Some interesting news out of China: Both of the region’s biggest music streaming providers, Tencent Music Entertainment (TME) and NetEase Cloud Music (NCM) saw significant growth in paying online music users in the first three months of 2022.
That’s ‘paying online music users’ rather than ‘subscribers’ because this specifically-worded metric – particularly relevant to TME – is adopted by both companies in their financials.
- TME – owner of QQ Music, Kugou Music, and Kuwo Music – offers music streaming subscriptions in addition to paid-for downloads;
- NCM, meanwhile, offers two tiers of paid streaming subscription: (i) A standard tier at 8 RMB (approx USD $1.26) per month, which has limited offline ‘downloads’; and (ii) A ‘Vinyl VIP’ tier, at RMB 18 ($2.84) per month. This actually has nothing to do with vinyl (!) but offers ‘vinyl-quality’ streaming music and unlimited offline ‘downloads’.
According to newly-issued financial results analyzed by MBW, Tencent Music added 4.0 million paying music users quarter-on-quarter in Q1 2022, and added 19.3 million in comparison to the prior-year quarter.
TME’s official ‘paying online music’ user-base now stands at 80.2 million customers.
NetEase Cloud Music, meanwhile, added an impressive 7.8 million paying online music users to its platform quarter-on-quarter in Q1 2022, and 12.4 million in comparison to the prior-year quarter.
NCM’s official ‘paying online music’ user-base now stands at 36.7 million customers.
Where these figures become particularly intriguing is when we compare them to Spotify‘s performance in the same time period (Q1 2022).
Spotify, remember, owns a minority stake in TME, and TME – in conjunction with Tencent Holdings – owns a minority stake in Spotify.
Spotify also doesn’t operate as a service in China.
As MBW has previously reported, Spotify net-added 2 million paying customers to its service in Q1 2022, although this figure was suppressed by the fact that SPOT cut off billing from 1.5 million subscribers in Russia during the quarter.
Still, that result means that both Tencent Music and NetEase Cloud Music added more paying online music users in Q1 2022 (+4 million and +7.8 million, respectively) than Spotify (+2 million).
(See below graph. Because NetEase Cloud Music only floated on the Hong Kong stock exchange in Q4 last year, not all relevant figures at NCM are available for each quarter referenced.)
As things stood at the end of March 2022, Tencent Music and NetEase Cloud Music jointly counted 116.9 million paying online music customers in China alone.
Spotify, meanwhile, counted 182 million Premium subscribers outside of China, with an estimated 68% of these subs located in either North America or Europe.
The amount being paid by SPOT’s ‘online music users’ versus its rivals in China, however, is a rather less close contest.
- According to Spotify’s Q1 2022 results, its Premium subs business generated €2.379 billion (USD $2.67bn) in the quarter, up 23% YoY;
- Spotify’s the average paying Premium customer (ARPU) in this quarter shelled out €4.38 (USD $4.91) per month;
- According to Tencent Music’s latest results, its ‘online music services’ revenue fell 4.8% YoY in Q1, to USD $413 million. Within that figure, some USD $314 million came direct from streaming subscriptions, up 17.8% YoY;
- Tencent Music’s Average Revenue Per Paying Music User (ARPPMU) per month in the quarter was RMB 8.3 (approximately USD $1.31);
- According to NetEase Cloud Music’s latest results, its ‘online music services’ generated RMB 884.8 million (USD $140m) in Q1, up 16.5% YoY. Within that figure, RMB 710.2 million (USD $112m) came from music streaming subscription specifically;
- The average NetEase Cloud Music streaming subscriber paid RMB 6.4 (USD $1.01) monthly in Q1, says NetEase.
One more interesting nugget from NetEase Cloud Music’s Q1 results announcement: The firm told its investors that in terms of its recent record label licensing deals, “[We] are pleased to see favourable industry trends with more reasonable copyright fees and cost structures, which provide us with the flexibility to optimise our investments in content using a more disciplined approach.”
Below, we dig deeper into both Tencent Music’s Q1 results (announced last week) and NetEase’s Q1 results (announced today, May 24).
Tencent Music Entertainment
Tencent Music Entertainment saw its quarterly revenues sink 15.1% YoY to RMB 6.64bn (USD $1.05bn) in the first quarter of 2022.
However, there was better news for the music business here than that percentage drop might initially suggest.
TME is split into two divisions: ‘online music services’ (QQ Music, Kugou and Kuwo) plus ‘social entertainment services’ (mainly covering live-streaming and online karaoke).
