In the second quarter, the number of paying users of Tencent Music increased significantly, but the profitability of online music is still insufficient, and social entertainment is responsible for profit.
Source: Visionary Finance
Author: Yang Yi
Beijing time on August 13th, compared with many media and industry insiders “China’s Spotify” Tencent Music Entertainment Group (NYSE: TME) released the second quarter ended June 30, 2019 Audited financial performance report.
Financial report data shows that Tencent Music has maintained growth in terms of revenue and scale of paid users. In the second quarter of 2019, Tencent Music achieved revenue of 5.988 billion yuan, a year-on-year increase of 31%; operating profit was 1.085 billion yuan, an increase of 7%.
During the reporting period, the number of paid users of Tencent Music Online Music Services reached 31 million, an increase of 33% year-on-year; the number of paid users of social entertainment services reached 11.1 million, an increase of 16.8%.
The previous quarterly report released by Spotify in the 2019 report showed that Spotify’s total revenue was 1.667 billion euros (about 12.79 billion yuan), a year-on-year increase of 31%. Among them, paid service revenue was 1.502 billion euros (about 115.24 billion yuan), an increase of 31%. Advertising-supported service revenues were 165 million euros (about 1.266 billion yuan), a year-on-year increase of 34%.
Spotify now has 108 million paying users, a 30% increase over the same period last year. Revenue from paying users accounted for nearly 90% of the company’s total revenue, reaching 1.502 billion euros (about 115.24 billion yuan).
From the data of the two companies’ financial reports, the development of streaming media music is welcoming a good time. Although the online music paying users of Tencent Music have increased significantly in the second quarter, the acceptance of “music payment” in the market is still very low. Social entertainment will take on the profit task of online music platform for a long time in the future.
Social Entertainment Services is responsible for “profit” tasks, with revenues exceeding 73%
Tencent music financial report shows that its income mainly comes from online music service and social entertainment service. Online music services include subscription services, singles and digital albums, advertising, copyright transfer, and more. Social entertainment services and others include live rewards, membership fees, and smart device sales.
Although Tencent Music has 652 million mobile MAUs, the profitability of Tencent Music’s online music service business is still insufficient. According to financial report data, the number of online music paying users is 31 million, and paid users only account for 4.8% of monthly users.Online music services revenue was 1.562 billion yuan, accounting for 26.5% of the company’s total revenue.
In the Q2 quarter of 2019, the mobile MAU of Tencent Music Social Entertainment Services was 239 million people, and the number of paid users was 11.1 million. Paid users account for only 4.6% of monthly users. Social entertainment services revenue was 4.336 billion yuan, accounting for 73.5% of the company’s total revenue.
Social Entertainment Services revenues nearly tripled in revenue from online music services, which was mainly due to the company’s online karaoke and live broadcast revenue growth. It can be seen that the willingness of users to pay for social far exceeds the willingness to pay for music singles and albums. The social entertainment business is the “profit” of Tencent music, while the online music business is more to attract users and maintain the growth of users.
The financial report shows that Tencent Music’s online music service monthly ARPPU (average pay-per-user revenue) was 8.6 yuan, down 1.1% from the same period of last year; social entertainment service monthly ARPPU was 130.2 yuan, an increase of 16.5% over the same period last year.
Overall, Tencent Entertainment pays a very small percentage of users. From the perspective of the proportion of paid users, users are more willing to pay for live broadcasts with social attributes, virtual gifts for universal karaoke, and value-added members, while the willingness to pay for music singles and digital albums is even lower. Tencent Music needs to be improved in the business value mining of users. The low conversion rate and the slow growth rate of the payment rate are the problems that Tencent Entertainment needs to solve. In a short period of time, Tencent Music is difficult to make a profit in online music payment, and social entertainment will bear the main task of profitability for a long time in the future.
Music copyright investment has dragged down Tencent’s music profit
The strong demand for copyright in the online music market will inevitably lead to a continued rise in copyright prices.
According to previous disclosures, as of March 31, 2019, Tencent Music’s music library included more than 35 million songs from domestic and international music labels.
As we all know, music copyright comes mainly from record companies. As a US-listed company of Tencent, Tencent Music won the Warner Music copyright in 2014, Sony Music Copyright in 2016, and signed a digital copyright distribution agreement with Universal Music in China in May 2017 to complete the copyright cooperation with the three major international record companies.
A few days ago, French media group Vivendi issued a statement saying that Tencent Holdings will acquire a 10% stake in its global music, and Tencent has the right to acquire another 10% in the coming year. The leadership of Tencent Music continues to strengthen its content.
The competition for music copyrights is bound to lead to an increase in costs. According to financial report data, the operating cost of Tencent Music in the second quarter was 3.96 billion yuan, an increase of 46.1% compared with 2.71 billion yuan in the same period last year. The year-on-year growth rate of operating costs exceeded the 31% revenue in the second quarter.Specific growth rate.
Tencent Music said that the year-on-year increase in operating costs was mainly due to the increase in content expenditure and revenue share, with the increase in content expenditure mainly due to the increase in the price and quantity of licensed and produced music content markets. The growth of the company’s social entertainment services business has led to an increase in revenue sharing as it provides users with more professional content and encourages users to interact through initiatives.
