Tencent Music's Record-Breaking Quarter: $1.5B in Music Subscription Revenues

Introduction

Tencent Music Entertainment (TME), China's largest operator of streaming music services, has reported another record-breaking quarter for its online music division. The company is on track to generate over $1.5 billion in music subscription revenues this year.

Increase in Paying Subscribers

TME saw a 20.8% year-over-year (YoY) increase in online music paying subscribers, reaching a total of 103.0 million in Q4. This is a significant jump from the 85.3 million paying subscribers in the same period last year.

Decline in Monthly Active Users

Despite the increase in paying subscribers, TME experienced a 4.2% YoY decline in overall monthly active users (MAUs) in online music. The number fell to 594 million in Q3, compared to 620 million a year earlier.

Surge in Music Subscription Revenue

The rise in paying subscribers led to a 42.0% YoY increase in music subscription revenue, amounting to RMB 3.19 billion ($438 million) in Q3.

Strong Revenue Growth

TME's overall revenue from online music services, including advertising revenue, surged 32.7% YoY to RMB 4.55 billion ($624 million) in Q3.

Increase in Average Revenue per Paying User

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

Factors Contributing to Growth

TME attributed the increase in paying users and ARPPU to its appealing member privileges, interactive product features, attractive music content, disciplined promotions, member acquisition strategies, and high subscriber retention rate.

Decline in Social Entertainment Division

While TME's online music division thrived, its social entertainment division experienced significant declines. This resulted in an overall revenue decline of 10.8% YoY, amounting to RMB 6.57 billion ($900 million).

Impact of Beijing's Crackdown

The decline in revenue from social entertainment and other services was attributed to Beijing's crackdown on online gambling. TME and NetEase disabled live streaming features that could be used for illegal gambling, causing a significant hit to their revenues.

Positive Outlook

Despite the challenges in the social entertainment division, TME remains optimistic about its online music business. The company's CEO, Ross Liang, stated that online music has become their core business, driving engagement and earnings growth. TME aims to continue reimagining the way music connects with people through technology and product innovation.

Gross Margin Expansion

TME saw an expansion in its gross margin, which increased by 3.1 percentage points to 35.7% in Q3. This was primarily due to the strong growth of revenues from music subscriptions and advertising services, as well as the ramp-up of their own content.

China's Growing Music Industry

TME's robust earnings from digital music reflect the growing strength of China's music industry. According to IFPI data, China became a top-five recorded music market in 2022, generating $1.2 billion for recorded music rights holders, a 28.4% YoY increase.