In Q1 2022, TME’s ‘social entertainment services’ saw a 20.6% YoY drop in revenues to RMB 4.03 billion (USD $635m).
As mentioned, the company’s ‘online music services’ division saw a softer decline, down 4.8% YoY to RMB 2.62bn (USD $413m).
TME’s total monthly active user (MAU) count for its three music streaming services stood at 604 million at the end of March 2022.
That was actually a bigger audience than Spotify’s total global MAUs (422m) at the same point – but Tencent’s MAU figure (see above) was down by 1.8% YoY.
Part of the reason for that dip was TME’s strategic focus on up-selling its existing users into paid music subscription. (TME’s paid music subscription revenues grew 17.8% YoY to USD $314m in the quarter.)
Music subscription revenues (USD $314m) made up 76.0% of TME’s total online music revenues (USD $413m) in Q1 2022.
That percentage figure was up on the equivalent number (61.4%) in the same quarter of 2021.
NetEase Cloud Music
NetEase Cloud Music’s revenue increased by 38.6% YoY in Q1 2022, to RMB 2.1 billion (approx USD $331m).
Like TME, NCM also runs two separate business divisions: ‘online music services’ and ‘social entertainment services’.
- Revenue from online music services increased by 16.5% YoY to RMB 884.8 million (USD $140m) for the three months ended March 2022. NCM said this growth was “primarily due to the significant growth in revenues from sales of membership subscriptions”;
- NCM’s revenue from sales of music streaming subscriptions increased to RMB 710.2 million (USD $112m) in Q1 2022, up from from RMB 514.4 million in the prior-year quarter;
- That was a direct result of NCM’s monthly paying users of online music services expanding from 24.3 million in Q1 2021 to 36.7 million in Q1 2022.
NCM’s ‘social entertainment services’ (and other) revenue increased 61.6% YoY to RMB 731.7 million (USD $115m) in the quarter.
Overall monthly active users (MAUs) of NCM’s online music services stood at 181.7 million in Q1 2022, down slightly from 183.1 million in the prior year quarter.
That meant that NCM’s paying online music users (36.7m) accounted for 20.2% of all of its online music MAUs in the quarter.
That percentage figure increased from 13.4% in the equivalent quarter of 2021.
NetEase Cloud Music told investors that its results were lifted in Q1 by the performance of its UGC (user-generated content) endeavours in the quarter.
The firm said in a media release: “In the first quarter of 2022, we continued fostering our music-oriented community and UGC ecosystem through constant product improvement across multiple content formats.
“Meanwhile, we continued developing multiple assistant tools to facilitate further UGC creation on our platform, which will also enhance our vibrant UGC-oriented community and users’ engagement.
“Our UGC ecosystem is unparalleled in the market, aided by our strong and supportive community culture. By the end of the first quarter of 2022, we had accumulated 3.25 billion UGC playlists on our platform.”
Tencent Music and NetEase Cloud Music: Working direct with independent artists
Due to relatively recent regulation in the Chinese market, one of Tencent Music’s previous advantages in the territory – exclusive sub-licensing of major record company content to NetEase – is no longer permitted.
As a result, both TME and NetEase Cloud Music are in a race to sign up independent artists to their respective suites of tools and content.
In its Q1 announcement last week, TME referenced its own indie-artist platform – Tencent Musician Platform – which it said had paid out over RMB 200 million to musicians during the previous 12 months.
“By the end of March 2022, we were serving more than 450,000 registered independent artists on our platform, representing an approximately 70% year-over-year growth.”
NetEase Cloud Music
In addition, it said the Tencent Musician Platform saw more than 100,000 creators joining its ranks in Q1 2022. Those creators benefit from perks including a new online music production service that involves “more than 50 well-known industry professionals”.
Meanwhile, NetEase Cloud Music’s equivalent program now has over 450,000 artists signed up.
NCM said in its Q1 2022 fiscal announcement: “In addition to music labels, we have become a natural incubator of music talent looking for an audience, empowered by our massive community and large cohort of young users with diverse and personalised tastes.
“By the end of March 2022, we were serving more than 450,000 registered independent artists on our platform, representing an approximately 70% year-over-year growth.
“Meanwhile, within our content library, about 2.0 million music tracks came from our registered independent artists.”
All RMB to USD currency conversions in this analysis made at the prevailing quarterly rate used by Tencent Music EntertainmentMusic Business Worldwide