Inside Beijing ByteDance headquarters in Beijing, China. Photographer: Giulia Marchi/Bloomberg

ByteDance Ltd., owner of the popular video app TikTok, is developing a paid music service that will challenge industry leaders Spotify and Apple Music in emerging markets, according to people familiar with the matter.

ByteDance expects to introduce the new app as early as this fall in a handful of territories, mostly poorer countries where paid music services have yet to garner large audiences, said the people, who asked not to be identified because the plans haven’t been announced. The company has already secured rights from T-Series and Times Music, two of India’s largest labels, according to executives with those companies.

While the new app isn’t named after TikTok, ByteDance will try to convert some of TikTok’s audience into paying customers, the people said. TikTok and Douyin, its Chinese equivalent, have been downloaded more than 500 million times and have become two of the most influential apps in the contemporary music industry. The No. 1 song in the world for the past month, “Old Town Road,” first became popular in videos on TikTok.

ByteDance, based in Beijing, declined to comment.

No Clone

The new app will include a catalog of songs available on-demand, as well as video, and isn’t a clone of Spotify or Apple Music, according to the people. The app is far enough along that many music industry executives have been given demonstrations of it.

ByteDance’s plans for a paid service were previously reported by the South China Morning Post, but the story made no mention of the timing of its release or the rights deals.

ByteDance is already one of the world’s most valuable startups, valued at more than $75 billion in its most recent round of fundraising. The company’s first signature app was Toutiao, a news aggregation app whose name means headlines.

TikTok Boom

TikTok extended ByteDance’s reach around the world, a rare feat for a Chinese technology company. It also gave it a large user base to monetize through ads. With this new paid music app, ByteDance is looking to reduce its reliance on advertising and prove subscription music can work in emerging markets.

Paid music services have boosted music sales across the world, and are now the single largest source of revenue for the global record business. But the approach is still largely a Western phenomenon.

Though Asia, the Middle East and Africa are home to the majority of the world’s population, they only account for about 10% of Spotify’s customer base. Tencent Music Entertainment, the dominant music company in China, makes six times more money from what it calls social entertainment than from subscriptions.

The most popular online music services in Asia, such as Tencent’s QQ Music and Google’s YouTube, are available for free. YouTube has had particular success in markets like India, Indonesia and the Philippines. TikTok was the most downloaded free app in India in the first quarter of the year.

The new paid service will increase the competition between ByteDance and Tencent, which owns WeChat, China’s most popular app. At home, ByteDance and Tencent are already locked in a fierce competition to gain more attention from China’s smartphone-savvy young people. Douyin has become one of the biggest challengers to WeChat, spurring the latter to block Douyin links on its platform.

Tencent’s music services are focused on China at the moment, but could expand in the years ahead.

Record Labels

ByteDance has yet to secure rights from the world’s three largest music groups: Universal, Warner and Sony. Their catalogs account for a minority of listening in most emerging markets, but would be vital if ByteDance wanted to expand anywhere in Europe, Latin America or North America.

Another paid service will be music to the record labels’ ears. Universal, Warner and Sony have tried to limited the availability of music for free on the internet. It also presents an opportunity to squeeze ByteDance for extra money. They credit their songs with boosting TikTok’s popularity, and have demanded hundreds of millions of dollars to renew their current rights deals. Those companies won’t grant the rights for the paid music service without sorting out the rights for TikTok as well, the people said.

Killer jellyfish in Australia – Anthony S Casey Singapore

Idagio aims to do for Gluck and Grieg what other platforms have done for Lady Gaga and Ariana Grande.

The offices of Idagio GmbH have all the requisite tropes of a Berlin startup: A dog frolics in the airy industrial loft, tattooed employees park their bicycles along brick walls, and the kitchen is packed with snacks such as raw fennel and ginger. But the Steinway grand piano near the door betrays the mission of a company that moves to a soundtrack that’s more Yo-Yo Ma than Yo La Tengo: digital access to an art form that’s long remained proudly analog.

