Q&A: KKBOX’s Founder Chris Lin on Profitable Music Streaming in Asia

Oct 20, 2013

Q&A: KKBOX’s Founder on Profitable Music Streaming in Asia

EVA DOU

With music piracy rampant in East Asia, can a paid music streaming service succeed? Chris Lin is the Stanford-educated founder of KKBOX, Taiwan’s largest cloud-based music service provider and a service sometimes described as an Asian Spotify. Both music streaming companies have been expanding in Asia as they seek to tap this vast market. Unlike Spotify, KKBOX is now profitable. But Mr. Lin said in an interview with The Wall Street Journal that there are still many challenges to hitting it big in Asia, especially in its  key target market like Japan.  Edited excerpts:

WSJ:  How did KKBOX get started?

Mr. Lin: Back in late 2004, iTunes and the iPod were hot, and we decided there was a chance for us to get into the music business. The problem for us in Asia was piracy. But there was piracy in the U.S. too. We thought, if Apple was able to solve the problem, why couldn’t we do it here? People aren’t that accustomed to buying music in Asia, so we didn’t try to sell individual tracks. Rather we decided to sell access.WSJ:  How many subscribers do you have and how big is the company?

Mr. Lin:  We have over 1.5 million paid subscribers, the majority in Japan. We have 10 million registered users who don’t pay, and we try to convert them to the premium paid service. The company has more than 200 employees.

WSJ: With piracy so common in Asia, why would people subscribe to a paid music service?

Mr. Lin:  We get listeners closer to artists. Taiwan is like the Hollywood of Chinese C-Pop music. I would say 70% of the active artists in Taiwan are actually active users of KKBOX. We have this “listen-with” function that lets you turn over your music playback to your friend or the artist. You can chat with the artists and they will answer.

I would like to call this an intrinsic advantage. No matter whatever technology advancement you make, the pirating services can also do it. But if you integrate your experience with artists, that’s something piracy cannot do.

WSJ:  How else is the music industry different in Asia from the West?

Mr. Lin: In Taiwan the major four (global) labels add up to less than 40% of the market share. The rest of the industry is indie. In each of the countries we serve (KKBOX is in Taiwan, Hong Kong, Thailand, Malaysia, Singapore, Japan), it’s the same thing. The major labels are the minority. It’s just very different from the western world.

Also, one thing that is very different, most of our paid users are paying though mobile carriers. KKBOX billing is actually a part of their carrier billing statement. Asian people are very accustomed to paying for premium content services through carrier billing, not through online credit card payments.

WSJ:  What are some of the challenges that KKBOX faces?

Mr. Lin:   Customers expect they pay one fee and they can get all the songs they want. So you probably need to cover 95% of hits. If you go lower than 90%, they’re going to think your service has a big missing part. But we actually started it from 65%, 70%, in Taiwan, so at that time it was pretty difficult. It took us two years to get the coverage to something higher than 95%.

Also, this is a Taiwanese company with a small home market. In the U.S., you have a big home market, so venture capitalists are willing to support you longer to help you grow to scale. But in Taiwan we don’t have that. We have to think of a “freemium” model that does not cost as much (as services like Spotify that have more free music).

The way we do it is to create our own content. We hired a bunch of music editors and started writing our own music magazine. That’s where the 10 million users came from. We’re the largest music magazine in Taiwan.

WSJ:  Is KKBOX profitable?

Mr. Lin: Yes, this is probably the fifth year that we have been profitable. But we cannot release the figures.

WSJ: Is an IPO in the plans for the future?

Mr. Lin:  As a member of the management, I’d like to see the company do an IPO. But then again (Japanese telecom operator) KDDI being such a majority shareholder, they’re still a parent company. There’s different point of views in different markets viewing a subsidiary IPO. The issue is more complicated. If KKBOX does an IPO, do we stay aKDDI subsidiary? Is KDDI going to sell the shares? I cannot represent our major shareholder in their thoughts.

WSJ:  Your biggest shareholder is KDDI so how are you approaching that market?

Mr. Lin: Japan is probably the last market where our type of business model is not quite mainstream yet. Japan is the number one music market in the world, by market size. Compact disc sales did not decline as fast there, because there’s a huge CD rental industry. So the music labels are still a bit reluctant to license to new kinds of music services like us.

We actually launched a separate service, a Pandora-like radio service in Japan this year. It’s cheaper, and also more comforting for record labels because they think that a radio service like this would not cannibalize CD sales as much. We are surpassing 1 million subscribers by the end of this month in Japan. By next year, our major profit and revenue will be from Japan.