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Podcast is social: How China’s Lizhi makes audio interactive

For Marco Lai, the founder of Chinese podcast network Lizhi, radio has always been social.

Twenty years ago, the entrepreneur was a host at a radio station in southern China. He ran a late-night program where listeners could call in and chat about anything as they wished, often riffing on feelings, relationships or other intimate subjects. Those who couldn’t get through the phone line sent text messages that Lai would then read on air. At the time, it was a popular and promising model for radio stations, which divided the revenue earned from messaging fees with network carriers.

Now, Lai manages one of China’s largest podcast companies. Lizhi means “lychee” in Chinese, the aromatic tropical fruit from his hometown in the southern province of Guangdong. He picked up one of the red-shell fruits from a tea table in his office as he began telling me Lizhi’s story.

“I learned from my days working in radio that interaction is the best monetization model in the audio business. For years in China, the main revenue source for radio stations was these text messages,” Lai reminisced, speaking at a relaxed, slow pace that is uncharacteristic in China’s dog-eat-dog entrepreneurial world.

Marco Lai, founder and CEO of Lizhi (Photo: Lizhi)

The headquarters itself felt more like a giant, inviting coffee shop than a high-strung workplace of a Nasdaq-listed firm. Tugged away in a low-rise warehouse-turned-office in Guangzhou, the place is dotted with well-tended bonsai and staff sitting on bean bags behind glass meeting rooms.

Lai built the app for podcast production as well as consumption, capturing both the supply and demand sides. As of June, 56 million people used Lizhi monthly. Over 6 million of them were creators, and the cumulative number of podcasts uploaded to the platform hit a new record high of 215 million.

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Tencent Music bets on China’s crowded podcasting space

Listeners of podcasts, audiobooks and other audio shows are estimated to number 542 million in China this year, according to a third-party survey by marketing firm iiMedia. It’s a healthy jump from the 489 million users recorded in 2019, and it no doubt has attracted new players to the game.

That includes Tencent Music Entertainment (TME), the Tencent spin-off that is sometimes regarded as the Spotify of China but differs on many fronts in practice. The group’s main line of businesses goes beyond music streaming to encompass virtual karaoke, live streaming and audio content, a category that has recently seen a big push from the firm.

In its newly released quarterly report, TME said it has made “significant progress in expanding” its audio library by adding thousands of new adaptions from popular IP pieces and works from independent producers. This intensifies competition in what is already a crowded space.

Like Spotify, TME is late to voice-based content, an umbrella term that can include everything from podcasts, audiobooks, radio stations to more innovative listening experience like audio live streaming. This sector in China has for years been occupied by leading companies Ximalaya, the main investor in San Francisco-based podcasting firm Himalaya, and Nasdaq-listed Lizhi.

TME’s thrust into audio content holds no immediate promise, for there is still no obvious path to profitability. Chinese users are known to be reluctant to pay for digital content, and when they do, say, for educational and self-improvement podcasts, the enthusiasm tends to fade quickly. Deep-pocketed platforms often resort to offering content for free to gain market share, relentlessly forcing out smaller contestants. The result is that everyone needs to find more indirect ways to monetize.

Lizhi, for instance, primarily generates revenues by selling virtual items through its live, interactive audio sessions, while the contribution from user subscriptions and advertising remains paltry. The seven-year-old company hasn’t turned a profit, recording a net loss of 133 million yuan or $19.1 million last year.

Indirect monetization is nothing new in China’s internet industry. Tencent, most famous for its WeChat messenger, notably relies on gaming revenues that its social networking products help drive. TME, similarly, gets the bulk of its money by selling virtual items in music-themed live streams, while only 6% of its 657 million monthly active users on music streaming apps are paying. The MAU growth has also come to a standstill as China’s online music market saturates; from 2017 to 2020, TME added only 50 million new users to its music streaming services. The question is whether the music titan can breathe new life into the adjacent audio sector.

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Chinese podcasting and audio content app Lizhi debuts on Nasdaq

Lizhi, one of China’s biggest audio content apps, is debuting on Nasdaq today under the ticker symbol LIZI. It is the first of its major competitors, Ximalaya and Dragonfly, to go public (though Ximalaya is expected to also list in the United States later this year). Lizhi is offering 4.1 million shares at an IPO price of $11 per share.

Though Lizhi, Ximalaya and Dragonfly each host podcasts, audiobooks and livestreams, Lizhi, whose investors include Xiaomi, TPG, Matrix Partners China, Morningside Venture Capital and Orchid Asia, has differentiated itself by focusing on user-generated content created with the app’s recording tools.

According to market research firm iResearch, it has the largest community of user-generated audio content in China. The company said that in the third quarter of 2019, it had a base of 46.6 million average monthly active users on mobile and 5.7 million average monthly active content creators. While podcasts in the U.S. typically use revenue models based on ads or subscriptions, creators on Lizhi and other Chinese podcasting apps monetize through virtual gifts, similar to the ones given by viewers during video livestreams.

In an interview with TechCrunch, Lizhi CEO Marco Lai said the company plans to use proceeds from the IPO to invest in product development and its AI technology. Lizhi uses AI tech to distribute podcasts, which it says results in a 31% click rate on content. AI is also used to monitor content, give creators instant user engagement data and provide features that allow them to fine-tune recordings, reduce noise and create 3D audio.

Despite its quick growth, Lai says online audio in China is still an emerging segment. About 45.5% of total mobile internet users in China listened to online audio content in 2018, but adoption is expected to increase as IoT devices like smart speakers become more popular, especially in smaller cities. Lizhi has a partnership with Baidu for its Xiaodu smart speakers, and develop new ways of distributing content for IoT devices, says Lai.

Source: TechCrunch