NetEase Cloud Music’s paid monthly users grew 11% to 41.8m at the end of June

The NetEase building in Huangzhou, China.

NetEase Cloud Music, China’s second-largest music streaming provider, recorded yet another increase in paying streaming subscribers and music streaming revenue in its latest earnings report, but the numbers fell well short of its chief rival, Tencent Music Entertainment.

In its earnings release Thursday (August 24), NCM, a subsidiary of Huangzhou-headquartered internet giant NetEase Inc., reported 41.8 million paying music streaming subscribers at the end of calendar Q2 and H1 2023, an 11.0% YoY increase from the 37.6 million it reported in the same period of 2022.

Revenue from paying subscribers reached RMB 2.0 billion (USD $275.6 million at current exchange rates), up 13.3% YoY.

The company also recorded an increase in monthly average revenue per paying user (ARPPU), to RMB 6.8 from RMB 6.5 in H1 2022, which the company attributed to “pricing optimization initiatives.”

“We have worked diligently to strengthen our music-centric monetization capabilities throughout the first half of 2023,” the company said in a statement.

“Our online music business has continued to show solid growth momentum on a year-over-year basis. Our subscription-based memberships revenue continued its solid upward trend and grew by 16.7% year-over-year, driven by subscriber scale-up and ARPPU improvement.”

However, NCM’s strong results in its online music services division fell short of the performance of its key rival, Tencent Music Entertainment, which operates a number of music streaming services, including QQ Music, Kugou and Kuwou.

While NCM grew its paying subscriber base by around 4.1 million YoY, TME reported a year-over-year jump of 16.7 million paid subscribers in Q2 2023, amounting to a 20.2% increase.

The company also held a significant lead over NCM in terms of monthly ARPPU in Q2, at RMB 9.7.

One metric on which NetEase Cloud Music seems to be ahead of Tencent Music is the number of independent artists working with the platform.

Both NetEase and Tencent have sought to capitalize on China’s independent artist boom, setting up dedicated programs that offer artists support and industry tools.

NetEase reported that its platform was home to more than 646,000 registered indie artists at the end of June 2023, up 5.7% from 611,000 artists at the end of 2022.

Those artists had contributed a total of 2.8 million music tracks to NetEase’s content library by the end of H1 2023, up from 2.6 million at the end of 2022.

Tencent’s latest report didn’t didn’t include an update on the number of artists on the Tencent Musician Platform, but at the end of 2022, that number was at 390,000.

“We upgraded our renowned musicians’ support project and launched ‘Project Cloud Ladder 2023’,” NCM said in a statement. “This update offers independent musicians better financial incentives that support independent musicians and high-quality original content. These efforts have in turn helped us promote [the] original music ecosystem. In addition, the update also provides musicians with access to more services, such as worldwide distribution of their music and automated copyright protection.“

“We have worked diligently to strengthen our music-centric monetization capabilities throughout the first half of 2023. Our online music business has continued to show solid growth momentum on a year-over-year basis.”

NetEase Cloud Music

NetEase Cloud Music’s overall revenues came in at RMB 3.9 billion ($536.9 million), a decline of 8.2% YoY, driven by a 23.8% YoY decline in revenue from its social entertainment services division.

While monthly paying social entertainment users continued to climb – to 1.53 million, from 1.24 million a year earlier – monthly ARPPU came in at RMB 199.3, down 39.6% YoY.

“We are refining our operating strategy for social entertainment services,” the company said.

NCM said that, during the half, it implemented a number of measures designed to “enhance the listening experience” and improve profitability.

“These include reducing the in-app exposure of certain live streaming functions and lowering broadcasters’ and agencies’ revenue sharing ratio. Moreover, we are further reinforcing our internal controls mechanism, such as adopting stricter monitoring over irregular user activities, and recently taking additional measures to optimize live streaming functions,” the company said.

That echoes a very similar situation at Tencent Music Entertainment, which recorded a 24.6% YoY decline in revenues in its social entertainment division in Q2. TME’s explanation for the drop was also similar to NCM’s, with TME Executive Chairman Cuisson Pang saying that TME had “implemented several service enhancement and risk control measures to ensure a more music-centric live streaming atmosphere.”

Nonetheless, NetEase Cloud Music’s profitability situation improved considerably in H1 2023, with the company swinging to an adjusted net profit of RMB 331.9 million ($45.6 million), compared to an adjusted net loss of RMB 217.0 million in the same period a year earlier.

The company attributed the turnaround to “our increased business scale, copyright cost structure optimization, and an improved revenue sharing ratio.”

NCM also provided an update on its development of AI-powered tools, both for platform users and artists.

The company recently unveiled “Private DJ,” an AI-driven enhancement to its algorithm that “incorporat[es] music recommendations with an intelligent and personalized music introduction and explanatory experience that involves song recommendations, background stories of songs and an encyclopedia,” the company said on its earnings call.

“This feature allows users to recall the old-fashioned radio DJ, while enjoying a more personalized music accompaniment as part of their listening experience.”

On the artist side of the business, NCM outlined its efforts at “supporting music creation efficiency” with tools designed to “maximize productivity,” including a “music creation auxiliary tool [that] provides reliable assistance to musicians in their content creation endeavors.”

The company also highlighted X Studio, “our intelligent voice synthesis software in partnership with Xiaoice, [which] provides 12 natural singing voices (covering styles such as pop and folk) for musicians to automatically select the appropriate voice; and BeatSoul, our one-stop Beat transaction platform also effectively makes music co-creation more accessible.”

NetEase Cloud Music’s efforts in the field of AI go back at least to 2020, when parent company NetEase Inc. invested €1.5 million in Luxembourg-based AIVA, a company that developed generative AI technology “capable of composing emotional soundtracks for films, video games, commercials and any type of entertainment content.”Music Business Worldwide

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