Tencent Music users are ‘willing to pay’ for music produced with the company’s AI tools… and 3 other things we learned on TME’s latest earnings call

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Tencent Music Entertainment (TME), China’s largest operator of music streaming services, had a banner final quarter of 2023 – despite a government crackdown on online gambling that severely damaged its revenue from gaming apps.

The company’s various music streaming services, which include QQ Music, Kugou, and Kuwo, as well as karaoke app WeSing, reported a 20.6% YoY increase in the number of paying subscribers, to 106.7 million.

That helped revenues from music subscriptions to soar by 45.3%, helped along by higher average revenue per paying user (ARPPU).

Overall, it was a solid quarter, with net profit rising 16.9% YoY, to RMB1.41 billion ($198 million).

On the company’s earnings call on Tuesday (March 19), TME Executive Chairman Cussion Pang dropped another statistic: The Tencent Musician Platform had accumulated a total of 480,000 artists, who had contributed some 3 million songs to the streaming platforms by the end of 2023.

That represents a 23% YoY increase from the end of 2022, when the platform had clocked 390,000 artists who had collectively added 2.3 million tracks, meaning that the number of tracks uploaded to the platform grew 30.4% YoY in 2023.

TME’s platform provides tools to help artists create, grow, engage and monetize their work, including resources to help artists in production and promotion, repertoire development, career training, and copyright. It also helps artists distribute their music to more than 150 platforms worldwide, including Spotify, YouTube, and Apple Music.

TME launched the platform – known originally as the Tencent Musician Program – back in 2017, the same year that Spotify unveiled its Spotify for Artists platform.

By comparison, Spotify for Artists had around 1 million users as of the middle of last year. That’s not surprising, given that Spotify is, overall, a much larger streaming service, with 236 million paid subscribers as of Q4 2023.

What’s more surprising is that TME is behind its much smaller principal rival in the Chinese market, NetEase Cloud Music. Although NetEase has far fewer paying subscribers – about 44.12 million of them at the end of 2023 – its independent musician platform had 684,000 artists at the end of last year, over 40% more than TMW, and they had uploaded a total of 3.1 million tracks.

There are, of course, similar platforms at other music streaming services as well, notably SoundCloud’s SoundCloud for Artists platform (whose user numbers are not readily available).

And the bigger story here might be the rapid rise in popularity of these types of services for DIY artists. BandLab CEO Meng Ru Kuok may yet be proven right in his prediction that, by 2030, there will be 1 billion music creators in the world.

Here are three other things we learned on TME’s earnings call.

1) TME is moving beyond streaming and getting into live events

You can’t fault TME for lacking ambition when it comes to expanding its business. The company is “capitalizing on the resurgence of offline music events” in the post-pandemic world, Pang told analysts on the earnings call.

“We hosted a growing number of offline music tours, festivals and live-house performances to meet strong demand,” Pang said. “In the fourth quarter, we hosted world-renowned DJ Alan Walker’s six-city electronic music tour in China. During the tour, we facilitated unique offline-merge-online services, encompassing interactive fan activities, artist merchandise, ticket sales, and performance management, which in turn boosted our industry influence.”

“These initiatives not only broaden music’s reach geographically, but also expand its positive impact across industries, maximizing its societal value.”

Cussion Pang, Tencent Music Entertainment

As part of its “commitment to social responsibility,” the company collaborated with government agencies to hold a series of music events promoting cultural and economic development in China’s ethnic minority regions.

“For example, we partnered with Tencent Charity to organize the 2023 Shenzhen-Linzhi Music Festival, leveraging offline music performances to help rejuvenate the rural economy with increased tourism,” Pang said.

“These initiatives not only broaden music’s reach geographically, but also expand its positive impact across industries, maximizing its societal value.”

2) TME’s AI-driven innovations are a hit with music fans and creators

In its recent earnings calls, TME has been stressing its use of AI, both within the user experience and in back-end operations, where the company credits AI-powered tech with helping it reach new heights of efficiency.

TME may be at the forefront of discovering just how popular AI-powered applications are among music fans and creators – and how much they’re willing to pay for that kind of functionality.

Among the company’s recent AI-driven innovations is a new feature in its Venus music production tool that allows creators to separate the vocal line in a song from the rest of the music.

That feature has proven “very popular among musicians,” Liang said.

For music listeners, TME integrated AI into its “Listen Together” feature, which allows numerous subscribers to listen to the same tracks at the same time, and interact with each other through chat windows.

The feature now has AI-powered “virtual DJs,” each one specialized in a different music genre, which has “made music discovery faster and more personalized,” Liang said.

“We do believe AIGC is benefiting our industry and helping to further improve the performance of our product.”
Ross Liang, Tencent Music Entertainment

The company has also integrated an “AI singing” function into the Kugou and WeSing apps, which allows users to create song covers in multiple styles and languages.

With this, “we found a very promising commercial process, because users… are actually willing to pay some of their money for those sounds that have been produced with AI-enabled tools,” Liang said.

He added that TME had applied a large language model to music recommendations, resulting in growth in usage of the feature, which he described as “a huge improvement compared with before.”

Equally interesting is what TME is doing with AI in the back office – for example, in customer acquisition.

“We can also leverage AIGC [AI-generated content] to generate different promotional materials. We found [that] after [bringing] those materials to the market, it… helped to boost conversion rates,” Liang said.

“So generally speaking, we do believe AIGC is benefiting our industry and helping to further improve the performance of our product,” he added.

3) TME sees a market for in-car long-form audio

Unlike many other streaming platforms, TME has a specific app for in-car use of its streaming services, and the company has noticed demand for a specific kind of audio on the app: audiobooks.

The company plans to “accelerate penetration” of long-form audio in the in-car market “because we clearly noticed that, indeed, content like novels are very popular for the in-car application,” TME CEO Ross Liang said on the call.

He added that long-form audio’s performance in 2023 was “better than our expectations.”

That success likely has to do with TME-owned Kuwo’s dominance in the in-car audio market.

According to a QuestMobile report from 2021, despite Kuwo being third overall among music streaming services in China, it was first in terms of in-car use, the result of a conscious decision by the app to differentiate itself from other music streaming apps, which focused on mobile devices rather than cars.

Kuwo reportedly achieved this in part by offering a wide range of content for the in-car experience, thus convincing a number of automakers to integrate the app with their cars’ audio systems.

That stands in stark contrast to Spotify’s experience; the company’s attempt to create its own in-auto hardware came to a quiet end in 2022, when it stopped production of its “Car Thing.”

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