TME, owner of QQ Music, Kugou and Kuwo, reached a total of 35.4m paying music subscribers in the three months to end of September, while the firm’s online music services – including both streaming and downloads – generated RMB 1.85bn (US $258m) in the quarter.
In terms of ‘free’ users, though, TME is the undisputed heavyweight. The company’s overall online music user count (across free and paying) hit 661m in Q3, up 0.9% YoY.
That figure not only meant that TME’s paying subscribers (35.4m) made up just 5.4% of its total monthly music audience, it also dwarfed Spotify’s equivalent global MAU reach in Q3, of 248m people.
There was plenty for TME to unilaterally celebrate in its Q3 results – not least that its number of paying music subscribers (35.4m) was up 42.2% year-on-year, and that revenues generated from these subscriptions, specifically, reached RMB 942m ($132m) in the period, a 48.3% YoY increase.
TME’s Chief Financial Officer, Shirley Hu, revealed on an earnings call yesterday: “The [48.3% subscriber revenue] growth was mainly driven by the addition of premium content and our pay-for-streaming model and the continued improvement in subscriber retention rate.”
And here’s another important number, which we’re about to dive deeper into: the subscriber ARPPU (Average monthly Revenue Per Premium User) of TME’s online music services grew 4.7% YoY in Q3, hitting RMB 8.9 (the equivalent of around $1.27).
So why did TME’s paying subscriber count shoot up in the last quarter?
This strategy, believes TME, will drive up paying subscribers while also raising ARPPU. The firm’s Q3 results suggest it’s onto something.
How much content is TME willing to make pay-only?
As Cussion Pang, CEO of TME, explained to investors yesterday, it’s perhaps more than you’d think. “We are going to continually add in more content behind the [streaming] paywall,” he explained. “Right now, we’re just in the high single digits; we will continue to add on top of this… in a gradual manner.”
“Right now, we’re just in the high single digits [of music content behind a paywall]; we will continue to add on top of this… in a gradual manner.”
Cussion Pang, Tencent Music Entertainment (pictured)
That “high single digits” comment, as later clarified by TME’s Chief Strategy Officer, Tony Yip, referred to the percentage of music content on TME services placed behind a paywall.
Yip noted that, at the start of 2019, “zero percent of our content [was] behind a paywall”. He then reiterated that this figure will “reach a high single-digit percentage by year-end”. In other words, over 5% of tracks… moving up towards 10%.
On Spotify, of course, that figure (the percentage of premium-only music in its library) is currently at 0%… although, in China, unlike the majority of territories in which Spotify is active, TME does not need to compete with YouTube.
Pang said that TME is “receiving really encouraging results” from its paywall strategy, especially in terms of monthly subscriptions, and that it now has “the confidence that people are willing to pay for high-quality content”.
The firm also noted to investors that its ARPPU was helped by some auto-subscription renewals being moved up to a higher price point in the quarter.
Another interesting revelation regarding TME’s Q3 results: last quarter, QQ Music released the latest album from Taiwanese superstar Jay Chou, which it made exclusively available as a download.
Tony Yip clarified with investors yesterday that Chou’s latest album did not contribute to his company’s Q3 music subscription revenue, because the record was not made available on TME’s premium streaming tiers in the period. It was, however, made available as a download – and it was so popular, it temporarily crashed QQ Music.
In this way, TME has set its model for major releases up as something akin to what we’re more used to seeing from the movie industry: A big release, like Chou’s new album, is made available for a limited time as a paid-only download, before, after a certain period, also becoming available for premium streaming subscribers. Two bites of the cherry, in monetization terms, from one release.
“International artists enjoy and benefit from our promotional capabilities, which allow them to connect with music lovers in China… A case in point, the title song of Taylor Swift’s new digital album, Lover, sold nearly 6 million copies [in China] within 24 hours on our platform after release.”
One more revelation that came out of TME’s Q3 earnings call? It confirmed that it made Taylor Swift a priority in the quarter, helping showcase the firepower it can offer an artist from outside China.
“International artists enjoy and benefit from our promotional capabilities, which allow them to connect with music lovers in China,” said Pang. “A case in point, the title song of Taylor Swift’s new digital album, Lover, sold nearly 6 million copies [in China] within 24 hours on our platform after release.”
Despite the growth in online music revenues at TME in Q3, these sales remain a minority vertical for the company.
The majority of its revenues still come from ‘social entertainment services’ (including online karaoke platforms) and other sources – which, in the third quarter of 2019, generated RMB 4.66bn ($652m) – up 32.9% YoY.
TME’s total revenues for the third quarter of 2019 increased by RMB1.54 billion, or 31.0%, to RMB 6.51bn ($910m).
Operating profit at the company increased by 11.9% in Q3 to RMB 1.19 bn ($166m) in the quarter, while net profit was RMB 1.03bn ($144m).
Spotify owns an approximate 9% stake in TME, which TME – combined with its parent, Tencent Holdings Ltd. – owns a stake of similar size in Spotify.Music Business Worldwide
