Alibaba & BMG Living Together In Perfect Harmony

Alibaba & BMG Living Together In Perfect Harmony

Tuesday, March 31, 2015 10:46 AM EDT

Alibaba (NYSE: BABA) made headlines in the world of digital distribution and streaming services last summer with its Lions Gate deal. China’s biggest online retailer became the exclusive outlet in China for streaming titles from “Twilight” to “Madmen”, using their own internet television devices.

But Lions Gate (LGF) was not all Alibaba had its sights set on last year. Co-founder Jack Ma spent the fall in sunny Southern California trying to wrangle in the rights for more media owned by companies like Disney and 20th Century Fox.

Alibaba’s extensive cash reserves from its recent IPO represent only one part of their offering. Their main offer is access to an immense, hard-to-reach audience of middle-class Chinese citizens. For this year, it seems that Jack Ma and Co. are interested in more than just visual media rights. Alibaba and Germany’s BMG announced this week that they had come to acceptable terms on a deal outliningdigital music distributions rights.

Big Plays

This isn’t the first time a Chinese company has arranged digital music distribution agreements, but it is the first time one has arranged for the rights from a music publisher instead of a record label. As the fourth-largest owner of music rights worldwide, BMG has been eyeing the Chinese market for some time.

Despite China’s bad reputation for digital piracy, BMG sees Alibaba’s track record as the best means of accessing the largest internet market in the world. Using its popular TTPod app and Xiami music streaming service, Alibaba will now offer over 2.5 million new recordings from artists such as Black Sabbath, Bruno Mars, John Legend, and the Rollings Stones. BMG Chief Exec Hartwig Masuch stated that “Internet and particular mobile media are quickly providing an answer to the music industry’s long time challenge of how to monetize the vast untapped potential of the Chinese market.”

Looking Forward

Both partners in this deal have much to gain from the arrangement. The obvious wins include Alibaba’s expanded digital offering and BMG’s chance to cash in on millions of Chinese listeners. A secondary advantage for Alibaba is that BMG offers a portfolio that includes various record labels. This deal consolidates those labels into one contract, reducing the need to negotiate with every single record label. A more subtle advantage for BMG is having a local watchdog on their side. Alibaba intends on actively monitoring and taking legal action against digital and mobile services that infringe on BMG clients’ rights. Until now, BMG had to try to hunt down piracy in China on its own, but they now have a partner with a vested interest in reducing illegal usage of BMG’s titles.

This new deal positions both Alibaba and BMG to increase revenue in a forward-thinking manner. The music industry has been struggling to stay on top of internet music users since the days of Napster. Streaming services like Spotify, Pandora, and iTunes radio have been competing for market share as more and more users prefer to constantly stream music instead of just buying it outright. Despite the occasional artist pulling her music, they have all seen steady usage and cash flow from both paid subscriptions and advertising. Alibaba has helped BMG gain access to a previously untapped market, while BMG has given Alibaba the appeal it needs as a recent newcomer to the streaming music game. Alibaba has definitely been using its IPO resources well and promises to continue to grow steadily for years to come. Get in on it now, before you miss the growth.