue was $620 million, an increase of more than 50% compared to the previous year. In particular, revenue in the first quarter of 2021 increased by 65% compared to the same period in 2020.
This revenue growth partly comes from annual user growth (~24% y/y), the rest comes from revenue per user (Average Revenue Per User - ARPU) increases because users are increasingly interacting with the app (active users spend an average of 141 minutes, about more than 2 hours, every day on the app) and more effective forms of fee collection.
For startups that make money from copyrighted content, content costs often account for a large proportion of the cost structure. Ximalaya's cost to revenue was about 56% in 2018 and is decreasing over the years. 32% of revenue is deducted by Ximalaya for content creators and hosts according to the agreement, while content copyright costs account for about 6-7% of revenue.
Another cost that is also on the decline but still accounts for a large proportion is the cost of Sales and Marketing to attract users. (64% of revenue in 2018 and 42% in 2020).
→ It can be seen that by 2020 Ximalaya still has no profit when costs are as high as 118% of revenue. This "giant" is still facing the problem of how to reduce costs to the lowest level while still maintaining user growth and collecting money from them to offset costs and, in the future, achieve profits.
4. FACTORS LEADING TO THE SUCCESS OF XIMALAYA FM
What are the development strategies that help Ximalaya dominate the audio market in China?
Promote integration with IoT devices and third parties for content distribution
Ximalaya ended the first quarter of 2021 with 250 million Monthly Active Users. This number of users comes mainly from 3 channels:
➤ Mobile applications: 42% of users.
➤ IoT and in-car devices: 20% of users.
➤ Third-party applications that embed Ximalaya: 38% of users.
It can be seen that more than half of the users come from third-party devices and software, this is a result achieved by Ximalaya's efforts in finding and cooperating with these units. Specifically:
➤ Ximalaya works with more than 60 car manufacturers in China, including Tesla, Mercedes-Benz, BMW and Audi to deliver audio content through pre-installed devices in cars.
➤ Work with third-party mobile application developers and mobile device manufacturers to embed features and access to Ximalaya's content library into these applications.
➤ Produce and sell Ximalaya's own IoT products (currently 6 products, including smart speakers) to bring Ximalaya's content widely accessible to users.
Audio content is diverse
Ximalaya has more than 280 million audio content in more than 100 genres with a total duration of up to 2.1 billion minutes. Besides music, this platform also provides podcasts, comedies, audiobooks, audio courses, and live-streaming covering a variety of fields and industries, ensuring there is always content suitable for all users.
Such as with audio courses (educational audio courses), Ximalaya has about 9.5 million knowledge sharing albums, including courses for children and adults. Some of them are professionally produced, some are user-generated products. In addition, Ximalaya also offers millions of podcasts on topics of personal development, business, sports, education and technology; and more than 4.5 million audiobooks licensed from third-party partners.
PGC + PUGC + UGC strategy
More than 5 million content creators on the Ximalaya platform are managed according to the PGC + PUGC + UGC strategy. So what do these terms mean?
➤ Professionally generated content (PGC - Professionally generated content): Sign content production cooperation with top-level publishers, online literary platforms and major content creators. Ximalaya has exclusive distribution licenses for approximately 70% of the 100 most listened to albums on the platform
→ This is a group of high-quality content that serves to attract and retain users.
➤ Professional user-generated content (PUGC - Professional user-generated content): Ximalaya also built a marketplace that connects content creators with high-quality copyrighted content that they can produce (for example, introducing content creators to famous books/stories for them to record into audiobooks). This helps content creators create better content, have higher reach, earn more money, and also helps them improve their ability to become high-end content creators in the PGC group.
→ This is a strategy for Ximalaya to develop the capacity of its content creation team, keeping them long-term attached to the platform.
➤ User-generated content (UGC - User-generated content): Ximalaya makes it easy for anyone to create, upload, and distribute a wide range of audio content, helping to maintain a diversity of content on the platform
→ This is the strategy that helps Ximalaya source for PUGC (many of the PUGC creators started out as UGC).
5. CHALLENGES FOR XIMALAYA FM
With a business model and large scale like Ximalaya, what risks can this audio industry tycoon face?
The problem of making money from content
Like many business models that monetize content (content monetization), Ximalaya continues to face pressure to generate profits. Since 2018, the company has continuously lost money. In the first quarter of 2021, Ximalaya's net loss reached $40.8 million, down slightly from $43.7 million in the same period in 2020. If the platform cannot continue to attract new users and convert free users into paid users, this situation is likely to continue in the future.
Disputes over intellectual property
Over the years, with a model that allows users to create and share content themselves, Ximalaya has published a lot of content uploaded by individual users who do not own the copyright to that content. Ximalaya has been sued multiple times for copyright-infringing content shared on its platform.
Content moderation issues
Content censorship has always been an extremely sensitive and important issue in China. Ximalaya was among 11 technology companies summoned by China's cyber regulator in March 2021 for failing to carry out required security assessment processes.
Ximalaya has also admitted its content monitoring system may not be effective in preventing illegal, fraudulent or inappropriate content. The company could be held responsible for its content or even have its business license suspended if it violates Chinese laws and regulations.
This is also the risk that companies must trade off when choosing a strategy to build diverse content to achieve a large amount of content and users: The greater the amount of content, the more difficult the content moderation process and vice versa.
CONCLUDE
Ximalaya FM is a typical model with many growth lessons worth learning for startups with similar models. Not only in China but this market in Vietnam is also extremely potential and contains many opportunities for development. Will there be a Vietnamese unicorn startup in this market segment?
Summary and reference:
https://businessreview.berkeley.edu/ximalaya-fm-the-legal-monopoly/
https://smartbusiness.vn/china-business/ung-dung-podcast-cua-trung-quoc-ximalaya-ra-mat-cong-chung/
https://tanay.substack.com/p/ximalaya-and-the-economy-of-ears?s=r
https://www.protocol.com/china/ximalaya-ipo?rebelltitem=4#rebelltitem4
https://thechinaguys.com/china-podcast-industry/