Tencent Music’s subscription revenues soared 45.3% in Q4 as paying subscribers hit 106.7m

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Despite a slowdown in many parts of its economy over the past year, China’s music streaming market continues to boom, and nowhere is that clearer than in the earnings of Tencent Music Entertainment (TME), the country’s largest operator of music DSPs.

In its latest earnings report, released on Tuesday (March 19), TME reported a 45.3% YoY jump in revenue from music subscriptions in Q4 2023 (ended December 31) to RMB 3.42 billion (USD $481 million), as the number of paying users increased by 20.6% YoY, to 106.7 million.

That amounted to an increase of 3.7 million paying users just from the previous quarter.

Not only did TME manage to increase its total paying subscriber base, it also earned more per subscriber, with monthly average revenue per paying user (ARPPU) jumping to RMB 10.7 ($1.48 at the average exchange rate for Q4), an increase of 20.2% YoY.

It’s worth noting, however, that this is still a fairly low ARPPU compared to more developed markets. Spotify’s monthly ARPU for paid subscribers was €4.60 ($4.95) in Q4.

Nonetheless, the rise in paying subscriber revenue helped TME’s overall revenues from online music services to increase by 41.1% YoY, to RMB 5.02 billion ($707 million).

That was “driven by strong growth in music subscription revenues, supplemented by growth in revenues from advertising services and revenues from sales of artist-related merchandise,” the company said in its earnings release.

“The increases in both the number of paying users and ARPPU were primarily attributable to increased user willingness to pay, more appealing member privileges, interactive product features, and attractive music content.”

TME, which is majority-owned by tech giant Tencent Holdings, added that “the year-over-year increase in revenues from advertising was primarily because we provided a more diversified product portfolio and innovative ad formats, which were well-received by advertisers.”

The company said that it “continued to form extensive partnerships with record labels, strengthening our content offering with over 200 million music and audio tracks by the end of 2023. For example, we renewed multi-year strategic cooperation with Universal Music Group to provide users with ongoing access to its world-class music catalog with expanded privileges.”

However, the large jump in music revenue wasn’t enough to offset a steep decrease in revenue from TME’s social entertainment services division, which includes online gaming.

Both TME and its principal competitor in the Chinese market, NetEase Cloud Music, have seen revenues from social entertainment plummet over the past year, a fact that analysts attribute to a crackdown on online gambling by the Chinese government.

TME’s social entertainment revenues were cut by more than half – 51.6% YoY – in the fourth quarter, coming in at RMB 1.87 billion ($264 million). That led to a 7.2% YoY decrease in the company’s total revenues, which clocked in at RMB 6.89 billion ($971 million) for the quarter.

Despite the revenue drop, the company recorded larger profit margins. Operating profit grew to RMB 1.71 billion ($241 million) in Q4, an increase of 23.5% YoY, while net profit increased 16.9% YoY, to RMB1.41 billion ($198 million).

That was “driven by improved operating efficiency and effective cost controls,” the company said. Cost of revenues decreased by 14.6 % YoY, to RMB 4.25 billion ($599 million), while total operating expenses decreased by 7.0% YoY, to RMB 1.27 billion ($178 million).

“Our laser focus on execution resulted in a year of efficiency. Deeper insights into users and content not only enhanced our operational efficiency but also allowed us to make music journeys more personalized for our users,” TME CEO Ross Liang said in a statement.

“Online music services’ strong performance mitigated headwinds from social entertainment services and contributed to expanded quarterly net profits,” added TME Executive Chairman Cussion Pang.

“Online music services’ strong performance mitigated headwinds from social entertainment services and contributed to expanded quarterly net profits.”

Cussion Pang, Tencent Music Entertainment

TME also reported its full-year 2023 numbers, showing revenue from music subscriptions jumping 39.1% YoY as TME’s four music streaming services – QQ Music, Kugo, Kuwou, and WeSing – added 18.2 million paying subscribers over the year. That indicates an acceleration in the pace at which TME is adding paid subscribers; in 2022, the company added about 12.3 million.

Overall revenue from online music services jumped 38.8% YoY, to RMB 17.33 billion ($2.44 billion).

The increase was “driven by strong growth in music subscription revenues and revenues from advertising services, supplemented by growth in sales of artist-related merchandise,” TME said.

“Expanded user privileges, together with AI-empowered products and tools, contributed positively to subscriber conversion and retention.”

Ross Liang, Tencent Music Entertainment

TME’s overall revenue fell by 2.1% YoY in 2023, to RMB 27.75 billion ($3.91 billion), once again due to weakness in the social entertainment division, which saw full year-revenue drop by 34.2% YoY to RMB 10.43 billion ($1.47 billion).

However, as in Q4, the company clocked a decrease in cost of revenue and total operating expenses, allowing for a 36.4% YoY increase in operating profit, to RMB 6.06 billion (US$853 million) for the full year. Net profit came in at RMB 5.22 billion ($735 million) and net profit attributable to equity holders of the company came in at RMB 4.92 billion ($693 million).

“Expanded user privileges, together with AI-empowered products and tools, contributed positively to subscriber conversion and retention. For 2024, we remain dedicated to delivering a more compelling user experience and easier access to music across a broader range of use cases,” Liang said.

“Looking ahead, we are well positioned to capture more multi-faceted opportunities, underpinned by our content and platform dual engines and supported by the online music business’ relatively counter-cyclical nature,” Pang added.Music Business Worldwide

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