Ximalaya FM: The Legal Monopoly

The BRB Bottomline: A valuation of $3.5B in an industry with fierce competition and low barrier to entry. We inspect Ximalaya FM, the Chinese company holding a legal monopoly in the podcast industry, specifically regarding their dominance and whether it will continue to thrive.

Thriving in the highly competitive podcast industry through the mass purchase of intellectual property? Sounds like Ximalaya FM.

Ximalaya Dominance 

Ximalaya FM has 500 million users who spend an average of 150 minutes in the app each day. Founded in 2012 by the visionary Yu Jianjun who foresaw the rapid growth of the podcast industry, Ximalaya now is China’s most popular podcasting platform.

In the earlier days of the Internet, tech companies relied on free content to attract users. As the volume of digital content surged, however, quality did not necessarily keep up. It was a struggle to weed through low-quality content, and the time-poor, money-rich in China were willing to pay someone else to do the curating. This was when Ximalaya invited users to become hosts themselves and began to leverage their reputation to charge a fee for their content. With high accessibility, a growing awareness of intellectual property among Chinese netizens, and the convenience of mobile payments Ximalaya got the Chinese to pay for digital content. Ximalaya now has over 5 million hosts who curate and advertise their content, driving sales for the company as a result.

Ximalaya FM holds a dominance over the Chinese podcast industry. According to iiMedia, the podcast giant now owns more than 70% of the audiobook rights to the bestselling titles in China along with 85% of adaptation rights for online literature, which is the most by far out of all the podcast firms in China. These numbers continue to grow, and so does their number of active users, number of podcast downloads, as well as their penetration rate, indicating their strong ability to reach their target market and consumers. Many of the named investors—Goldman Sachs, New Horizon Capital, Tencent, Primavera Capital Group, and more—recognized Ximalaya and invested a combined investment of $460 million. With a valuation of $3.5 billion, the company has established itself as a dominant figure in the podcast industry.

Becoming the Dominant

Figure 1: Best-selling audio content by platform, 2018

An increasing number of people are now willing to pay for digital audio content—Figure 1 above shows the monthly active user trend for the best paid digital content platforms. As the figure indicates, Ximalaya has already established its dominance in the Chinese podcast industry by providing a majority of the best-selling content. As a result, users who are willing to pay for content are naturally attracted to choose to receive Ximalaya’s service, further increasing the gap between them and other companies providing digital content services.

As shown in Figure 2 below, Ximalaya is also the lead performer in weekly active penetration rate by far. Penetration rate is the percentage of your target market that you reach with a product, service or brand in a period of time—therefore, it is reasonable to assume that Ximalaya will also perform the best among their competitors regarding customer acquisition. Not only did Ximalaya establish their dominance, but they are also securing it to continue thriving in the market.

Figure 2: Penetration rate of audio applications in China, 2018

“It’s because we bought a lot of intellectual property in the early stages of the company”, stated Bob Xu, product manager at Ximalaya FM. However, when asked to explain specifically, Xu was hesitant to reveal more about the process. What we can conclude is that mass intellectual property purchase laid the groundwork for the Chinese podcast giant’s success. 

Future Dominance

After becoming the dominant power in China, Ximalaya envisioned to reach the global audience. They decided to invest $100 million in Himalaya Media, a San Francisco based podcast startup. They announced that Himalaya Media will operate independently but will have access to Ximalaya FM’s technology and resources, and that they will integrate a tipping feature that allows users to support shows with cash gifts, a feature that has long existed in Ximalaya FM’s app. Considering that this is Ximalaya’s first investment outside of China and one of the largest investments they have made, their investment clearly expresses their desire to mark a transition to extend beyond China but bring a Chinese business model into the well-developed podcasting industry in the United States.

The two companies appear closely linked, but Himalaya Media was quick to draw the line of distinction when asked about the relationship between them and Ximalaya FM. “We have access to the expertise and resources of Ximalaya, but are lucky and thankful to operate with an independent vision and unique goals,” Peter Vincer, the Vice President of Global Partnerships and Marketing of Himalaya Media said. Setting up Himalaya as an independent entity may have been a highly strategic decision in light of the current tension between the U.S. and China, as well as the constraints a spoken word platform operates under in that country. The setup also helps to ensure that Himalaya isn’t associated with some of Ximalaya’s more peculiar efforts: for instance, last year, Ximalaya launched a dedicated version of its Smart Speaker to aid members of the Chinese Communist Party and brought much controversy, similar to the Facebook incident where they were accused of allowing users to show support for the Republican Party in particular. As such, it seems like Ximalaya’s spokesperson as well as their legal department will only get busier.

Take Home Points

Ximalaya FM is a Chinese podcast company with a valuation of $3.5B. This valuation is extremely high, considering the fierce competition and low barrier to entry in the podcast industry. Bob Xu, the product manager at Ximalaya FM, revealed that this was because they had purchased a great amount of intellectual property during the early stage of the company. Though it must have cost the company millions of dollars, their intellectual property purchases prevented other podcast companies from producing similar content, which naturally led to Ximalaya FM technically holding a monopoly in the Chinese podcast industry.

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