The default business model for music streaming services is to license music from copyright holders and then make that music library available to listeners.
but Tencent Music Entertainment (TME), China’s largest music streaming service operator, has added a twist: It is creating its own music and generating it with the help of artificial intelligence.
“Notably, in the third quarter, we deployed AI singing technology to create singles fairy tale townquickly went viral on short video platforms. Liang Ross said during the company’s third-quarter earnings call on Tuesday (November 12).
One clear benefit of a streaming platform creating its own music is that it saves money on licensing fees. (“The increase in our own content continues to help improve our gross margin,” Chief Financial Officer Hu Shirley Indicate during the call.
But for TME, the key driving force is to promote user growth. Providing original content not available elsewhere is a key differentiator from other music streaming services.
Although TME’s paying user base continues to grow rapidly Annual increase of 15.5%arrive 119 million Paying subscribers — the company’s total monthly active users (MAUs) — have struggled in the third quarter. The total number of monthly active users of online music is 576 million In the third quarter, the decline 3% annual increase.
In fact, TME’s monthly active users have been declining for years, falling 85 million from peak 661 million Season 3, 2019. five times) as a regular subscription).
Therefore, there is a need to differentiate the TME’s content from competitors (i.e., NetLouis Cloud Music and China Mobileof Migu music).
To this end, Tencent is not only focusing on AI-driven music, but also expanding its content offerings with the help of AI to include audiobooks. Liang said by phone that TME uses text-to-speech technology to convert “tens of thousands” of books into audio files.
Looking forward, TME sees more opportunities to increase the number of monthly active users through in-vehicle technology and IoT (Internet of Things) technology, which the leadership team believes will be “a huge growth driver in the near future.”
“Our business is steadily expanding [paying] Music subscribers and diverse music services continue to drive overall growth and profitability.
Cussion Pang, Tencent Music Entertainment
Ahead of the earnings call, TME reported Annual growth of 20.4% Revenue growth from its online music services – including QQ Music, Kugou, Those ones and karaoke platform we sing – arrive 5.48 billion yuan ($781 million).
The company also reported Annual growth of 35.3% Net profit growth, to 1.71 billion yuan ($244 million), earnings per share rose to 1.01 yuan ($0.14), higher than 0.74 yuan in the same period last year.
“Our business is steadily expanding [paying] Music subscribers and diverse music services continue to drive overall growth and profitability. Pancuson explain.
Here are three other things we learned on TME’s latest earnings call:
1. TME expects its “Super VIP” subscriber base to double or triple in the next few years
There’s been a lot of talk lately about Spotify’s upcoming “Super-Premium” tier, a pricier subscription service aimed at music superfans, which many in the music industry hope will drive higher streaming in the coming years. Media revenue.
TME has actually beaten Spotify to the punch: Its own “Super VIP” tier has been up and running for a year and costs about five times the price of a regular subscription — approx. $5 per month, compared to $1 Regular monthly subscription.
Super VIP has proven to be very successful, with subscriptions exceeding 10 million Marked in Q3. this means something 8.4% of paid subscribers are paying extra cash for Super VIP subscriptions.
Not surprisingly, this drove TME’s average revenue per paying user (ARPPU) higher. In the third quarter, it was at 10.8 yuan ($1.50), up Annual increase of 4.9%. Still, that number wasn’t enough to satisfy some analysts on the call, who wondered why Super VIP didn’t increase ARPPU further given its much higher price point.
TME leadership explained that when the Super VIP level reaches 20 million arrive 30 million User scope.
Obviously, TME expects the super VIP business to grow significantly in the future. To put this growth into some perspective: the number of super VIP subscribers will be between 2-30 million 17% and 25% All paying subscribers of the total current subscriber base. (Of course, we expect the overall user base to grow as well.)
The TME leadership team also stated that they plan to launch a super VIP family plan.
2. Super VIP transcends music
So how does TME attract such a large proportion of super VIP subscribers?
On the one hand, it offers higher-quality audio (just like Spotify may launch its own Super-Premium tier), including in-car streaming.
Secondly, TME has launched priority access to new digital albums by some popular artists, pre-sales of concert tickets, exclusive fan activities, etc. In other words, it’s targeting music superfans, offering only products and services they might be willing to pay a premium for.
But TME goes a step further and extends super VIP access to content beyond music.
“We have expanded our audiobook content library to include original content and popular IP across a variety of genres, including popular TV series and movies, comics, mysteries and children’s stories,” Liang said during the earnings call.
For those who follow the music streaming business, it’s hard not to notice the similarities between TME’s expansion into non-music content and Spotify’s expansion into podcasts and, most recently, audiobooks.
However, TME appears to be making further inroads into audiovisual content.
This all begs the question: Will music streaming services transform into general media content providers as they seek revenue growth and higher profits? Will they eventually become rivals? Netflix and Youtube (if they haven’t already)?
As the market for music streaming services approaches saturation, we may soon get an answer to this question.
3. TME revenue returns to growth track
Like rival NetEase Cloud Music, TME’s overall revenue has shrunk in recent quarters. That’s not because of its online music business, but because of its “social entertainment services” unit, which was hit hard last year by the Chinese government’s crackdown on online gambling.
For example, testify Annual increase of 48.8% In the third quarter of last year, the decline in social entertainment revenue had an impact on Tencent Music Group’s profits, causing the company’s overall revenue to drop by nearly 10%. 11% that quarter.
Well, that’s all behind us now. In the latest financial report, TME’s overall revenue grew to Annual increase of 6.8%arrive 7.02 billion yuan (US$1 billion), which not only benefited from the steady growth of music revenue, but also benefited from the narrowing of the decline in social entertainment revenue, which “only” fell 23.9% arrive 1.54 trillion yuan ($219 million). Perhaps more importantly, social entertainment has seen an increase in paying users Annual increase of 1.9%arrive 7.9 million.
So what’s driving the rebound? The first is WeSing, a karaoke platform owned by TME. TME has been investing heavily in karaoke’s live broadcast capabilities and karaoke’s advertising business, achieving what the company’s leadership said was “better-than-expected performance.” Similarly, on the Kugou platform, TME has been innovating the integration of games and live broadcasts.
In short, TME is looking for new revenue streams to offset the loss of its online gambling customer base. Looking ahead, the company’s leadership expects “very stable growth” in the social entertainment division.global music business