Financial report data shows that Tencent Music’s operating expenses in the second quarter was 1.05 billion yuan, a year-on-year increase of 26.1%, accounting for 17.8% of total operating revenue.
In the second quarter of 2019, marketing and promotion expenses were RMB 416 million, an increase of 11.2% year-on-year compared with RMB 374 million in the same period of 2018. The increase in this fee was mainly due to the company’s corresponding marketing expenses for promoting the company’s products and brands and expanding the number of users.
In the second quarter of 2019, administrative expenses were RMB 634 million (US$92 million), an increase of 38.1% year-on-year from RMB 459 million in the same period in 2018. The company has increased its R&D investment to expand our product and technology advantages, such as enhanced referrals.
“Social Entertainment”, the confrontation between Tencent Music and NetEase Cloud Voice
When it comes to online music, everyone naturally thinks about Tencent Music and Netease Cloud Music. The competition between the two has always attracted attention. Although Netease Cloud Music and Tencent Music are not an order of magnitude, Netease Cloud Music is also a non-negligible existence.
A few days ago, Netease said in the 2019 second quarter report conference that the total number of Netease cloud music users has exceeded 800 million, a year-on-year increase of 50%; at the same time, Netease cloud music paid effective members increased by 135% year-on-year. For the outside world to pay attention to the profitability of NetEase cloud music, Ding Lei said: “How to be profitable, in general, one member, the number of members has been continuously developing, the second is advertising, and the third is our live audio, is a new UGC (user-generated content) platform model, the fourth, we will explore the deeper social functions of cloud music, the community will be social. We are more confident and confident in the profitability of these four aspects.”
Netease cloud music profitability is also achieved by tapping the value of “social entertainment” business.
A few years ago, Ding Lei once defined Netease Cloud Music as a music community. Early NetEase cloud music successfully attracted users through the music comment area and daily recommendation function, so it is easy to see that NetEase cloud music emphasizes its “social” attribute.
Because of the lack of music copyright, NetEase Cloud Music launched the Musician Support Program as early as 2016, and through the support of independent musicians, to cultivate their own musicians and enrich the music content of the platform. Up to now, Netease musicians have reached 80,000+, producing 20,000+ original songs each year.
After several revisions, the current NetEase cloud music has become a more “music”-themed community. Netease Cloud Music has launched a new section of “Yuncun Community” in the new version. Users exchange ideas, create and share emotions around music. At the same time, the “square” page and the “city” section have been added, and the Mlog (Music log) function has been added.
From the product point of view, Netease Cloud Music’s social strategy is more focused on music + social. In terms of commercialization, paying music, advertising and music live broadcasts, performance ticketing, and music surrounds are many of the popularizations of cloud music commercialization. Among them, paid music and live broadcast are the focus of cloud music commercialization.
Tencent music is different from Netease cloud music. As can be seen from the latest earnings report of Tencent Music, Tencent Music’s main profit point is in social entertainment services, and its social strategy is more focused on entertainment. Although Tencent Music has a large user base, the revenue contribution is Tencent’s K-song, cool dog, cool K-song and music show.
Tencent music has also increased its efforts in original content.
Mr. Peng Jiaxin, CEO of Tencent Music Entertainment Group, said: “We have strengthened our collaboration with our partners to produce and distribute more high-quality original content, including games, movies and TV dramas within the Tencent ecosystem. The development of original music works. In the social entertainment business segment, we not only effectively expand the user scale through small programs and lightweight versions, but also enhance user activity by introducing new product play methods, especially social functions with high user engagement.
In the second quarter, Tencent Music also added music-like variety shows, short videos, and long audio such as podcasts and audiobooks; adding short videos on the “cool dog music” music playback page, allowing users to have one side on the Tencent music platform. Listen to music while watching quality PGC and UGC videos. The company has comprehensively promoted the “K-Kong” small program and launched the APP Extreme Edition to reduce the threshold for users and attract new users.
Mr. Ye Zhuodong, Chief Strategy Officer of Tencent Music Entertainment Group, said: “In order to let users enjoy the music experience anytime and anywhere, we are building an Internet of Things with leading manufacturers of cars, smart speakers and smart watches. In the future, this will be us. To gain access to new channels for more users. In the internationalization strategy, our social entertainment services have already taken the country, and ‘National K songs’ is the first to explore overseas development opportunities in the Southeast Asian market.”
Although Tencent Music and Netease Cloud Music are different in business model, at the current stage, both parties have placed their profitable business in social services such as paying members and “live”, Tencent Music and Netease Cloud Music. The battle for victory is far from over.
At present, the domestic streaming media platform is still in a difficult stage of commercial realization. The cost of music copyright is high, the size of registered users is almost saturated, the willingness of users to pay is low, and it takes a long time to cultivate users’ awareness of payment. After the Internet enters the era of stock competition, sustainable useHousehold value mining and business exploration have become urgent issues for domestic streaming media platforms such as Tencent Music and Netease Cloud Music.