Music streaming services see a river of profit

In March, Kakao bought the popular music streaming website and app Melon for 1.8 trillion won ($1.5 billion). The acquisition was significant because it joined the country’s top music site in terms of market share with the operator of KakaoTalk, the country’s most widely used messaging app.

The potential for synergy was clear.

The first benefit was an integrated registration process. Melon allowed users with existing KakaoTalk accounts to log in to its music service, removing the need for a separate Melon account.

Later came new functions like Curation, which suggests music based on users’ tastes, and Connection, where singers can post videos and messages directly to fans.

As a result of the changes, the number of Melon users rose from 3.6 million in January to 4 million by the end of last year. “New users flowed in via KakaoTalk, and our new functions helped them stay on Melon,” said Bang Ji-yeon, a manager at Loen Communication, the company in charge of operating the music streaming service.

With Melon dominating the market, rivals have been competing fiercely to attract users. Bugs, a music streaming service that NHN Entertainment bought in 2015, utilized NHN’s money transfer app Payco and started a membership plan called Ninano Club. Benefits include discounts on NHN’s webtoon site Comico and ticket reservation site Ticketlink. In September, Bugs collaborated with SK Telecom on a mobile plan called Bugs Ex-streaming that offers subscribers a chance to use the music service at half the original price.

Following Melon’s lead, KT Music last year launched a curation feature on its music streaming service, Genie, and saw a 40 percent year-on-year increase in the number of streams. Other popular features include Good Morning Genie, which provides the temperature and weather every morning along with new music, and Music Hug, a service where people can share their playlists.

The Korean market for online music services has ballooned to an estimated 1.5 trillion won last year, 15 times the size in 2001 when it was worth just 91.1 billion won, according to the Korea Creative Content Agency.

“Korea’s market is posting annual increases of 10 percent,” a spokesman for the agency said. “Even the United States, the world’s biggest market for online music services, has only seen an average annual growth rate of 3.7 percent since 2009.”

Recognizing the market’s rapid growth, global music providers like Apple and Google introduced their services to Korea last year, though their results have been far from impressive. Launched in August, Apple Music saw a huge drop in users around early November, when the company’s free three-month trial period ended. “Losing users after the service begins to charge money is a natural phenomenon for any market in the world,” an Apple Korea spokesman said.

Google introduced YouTube Red last month but hasn’t seen any meaningful results yet.

Industry insiders say there are two reasons why global competitors face difficulty in the Korean market.

The first is that local companies provide a wider range of music preferred by Korean consumers. Apple Music currently has over 30 million songs on its platform, and while that is three times the inventory offered by Melon, most of the music is from outside Korea.

YouTube has the advantage of rare music videos and concert footage, but they’re not a huge sell for Koreans more interested in K-pop. “Until now, foreign music apps haven’t been able to suggest a selling point strong enough to win consumers over from domestic services,” said a source working in the recording industry.

Another reason foreign music services have trouble in the Korean market is that local services hold more promotions that lower fees to a level below that of foreign ones. The official price of Melon, Genie and Bugs is around 9,000 won per month, similar to or even higher than Apple Music’s $7.99 (about 9,500 won) and YouTube Red’s 7,900 won.

Most Korean users, though, know to gain access to the services at a much lower price through discounts that are frequently linked to the streaming services’ partners.

For instance, SK Telecom users can buy unlimited access to music streaming and downloads on Melon for 2,900 won a month. Bugs offers its members unlimited streaming at 900 won a month if payment is done through NHN’s app Payco.

Lower prices and better service on music streaming sites and apps have warmed Koreans to the idea of paying for online music.

When Melon first launched in 2004, there was much skepticism about whether Korean consumers would be willing to pay for audio files. At the time, peer-to-peer file sharing services allowed users to easily download music illegally.

Illegal downloading has since gone down. The portion of illegal music downloads compared to all downloads last year was 19.6 percent, down 5.1 percentage points from the previous year. “The perception that music is free online is changing fast,” said one source at a music service app.

BY PARK TAE-HEE, SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]