Tencent Music on track to surpass $1.5 billion in music subscription revenue this year

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The New York Stock Exchange is decorated for the first day of trading for Tencent Music Entertainment, Dec. 12, 2018.

China’s largest operator of streaming music services has reported another record-breaking quarter for its online music division, and is likely on track to record more than USD $1.5 billion in music subscription revenues this year.

Tencent Music Entertainment, which operates streaming music services QQ Music, Kugo, Kuwou and WeSing, reported a 20.8% YoY jump in online music paying subscribers, with the total hitting 103.0 million in Q3 (the three months ended September 30), the company said in an earnings release on Tuesday (November 14). TME had 85.3 million paying music subscribers in the same period a year earlier.

This was despite a 4.2% YoY decline in overall monthly active users (MAUs) in online music, which fell to 594 million in Q3, compared to 620 million a year earlier.

The jump in paying subscribers propelled the company to a 42.0% YoY jump in music subscription revenue, to RMB 3.19 billion (USD $438 million at the exchange rate on September 29, 2023).

TME’s total revenue from paying music subscribers for the first nine months of the year amounts to approximately $1.215 billion, meaning the company is on track to exceed $1.5 billion in revenue from paying music subscribers for the entire calendar year. That compares to a 12-month total of $1.26 billion last year (excluding changes in exchange rates).

Overall revenue from online music services, which includes advertising revenue, jumped 32.7% YoY to RMB 4.55 billion ($624 million) in Q3 of this year, the Shenzhen-headquartered company reported.

The company also reported a 17.0% YoY increase in monthly average revenue per paying user (ARPPU) for its online music division, to RMB 10.3 ($1.41).

“The increases in both the number of paying users and ARPPU were primarily attributable to our more appealing member privileges, interactive product features, attractive music content, disciplined promotions and member acquisition strategies, as well as high subscriber retention rate,” TME said in its earnings release.

However, the success of TME’s online music division wasn’t able to offset significant declines in its social entertainment division, which pushed the company’s overall revenue to RMB 6.57 billion ($900 million), a 10.8% YoY decline.

Revenues from social entertainment and other services declined 48.8% YoY, to RMB 2.02 billion ($276 million). Analysts attribute the decline to Beijing’s crackdown on online gambling.

Both TME and NetEase – the two principal music streaming providers in the Chinese market – earlier this year disabled live streaming features that could be used for illegal gambling, causing a significant hit to their revenues, Reuters reported in August.

“The third quarter results highlight efficiency gains across our platforms. Our ecosystem’s strength, platform’s scale and AI-empowered technological edges have enabled us to transition into an increasingly robust music powerhouse.”

Ross Liang, Tencent Music Entertainment

In the wake of that development, streaming music has “more visibly become our core business,” TME CEO Ross Liang said in a statement.

“The third quarter results highlight efficiency gains across our platforms. Our ecosystem’s strength, platform’s scale and AI-empowered technological edges have enabled us to transition into an increasingly robust music powerhouse,” Liang said.

“Online music has more visibly become our core business, driving engagement and earnings growth, while we adjust our social entertainment offerings. We will continue to reimagine the way music connects with people, creating a more enjoyable user experience through technology and product innovation.”

TME Executive Chairman Cussion Pang said the company’s “dual-engine content-and-platform strategy continues to pay off. In the third quarter, we reported strong growth in our online music services despite the topline headwinds from the social entertainment business.”

Pang added: “The accelerated year-over-year subscription revenue growth was supported by expansion in both subscriber base and ARPPU. Our evolving ecosystem and resilient businesses enabled us to deliver a group-wide margin expansion. These achievements further unlock the value of music and pave the way for our sustainable development in the long run.”

TME did indeed see an expansion in its gross margin, which increased by 3.1 percentage points to 35.7%, from 32.6% in the same period a year earlier, “primarily due to the strong growth of revenues from music subscriptions and advertising services, and the ramp-up of our own content,” the company said.

TME’s operating profit expanded to RMB 1.425 billion ($195 million) in Q3, up around 13.0% YoY. Earnings per share for Class A and Class B ordinary shares were RMB 0.37, up from RMB 0.33 a year earlier.

The company’s robust earnings numbers from digital music will likely strengthen perceptions that China is set to become a music industry powerhouse in the years to come – if it hasn’t already.

According to IFPI data, China became a top-five recorded music market in 2022, landing ahead of France (No. 6), South Korea (No. 7) and Canada (No. 8).

China generated $1.2 billion for recorded music rights holders during the year, up 28.4% YoY, according to IFPI.Music Business Worldwide

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