Many people may not expect to see potential business value in the once forgotten KTV market.

Reported today, Fujian KTVMe Network Technologies Co., Ltd (KTVMe) announced in their official Wechat flatform “Kme Business School” (their official information distribution platform) that the company has received a series B round finance of 120 million RMB. The round was led by Tecent Music Entertainment Group and Meituan, followed by Deyi Capital, China Science & Merchants Capital’s Tianhe Fund, and 21 Century Culture Fund.

The finance of this round will be used to update the connection between all offline KTV for KTVMe, as well as promotion and application of its pan-entertainment retail in offline entertainment venues in order to push forward the transformation of the entertainment and culture industry.

KTVMe was founded in May 2015 as a subsidiary corporation of Fujian Star-Net Communication Co., Ltd. Its business covers internet technology development, e-commerce platform data analysis and information storage, etc. People are probably more familiar with another subsidiary of Star-Net Communication which is Star-Net eVideo. Star-Net eVideo has over a decade of experience in providing KTV services. It has over 200 service providers all over the country as both hardware and software provider and has taken the biggest market share in KTV business in China for the past 7 years. This past experience of Star-Net has given a great incubator for KTVMe to be created. According to KTVMe’s data, right now KTVMe is the largest KTV entertainment value-added service operator, serving over 60,000 KTV venues with 600,000 KTV rooms connected online, owning 70% of the entire offline KTV market share. Its online subscriber has reached 70 million and WeChat followers 35 million.

KTVMe has always been seen as the example of a transformation from traditional KTV business.

KTVMe nowadays is not only the equipment provider but also used a lot of the internet value-added services to achieve a thorough connection within the industry. Its secret weapon is that KTVMe owns the unique system and right of interfering with the order system and cashier/management system. It has made KTVMe able to connect different areas of the industry and form a relatively closed and independently operating system. So far KTVMe has the absolute lead in the KTV industry in both software and hardware design, and services to KTV merchants and venues.

This relatively closed and independently operating system is actually one of the crucial thresholds for BAT magnates to enter this business. For a long time, one of the features of the KTV business is to have high entering threshold and low concentration ratio. These two features have failed to lead the unexperienced BAT magnates to transform the KTV industry with strong technology and financial advantage into a new business model as easy as other areas such as taxi, movie, or dining.

Based on the independently built empire, KTVMe has completed two rounds of finance. In June 2015, it received an angel round finance by China Growth Capital with an unknown amount. November 2015, it received series A round finance of 75 million RMB by unknown investors. It was also the largest finance deal in the KTV entertainment business at the time. With all the history of KTVMe, it’s not hard to see why Tencent invested in KTVMe. Except for sharing the same music interest from their followers and offline KTV users, and matching in music and entertainment needs, a more important reason for Tencent to invest KTVMe is that Tencent could potentially get a big share in the KTV market through KTVMe. Considering that Tencent may fulfill its IPO requirement within this year, this investment choice may also be made due to Tencent’s future restructuring of finance (Tencent is already planning a stock transfer with an estimated amount of 23 billion U.S. dollar, reported two day ago).

Tencent worked very closely with KTVMe last year. For example, Tencent’s app Quanmin KTV announced a strategic cooperation with KTVMe last September, exploring the business in entertainment peripheral products retail, digital music album distribution and singer-songwriter offline promotion, etc.; Tencent’s mobile QQ also made deep cooperation with

KTVMe in December so that 850 million active subscribers of mobile QQ can request songs in KTV by scanning QR code in QQ.

According to the announcement, after the round of finance, Tencent Music and KTVMe will both use WeChat and app to connect online and offline business in order to improve the business in Tencent Music’s offline entertainment consumption. It will also bring in more online content to complement the shortage of entertainment content in KTV.

Another reason that KTVMe can receive such a big amount of finance is because of the optimistic looking estimation in the KTV industry from the investors. There were data showing the potential of KTV market as early as 2016. Data shows that the annual consumption scale has reached 400 billion RMB which is 10 times more than the cinemas. Other than that, the KTV market has a diverse form of consumption, meaning a low standard line for potential further business. The form of consumption is different from cinema. In cinema, customers purchase services and related products such as food and tickets before they consume the movies, while customers in the KTV market tend to purchase related services such as entertainment interaction, food and beverage and KTV competition during their initial consumption of KTV service. All these value-added services are bringing more possibilities to the market. It also supports the logic in the investment community that it’s easier to manage a stock market than an incremental market.

Translated by Paris Wu