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The online music market is undergoing some new changes, and users' willingness to pay for music content is getting stronger.
Tencent Music Entertainment Group ("TME"), an online music and audio entertainment platform, has released its unaudited financial results for the first quarter ended March 31, 2023.
According to the financial report, in the first quarter, TME's total revenue was 7.00 billion yuan (US$1.02 billion), a year-on-year increase of 5.4%; Net profit attributable to equity holders of the Company was RMB1.15 billion (US$167 million), an increase of 88.5% year-on-year; Net profit attributable to equity holders of non-IFRS companies was RMB1.41 billion (US$205 million), up 57.0% year-on-year.
In the quarter, the number of TME online music paying subscribers reached 94.4 million, up 17.7% year-over-year and 5.9 million sequentially, reaching a record high. This is mainly due to the rapid growth of the number of online music paying users and the average monthly revenue of individual paying users.
At the same time, online music non-subscription revenue also showed strong year-on-year growth, among which advertising revenue increased brightly year-on-year. The financial report believes that this is mainly due to the decrease in current revenue due to the impact of the epidemic last year, the current innovative advertising form of TME is loved by more advertisers, and the relative improvement of the macro environment.
In the first quarter, advertisers' advertising spend from the e-commerce, gaming, travel and food and beverage industries increased year-on-year, and the incentivized advertising model launched by Tencent Music Entertainment Group was also favored by more users, driving a significant year-on-year increase in revenue.
In addition, TME live attracted sponsorship from many brand advertisers during the quarter, including PepsiCo, Yangyuanqing and JD.com. The launch of peripheral goods by well-known artists such as Huang Minghao, Lu Han and Ren Jialun, such as starlight cards, figurines and T-shirts, also drove revenue growth in the sector.
In the context of the recovery of the offline performance market, Tencent Music Entertainment Group held a total of 29 concerts in the first quarter.
At the earnings meeting after the earnings report, TME executives disclosed that among these concerts, Cai Xukun and Ren Xianqi were well received by users and attracted nearly 70 million unique visitors in the Tencent ecosystem.
Although online and offline performances are currently very active, it is also a low-margin business for organizers. As a result, TME will continue to focus on ROI based on proven investment thinking. But they also believe that it will be a project worth developing in the long term.
An important change for TME this quarter was that, for the first time, online music revenue equalled social entertainment revenue in revenue structure. And, at the earnings meeting, company executives also predicted that from the second quarter, the quarterly revenue of online music services will surpass social entertainment services as the main source of revenue.
According to the financial report, online music subscription revenue increased by 30.4% year-on-year to RMB2.60 billion, while social entertainment revenue fell 13.0% year-on-year to RMB3.50 billion
Behind this actually released two more obvious signals.
On the one hand, the scale of online music paid membership shows a steady upward trend, which shows that in the field of Internet content, music content seems to be more sticky and vibrant. In addition, the average monthly revenue of a single paying user of Tencent Music increased for four consecutive quarters, reaching RMB 9.2.
Especially in the current environment, Titanium Media APP observed that due to concerns about future economic uncertainty, cutting spending on entertainment has become something that many people are considering, and the difficulty in breaking through the membership of major long-form video platforms is also highlighting this trend.
Peng Jiaxin, executive chairman of Tencent Music Entertainment Group, also said in the financial report that this change in revenue structure marks that their long-term commitment to exploring sustainable online music business models has begun to bear fruit.
On the other hand, this continues to expose the embarrassment and hidden worry that TME is further squeezed by competitors in the field of social entertainment.
In terms of operating performance, the financial report shows that the number of monthly active users (online music services) of Tencent Music Group in the quarter was 592 million, down 6.9% year-on-year, and the number of monthly active users (social entertainment services) on mobile terminals was 136 million, down 16% year-on-year.
In fact, more than this quarter, active users of social entertainment declined for several consecutive quarters. In addition to the gradual fading of the epidemic dividend, TME's earnings reports have repeatedly shown that other applications from competitors in this sector are further eating into the entertainment time of overall Internet users.
In terms of revenue, in the first quarter of this year, revenue from TME's social entertainment services and other services decreased by 13.0% year-on-year to RMB3.50 billion (US$510 million).
Since last year, the video live broadcast business belonging to this sector has been constrained by many factors including industry competition and regulation, and judging from the disclosure of this quarter's financial report, Tencent Music Group is trying to open up a way in the direction of audio live broadcast to save the decline of this business sector.
According to the financial report, in the first quarter of 2023, its audio live broadcast revenue increased year-on-year, and the number of live audio broadcast anchors continued to increase year-on-year. Based on its multi-person singing room business of K singing audio and video, it upgraded the choral function to support chorus singing by 1,000 people, further expanded the choral scene and immersive experience of the platform, and promoted the penetration rate of singing room to achieve year-on-year growth for five consecutive quarters.
At the performance meeting, Liang Zhu, CEO of Tencent Music Entertainment Group, said that audio live streaming has become an important growth driver for Tencent Music Group.
Perhaps due to the continuous improvement of online music business revenue and the steady willingness of users to pay for music, Tencent Music Group has further increased its determination to sign high-quality content.
After reaching renewal agreements with Jewell Music behind Jay Chou and Believe Music behind Mayday in the last quarter, Titanium Media APP learned that in this quarter, Tencent Music Entertainment Group announced that it signed a strategic cooperation agreement with two heavyweight music labels, including "the only debut on the whole network".
One of them is HYBE, an entertainment company from South Korea. HYBE owns world-renowned music labels such as BIGHIT MUSIC, BELIFT LAB, PLEDIS ENTERTAINMENT, AS WELL AS WELL-KNOWN IDOL GROUPS AND ARTISTS SUCH AS BTS (BULLETPROOF BOYS), ENHYPEN, fromis_9, SEVENTEEN, ZICO, etc., leading the trend of K-POP music.
After the cooperation is reached, the artists and their works under HYBE's major labels will return in an all-round way, and subsequent new works will also be released globally on TME's online music platform, where users can listen to popular KPOP music on QQ Music, Kugou Music, Kuwo Music, National K Song and other platforms.
The other is Studio Ghibli, a world-renowned animation production company from Japan. The popular soundtracks of classic anime movies such as "Sky City", "My Neighbor Totoro" and "Spirited Away" will be launched on TME's four major platforms: QQ Music, Kugou Music, Kuwo Music, and National K Song.
In terms of the progress of cutting-edge technology, Liang Zhu said that in this quarter, TME explored the diversified applications of large language models (LLMs) in the field of AIGC, and believed that this can further activate the platform ecology, help musicians achieve efficiency improvement in key aspects of creation, and create a more dynamic interactive audio entertainment experience for users. In the first quarter, TME's first AI music companion Xiaoqin held a live show to perform songs and dances.
From the performance point of view, TME handed over a fairly good report card, but after the earnings report, in the US stock market, TME once fell more than 8%, as of the close of May 16 Eastern time, Tencent Music fell 3.64%, with a quotation of $7.67 per share.
(This article was first published in Titanium Media APP, author|Li Chengcheng)