Idagio streams classical music, from Gregorian chants to the minimalist movements of Philip Glass. While the genre accounts for just 5 percent of the recorded music market, listeners tend to be affluent and loyal. But it requires an organizing structure unlike that of popular music, which is easily sorted by song, album, and artist. The classical catalog resembles a long list of cover tunes, with multiple orchestras performing the same pieces—something akin to countless, nearly identical recordings of every Beatles or Elvis song.

With so many versions of most compositions, consumers will search for Tchaikovsky using different metrics than they would for Taylor Swift: a specific orchestra or conductor, a long-forgotten recording, a favorite soloist. And the fan base might easily distinguish adagio from andante but is often clueless when it comes to apps and smartphones. “Our typical user will be somebody who asked his grandchildren to move his CD collection onto a hard drive,” says Till Janczukowicz, who co-founded Idagio in 2015 after two decades managing classical musicians.

In the casual environment of Berlin’s startup scene, Janczukowicz stands out with his slicked-back salt-and-pepper hair (vaguely reminiscent of Beethoven’s), polished Oxford brogues, gold wristwatch, and pocket square billowing from his blue blazer. Because of his decades working alongside musicians and orchestras, he says he wants to give artists a substantial share of the spoils—something many pop performers say streaming platforms don’t provide. So in contrast to the likes of Spotify, which registers a song as streamed only after 45 seconds, Idagio pays for every second a piece of music is transmitted.

Janczukowicz says his aha! moment came a few years ago in Salzburg, Austria, when he saw a man awkwardly pasting up posters for a classical concert—evidence that the industry had become outdated in reaching its target audience. In 2014 he sold his flat to fund his idea, then brought on Christoph Lange, a Berlin entrepreneur and digital savant who’d created a German streaming company that went bust. The pair spent a year looking for backers before persuading Australia’s Macquarie Group to put up some cash. After a second funding round that netted $25 million, the founders hold just over 10% of the shares. “Classical is a part of the market that big players struggle to adequately address,” says Jochen Gutbrod, a partner at Berlin venture capital firm Btov Partners AG, an early investor. “If you can own this niche, it has great potential because the genre resonates globally.”

Today Idagio has about 90 employees at its headquarters along a Berlin canal and a small outpost in Bratislava, Slovakia. The team has gathered tracks from 1,000 labels, manually writing in data such as composer, soloist, instruments, conductor, and studio or live. It now has more than 1.2 million recordings from 2,500 orchestras, 6,500 conductors, and 60,000 solo artists—all delivered in CD quality, the most complete collection of classical music offered for streaming. The service became available in the U.S. last year, and it’s increasingly popular in Japan, South Korea, Latin America, and other places where appreciating classical music is considered a hallmark of distinction by a growing middle class grasping for emblems of high culture.

The Idagio dashboard includes what the company calls a mood wheel that lets users pick modes ranging from optimistic (Brahms’s Symphony No. 1) to tragic (Mahler’s Seventh) to passionate (Schumann’s Violin Sonata No. 2). The next challenge is creating a more immersive experience, with playlists curated by artists and critics, and video clips of musicians sharing stories of memorable recordings. “Classical musicians today need to be communicators if they want to remain relevant,” Janczukowicz says.

The app is still losing money, and the company is tiny when compared with the industry’s leaders. Janczukowicz says Idagio has been downloaded more than 1 million times, though he declines to say how many people pay the $9.99 monthly fee for full access. Spotify, by contrast, just hit 100 million paid subscribers. He’s not the only player in the field: A U.S.-Dutch rival called Primephonic was founded in 2017. And while symphony orchestras are mushrooming in China, many are wilting in places such as the U.S. and Germany. “The market needs a good classical music app, because neither Spotify nor Apple can credibly claim to serve that audience,” says Alice Enders, research director at media consultant Enders Analysis Ltd. “The challenge for Idagio is to convert the CD people, who are often very attached to their libraries.”

Janczukowicz says he doesn’t have an exit strategy and that the focus for the next few years is to enrich the platform: more podcasts, live sessions at Idagio’s Berlin loft, and working with promoters to quickly release recordings of concerts. Still, he admits it won’t be easy as a niche player with limited resources. “There’s a lot we want to achieve, but you can’t do it all overnight,” he says. “We have 25 engineers for the entire service. Spotify has 200 just for iOS. That gives you a sense of what we’re up against.”