Recently, the news of the "quarrel" between NetEase Cloud Music (HK:09899) and Tencent Music (NYSE:TME) has aroused heated discussion on the Internet, and this is not the first time that the two sides have "torn their faces" due to copyright issues.
The two major domestic music streaming media have been "arguing" for so many years, and NetEase Cloud has been in a relatively weak and passive position.
The reason is very simple, Tencent Music has qq music, cool me music, cool dog music, and national K song four major products; compared with it, NetEase Cloud Music is relatively thin. This has led to a long gap between the two sides in terms of user scale and revenue scale.
Therefore, in the domestic online music streaming media, Tencent Music is considered to be the boss, and the industry's second oldest NetEase Cloud wants to catch up with its opponents, which is very difficult.
As the hegemon of the industry, Tencent Music now has a lot of "troubles".
Red Star Capital Bureau noted that on May 17, 2022, Tencent Music announced the 2022Q1 quarterly financial report, which showed that Tencent Music's revenue and net profit in the first quarter both declined. The company's revenue was 6.64 billion yuan, down 15.1% year-on-year; net profit attributable to the company's shareholders was 609 million yuan, down 34% year-on-year.
After dismantling Tencent Music's revenue structure and sub-business data, we found that the difficulties it faced were very prominent.
Image according to IC photo
Part I:
Runway entertainment, making money is getting harder and harder
From the perspective of corporate revenue structure, Tencent Music's revenue is divided into two parts: online music services, social entertainment services and others.
Tencent Music has a natural advantage in mastering both music content and social traffic, and has a natural advantage in doing music entertainment live broadcasts. In its business, social entertainment services based on live K songs have been cash cows, supplying blood to online music services. Because of this, Tencent Music has been ridiculed as a "live broadcasting company cloaked in streaming media".
According to the financial report, from 2017 to 2019, Tencent Music's social entertainment services and other revenue accounted for more than 70% of the total revenue, and this part of the revenue mainly came from users paying to buy virtual gifts for anchors.
It can be seen that the generous "big brother of the list" has no mercy on the anchors he admires, and the live broadcast business is crucial to Tencent Music.
Source: Company Financial Report, Red Star Capital Bureau
However, the live broadcast of the show has a low threshold, strong supervision, is greatly affected by the head anchor, and needs to continue to share the anchor, before the national K song has been interviewed by the relevant government departments for many times because of the content problem, and even punished. The business of live broadcasting on the show has not been optimistic about the capital market.
Source: National K Song
One of Tencent Music's current dilemmas is that it is becoming increasingly difficult to earn money for social entertainment.
According to the financial report, from 2020, the contribution of social entertainment services to the total revenue of enterprises has begun to decline, and the revenue of this business in 2020 accounts for 67.9% of total revenue, which has dropped to less than 70%.
In a single quarter, since the fourth quarter of 2020, the proportion of social entertainment service revenue to total revenue has continued to decline, and in the first quarter of 2022, the proportion of entertainment service business revenue to total revenue has dropped to 60.6%.
From the perspective of revenue of social entertainment services, the financial report shows that from the first quarter of 2021, the revenue growth rate of the entertainment service sector has begun to decline continuously, of which the fourth quarter of 2021 to the first quarter of 2022, the revenue of this business has shown negative growth. In the first quarter of 2022, social entertainment services and other revenue reached 4.028 billion yuan, a decrease of 20.6% year-on-year.
In other words, Tencent Music's live broadcast business "sucks up gold" ability is getting worse and worse.
Source: Company Financial Report, Red Star Capital Bureau
This is also reflected in the user data, Tencent Music's social entertainment sector, whether it is MAU or the number of paid users, has shown a significant decline.
The latest financial report shows that in the first quarter of 2022, the social entertainment MAU fell from 224 million in the same period last year to 162 million, while the number of payers also fell from 11.3 million in the same period last year to 8.3 million, and the decline in the "exodus" of social entertainment users has been quite obvious.
Source: Company Financial Report, Red Star Capital Bureau
The decline in social entertainment service revenue and the "departure" of users are undoubtedly a heavy blow to Tencent Music, which mainly relies on the company to support its revenue.
Tencent Music's live K-song business will probably be difficult to get better in the future.
On the one hand, from the perspective of industry competition, the two major short video platforms of Douyin and Kuaishou continue to seize the time used by users through diversified and rich content; and Tencent Music, which relies solely on the live broadcast scene of the music show, is difficult to be attractive. In addition, at present, the entire live broadcasting industry has also entered the stock market.
Secondly, since 2020, the government's supervision of live broadcasting has been continuously strengthened, and it has recently announced the cancellation of the list ranking of live broadcast rewards; it is also the consensus of the industry that it is becoming more and more difficult for live broadcasting to make money.
For Tencent Music, the social entertainment business is like a candle that illuminates the way forward for enterprises, and now, the light of this candle is getting weaker and weaker, and it is difficult to return to the previous "light".
Part II
Online music is a hard bone to gnaw on
Online music services are Tencent Music's second-largest source of revenue, and perhaps a more "serious" business as a music streaming media.
Online music services, however, are a tough nut to crack.
