On May 13, the financial report for the first quarter of 2024 was released. In the first quarter of 2024, Tencent Music's online music service showed strong growth.
According to the data, Tencent Music's total revenue was 6.77 billion yuan, a year-on-year decrease of 3.4%; net profit was 1.53 billion yuan, a year-on-year increase of 27.5%; Non-IFRS net profit was RMB1.81 billion, up 23.9% year-on-year. Its online music subscription revenue increased by 39.2% year-on-year to RMB3.62 billion, and the number of paid subscribers increased by 20.2% year-on-year to RMB113.5 million, with a net increase of 6.8 million, a record high.
In the statement of Peng Jiaxin, Executive Chairman of Tencent Music Entertainment Group, we see the two core concepts of Tencent Music: focus on high-quality growth to promote net profit margin; and launch more personalized functional experiences to meet user needs.
Financial analysis behind the strong growth
According to the financial report, although Tencent Music's overall revenue fell by 3.4%, its adjusted net profit increased by 23.9% year-on-year to 1.81 billion yuan. This was driven by significant growth in online music subscription services, digital music distribution and advertising. In particular, the music subscription business performed particularly well with a year-on-year increase of 38.5% in revenue.
It is worth noting that Tencent Music has successfully boosted a net increase in users through a series of price increases and promotional activities, and the payment rate is approaching 20%, a record high. Revenue from sublicensing, digital albums and advertising grew by 56% year-on-year, thanks to the strong traffic base of Tencent's ecosystem.
For example, WeChat is testing the "Listen to Music" tab, although the pull effect on MAU growth in the short term is not significant, but the related traffic will definitely not be less in the later stage.
Challenges and opportunities for Tencent Music
Of course, the financial report also exposed the business challenges faced by Tencent Music. Despite the increase in the number of paying subscribers, the quarter-on-quarter growth in music subscription revenue narrowed, while ARPPU also declined, suggesting that there may be pressure on users' willingness and ability to pay. This indicates that the number of paying users increased to 113.5 million, and this part of the increase is likely to be dependent on promotions during the Spring Festival.
The social entertainment business used to be the core source of profit for Tencent Music, but with the adjustment of the live broadcast industry and the rise of short video platforms, the business has experienced a serious decline. Factors such as user churn and regulatory pressure have led to almost halving its revenue. The average revenue per user (ARPPU) still far exceeds that of online music businesses, reflecting the willingness of users to pay for entertainment services that incorporate social elements.
AI helps break through again
While facing challenges, Tencent Music has made AI a key point for a new round of growth opportunities. The application of AI in the music industry has gradually deepened, enriching music consumption scenarios and improving the convenience and interest of music discovery.
Tencent Music follows this trend, pushes high-quality music content through AI, and applies AI at multiple levels, such as AI vocal separation on QQ Music, AI smart covers, AI lyrics auxiliary reference and other AI tools. These AI tools greatly enrich the user experience.
However, AIGC has given Tencent a big problem, and the previously popular Suno has proved that the AIGC wave is likely to subvert the traditional content creation ecology - even if users don't know anything about music creation before, they can still create AI music that sounds good and even touches people's hearts. This will exacerbate the livelihood concerns of original musicians, and will also cause panic among upstream music rights companies.
epilogue
To sum up, Tencent Music showed strong growth in Q1 earnings, but it also faced a series of challenges. Through the application of AI technology, Tencent Music is expected to further expand the market and achieve greater development. However, in order to achieve sustainable growth, Tencent Music needs to continue to innovate, respond to market changes, and continuously improve the user experience, so as to win the continuous recognition and support of users.