As the saying goes, as one door closes another door opens. Four days after Ximalaya shelved its Nasdaq listing plan, the Chinese podcasting platform filed for an initial public offering in Hong Kong.
The move surprised no one. Ximalaya first filed for an initial public offering in the US back in April. But soon after that Beijing implemented a number of new rules targeting its technology firms, including reviews of overseas listings by companies that hold the personal data of a million or more Chinese people. In late May, international media reported that Beijing officials had pressured the company to move its planned listing from the US to Hong Kong.
Ximalaya is marketing itself as China’s biggest audio platform with a variety of content including podcasts, audiobooks and livestreams. According to its listing prospectus, it accounted for over 70% of the country’s online listening time last year. By the end of June it had 262 million monthly active users (MAUs).
Revenue increased 55% year-on-year to Rmb2.5 billion ($390 million) but Ximalaya has yet to turn a profit. Losses narrowed from Rmb755 million in 2018 to Rmb549 million last year although it still gives some investors pause.
In 2020, Ximalaya’s revenue from paid content reached Rmb1.7 billion, accounting for more than 40% of its top line, Entertainment Unicorn summarised, adding that only 13.3% of its MAUs pay for content.
“How to increase users’ willingness to pay and pay continuously is a problem it needs to tackle,” Entertainment Unicorn suggested.
While it struggles to grow the top line, is it possible to narrow the losses? That seems like an uphill battle. To acquire new users, the company has splurged on marketing. Last year, Ximalaya spent Rmb1.7 billion, almost half of its revenue, on marketing expenses, surpassing even some of the country’s largest edtech firms.
The increase in competition in recent years means that the cost of acquiring content will go up. Audio platforms rely heavily on original content, but producing content is not only time-consuming but also costly. As a result, most platforms like Ximalaya choose to partner with established content creators through revenue-sharing or by purchasing exclusive licenced content.
But more content creators have been switching to deep-pocketed rivals like Bytedance or Tencent Music Entertainment (TME), which typically offer a bigger cut in revenue-sharing.
The battle over intellectual property (IP) is also intensifying. “As of now, there are 2,149 ongoing legal cases involving Ximalaya, of which almost 50% are disputes over the infringement on the right to disseminate information on the internet. Prior to this, Ximalaya was also sued many times for unauthorised use of IP resources,” reported Economic Weekly.
How to figure out a means to monetise their output is a problem almost all streaming platforms confront in China. Despite being one of the three leading Chinese video streaming platforms, iQiyi is still bleeding cash with a Rmb1.4 billion net loss in the second quarter of this year.
“All the new players are trying to take over their predecessors, but no one has found a way to change the industry’s dilemma. If they just follow the same business model and compete based on platform resources, IP content, it is hard to expect the market structure to change anytime soon,” Entertainment Unicorn concluded.
Ximalaya mentioned regulatory risks in its latest prospectus. Given the current climate, the company admits that its vulnerability is relatively high due to the huge volume of user-generated content it streams to users’ ears.
The company is a proxy for what is being termed locally as the “ear economy” and “knowledge economy”, capturing a valuable market of affluent people listening to podcasts or audiobooks typically when they’re multi-tasking (such as driving). The market potential is huge but competition is heating up.
TME acquired Ximalaya’s rival Lazy Audio for Rmb2.7 billion in January this year. Zhihu, China’s answer to Quora, went public in New York in March and it is investing heavily into audio content. Ximalaya might just be glad that Clubhouse is banned in China (see WiC528).
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