The revenue of this segment includes subscription services, singles and digital albums, advertising, copyright sub-licensing, etc.; among them, subscription service revenue is the main source of revenue for the segment.
According to the financial report, tencent music online music service revenue in the first quarter of 2022 was 2.62 billion yuan, down 4.8% year-on-year. Among them, revenue from music subscription services was 1.99 billion yuan, an increase of 17.8% year-on-year; but the decline in non-subscription revenue such as advertising also dragged down the total revenue of the online music service sector.
Looking at the subscription service revenue segment, we see that the subscription service revenue rose sharply in the first quarter of 2022, and from the perspective of the payment rate, Tencent Music's membership payment rate has also been growing continuously, and has grown to 13.3% in the quarter.
But the reason why online music services are difficult is actually difficult on subscription services that seem to "perform better".
First, the ceiling of the payment rate of online music is relatively low. The payment rate of long video streaming media in the reference mainland has been difficult to break through 25%, and the foreign head music streaming platform Spotify, its payment rate has basically remained at about 45%, and it is difficult to rise.
Because we predict that Tencent Music's online music service payment rate is also more limited. On the one hand, the paid education of mainland users is late; on the other hand, considering the competition in the industry, there are many entertainment platforms where users can spend time today.
Source: Company Financial Report, Red Star Capital Bureau
Secondly, Tencent Music's continuously rising payment rate actually contains a certain amount of "moisture".
According to the financial report, in the first quarter of 2022, Tencent Music's online music ARPPU (average paid user revenue) value was 8.3 yuan / month, compared with 9.3 yuan / month in the same period last year, a year-on-year decrease of 10.8%. In fact, the ARPPU value of online music has declined for five consecutive quarters.
That is to say, more and more users choose to pay, which is related to the large number of price reduction promotions launched by enterprises, and it is not healthy to increase the payment rate of enterprises in this way.
Without these promotions, will users continue to pay? Can Tencent Music's payment rate continue to rise? It's worth thinking about.
Source: Company Financial Report, Red Star Capital Bureau
The revenue side of the online music sector is more limited, and from the cost side, the larger copyright cost has been pressing down on the enterprise.
In the past few years, Tencent Music and NetEase Cloud Music have begun to support independent musicians and create their own music labels in order to reduce copyright dependence.
However, from the perspective of actual effects, it is difficult for independent musicians on these online music platforms alone to meet the needs of users, and the platform still lacks upstream high-quality content production capacity or content accumulation, and it is difficult to evade the restrictions of copyright.
On the one hand, the user payment ceiling is low, and on the other hand, the huge content cost erodes profits, and online music services are destined to be a "hard bone".
Part III:
Traffic erosion, crisis continues to strike
Internally, Tencent Music's two main businesses are facing the dilemma of "making money"; externally, Tencent Music's crisis lies in the erosion of traffic by competitors.
As a traffic devouring beast, the two major short video platforms, Douyin and Kuaishou, have robbed many users of Tencent Music's social entertainment sector, and now they are also eyeing online music platforms.
For example, the soda music launched by Douyin, the market expectation is large, and it is currently on the shelves of the iOS and Android system app stores. The interconnection of Douyin and soda music in terms of accounts, data and functions, soda music will inevitably use the traffic advantage of douyin, which also makes Tencent Music's jianghu status threatened.
On the one hand, in recent years, Douyin has continued to become the birthplace of music trends; in the "Top Ten Hot Songs of the Year" announced in the Tencent Music Entertainment Festival, most of the music has been popular songs on short video platforms, which shows the great influence of "Douyin Divine Comedy" in the domestic music market today.
On the other hand, Byte has also had a layout in music copyright in recent years, for example, as early as 2018, Douyin reached cooperation with a number of record and songwriting copyright companies such as Universal Music, Warner Music, Universal Songwriting, Taihe Music, etc., and initially involved in the music industry chain; since then, Byte's action in the music sector at home and abroad has also accelerated significantly.
Nowadays, Byte is constantly integrating and opening up the upstream and downstream industrial chains of online music, including key nodes in the music industry chain such as playback, content production, publicity business, and copyright operation.
Tencent Music, the industry boss, had to actively cope with the battle.
Starting from 2021, Tencent Music has increased its cooperation with video numbers. According to public information, in April 2021, Video Number and QQ Music launched an original music resonance plan; in October, Video Number and Tencent Music's multi-platform launched the "Same Frequency Plan" to attract musicians on the site. In addition, the financial report shows that as of February this year, the number of Tencent musician certifications in the video account reached 35,000, and the number of released content was 680,000.
However, due to the fact that the video number and Tencent Music are still two independent businesses, in the face of the menacing short video platform, the cooperation between Tencent Music and the video number still faces many difficulties.
Brief summary:
The live broadcast business is not optimistic about the market and the imagination space of the online music business is limited, so that Tencent Music has been in a relatively "screwed" state.
Nowadays, under the competition of the industry, the contradictions and crises of enterprises are further highlighted. How to break out a new path when the competitive advantage still exists has become a top priority for Tencent Music.
Red Star News reporter Yu Yao Liu Mi
Edited by Tao Yueyang
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