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Alibaba Group announced Tuesday that it will close down its streaming platform Xiami Music on Feb. 5, as it struggles to keep up with competitors Tencent Music and NetEase in China’s competitive digital music sector.

Xiami Music will cease operations due to “business development-related adjustments,” pivoting to become more of a music industry service provider, the company said in an official statement posted to social media, thanking its fans. The message concluded: “After 12 years of being together, it’s very hard to say goodbye.” The platform’s Chinese name roughly translates to “little shrimp.”

The announcement comes two weeks after Chinese regulators announced a formal anti-trust probe of Alibaba, and at a time when the conglomerate’s co-founder Jack Ma is rumored to be missing.

Xiami was once one of China’s most popular and taste-making music streamers, but it has fallen to the wayside since it was acquired by Alibaba in 2013. It now holding a market share of only about 1.8%, with around 11.9 million average monthly active users between May 2019 and April 2020, according to local reports.

Its closure highlights the extent to which Alibaba miscalculated its charge into the music space by failing to jump on the bandwagon of buying up music IP early, when it still had a fighting chance against its tech giant competitors.

“We can’t ignore that we missed some key opportunities in our development process,” Xiaomi staff wrote in a separate letter of farewell. “The failure to meet the diverse needs of our users when it came to obtaining music content copyrights is our biggest regret.”

It’s worth looking back at Xiami’s history over the years to get a picture of where the major players in China’s music streaming space stand today and how they got there.

A “Planet” Gone Awry

Xiami Music began in 2006 in Hangzhou as a website called EMUMO, or EARN MUSIC & MONEY. Founder Wang Hao, a former Alibaba systems analyst, dreamed of creating an online platform that would charge fees and help Chinese musicians make a living from their art at a time when it was difficult for them to monetize their work. In 2007, the site spun off into Xiami, a P2P sharing platform.

The app had a reputation for being more music-focused than its rivals, and attracted more discerning music listeners keen to discover new sounds through its indie selections. “Inclusivity and its participatory nature were its magic formula to attract fans,” the Beijing News reminisced in a report, remembering how users loved to share song lyrics and commentary.

Xiami’s recommendation algorithm was particularly well-respected, and focused more on helping users develop their taste by recommending lesser known works instead of pushing what was already popular towards further virality. While more social networking-focused apps like NetEase Cloud Music were inclined to recommend tracks based on what users’ friends liked, Xiami promoted more niche groups and indie acts, giving artists rare exposure. While other apps ranked songs according to streaming popularity, Xiami insisted songs be displayed within albums in the order they were intended.

To avoid the fate of P2P pioneer Napster, Xiami tried to go legit and buy the necessary copyrights to the content it was hosting. Wang told the China Business Network that while negotiations initially went smoothly with smaller and mid-sized Chinese labels, it became hard to bear the high fees asked by foreign record companies. By 2012, he felt it increasingly unlikely for an independent music platform like Xiami to survive without massive capital behind it. Nevertheless, by 2013, the platform was one of China’s most popular, counting 20 million registered users streaming some two million songs on the platform a month.

Alibaba acquired Xiami that year. Yet “this new ‘marriage’ wasn’t looked upon favorably by the industry at the time — users had not yet cultivated the habit of paying for content, and copyright-related regulations were imperfect, so it was difficult for online music business to make a profit,” explained the China Business Network outlet.

In 2015, Alibaba merged Xiami with another acquisition, the mobile music player TTPOD, to form AliMusic, bringing on execs Gao Xiaosong and Song Ke as its chairman and CEO, respectively, in a high-profile launch. The move made more sense by the next year, when Alibaba founded what is now its sprawling entertainment division, Alibaba Digital Media & Entertainment Group, making AliMusic seem a bit less alone.

Alibaba made the strategic miscalculation of going all-in on TTPOD, rebranding it as “Alibaba Planet.” It was intended to be a Taobao-like music ecosystem where listeners could stream songs, buy merchandize and follow livestreams and stars, and industry practitioners could access resources and services. Instead, it tanked within a year.

Left Behind in the IP Wars

China’s tightening IP protection policy was a major wrench in the plan. In July 2015, the National Copyright Administration issued a directive asking platforms to stop streaming and take down unauthorized music, its strictest move yet targeting the up-and-coming streaming space.

In the ensuing battle to nab copyrights, rival Tencent, already China’s largest player at the time, would emerge victorious. In 2015, its QQ Music platform held a song library of 15 million songs, while the NetEase, Xiami and Kugou platforms had only five million, four million and three million, respectively, according to data from the Chinese consultancy Yiren.

By 2016, Tencent had acquired China Music Corporation, bringing QQ Music, Kugou, Kuwo and other platforms together under one roof to form Tencent Music Entertainment, which blossomed sufficiently to list on the New York Stock Exchange within two years.

Back in 2016, Tencent Music held rights to some 90% of its content, while AliMusic only held 20%, according to the Beijing News. The former began striking major deals with western labels like Universal Music, further strengthening its market position. NetEase, meanwhile, also saw its star ascending, with paid membership numbers growing more than nine times in 2016 year-on-year.

Throughout this period, Xiami appears to have continued to fight for content rights to bolster its library of what is now some 30 million songs. In 2014, it spent $4.6 million (RMB30 million) to acquire the rights to the third season of popular reality show “The Voice of China.” As recently as this past summer, it struck up a new strategic partnerships with a major Chinese indie music rights organization, the Beijing News said.

But starting in mid-2019, things started looking down. In an organizational reshuffle that June, Alibaba transferred Xiami out of its music and entertainment division and into its “innovative business group” sector. Just three months later, NetEase Cloud Music announced that it had raised $700 million from investors that included Alibaba.

Analysts viewed the investment in a competitor as a signal that Alibaba was planning to give up on Xiami and switch over to NetEase Cloud. “At the time, there was a view that Xiami Music, which had been losing money for year, had already been sidelined or was about to be abandoned,” explained Finance World, Sohu’s finance news outlet. (Nevertheless, NetEase currently still maintains sole control over NetEase Cloud Music.)

Rumors of Xiami’s closure began to swirl last November, although both Xiami and Alibaba declined to comment at the time. The platform remains mired in thousands of legal suits, mostly over copyright issues and disputes over the right to distribute content online, according to the company database Tianyancha.

As of Tuesday, Xiami has ceased most core services, including halting album purchases, new account registrations, and top-ups on existing ones.

By Feb. 5, it said, it will be removed from various app stores and only retain the ability to process user account data — refunding members and allowing them to access the server to export playlists, for example — and deal with artist payouts. By March 5, servers will be shut and users will no longer be able to log in again.

In their letter, Xiami staff wrote: “Going forward, we believe in and look forward to the emergence of even better forms of music content services.”