NetEase Cloud Music – China’s second-largest operator of music streaming services, behind Tencent Music Entertainment – has reported a 15.3% YoY increase in paid subscribers in 2023, as the company rolled out new AI tools for user-generated music and enhanced its offerings to superfans.
In its full-year earnings report for 2023 (ended December 31) the company said it had 44.12 million paid subscribers at the end of 2023, compared with 38.27 million a year earlier.
That puts it well behind market leader Tencent, which reported 103.0 million paying subscribers at its various streaming services in Q3 2023, an increase of 20.8% YoY. Tencent Music will report its full-year earnings for 2023 on March 19.
NetEase’s revenue from music services grew by 17.6% YoY to RMB 4.4 billion (USD $621.1 million, at the average exchange rate for 2023), which the company attributed “primarily… to the growth in revenue from sales of membership subscriptions.”
Revenue from subscriptions alone (excluding advertising and direct sales of music) grew by 20.2% YoY, NetEase said.
The company recorded 205.9 million monthly active users (MAUs) in its online music services division in 2023, up 8.7% YoY, which suggests that the rate of paying subscriber growth is nearly doubling the rate of overall active user growth.
Monthly average revenue per paying user (ARPPU) rose to RMB 6.9 ($0.97), up 4.5% YoY. The company credited “optimized promotions” for the increase.
Company-wide, NCM reported its first-ever adjusted net profit, despite an overall decrease in revenue.
The company’s social entertainment services division recorded a 33.6% YoY decrease in revenue, to RMB 3.5 billion ($494.1 million) “mainly due to a more cautious operating strategy we adopted, such as reducing the in-app exposure of certain functions and lowering the revenue sharing ratio, and a further strengthened internal control mechanism.”
Both NCM and TME have been reporting steep revenue declines in their social entertainment divisions in recent quarters, which analysts attribute to a crackdown on online gambling by the Chinese government.
Nevertheless, the company clocked an adjusted net profit of RMB 818.5 million ($115.5 million), versus an adjusted net loss of RMB 114.6 million a year earlier. That marks “our first positive full-year bottom-line performance,” noted the company, which has been operating music streaming since 2013.
NetEase attributed the swing to profitability on “monetization momentum from our core online music business and our optimized operating efficiency and cost structure.”
At a time when the major recording companies are searching for ways to better monetize superfans (see, for instance, Warner Music Group’s recent announcement that it’s developing a superfan app), NCM boasted of its accomplishments in converting users to higher-priced premium experiences.
“We continually engage our community to have more music-inspired connections and strengthen the bonds within our community.”
NetEase
“We continually engage our community to have more music-inspired connections and strengthen the bonds within our community. We have made ongoing improvements to our Fans Space function, an interactive platform for artists and their fans to connect and encourage interaction among users with similar music tastes,” the company stated in the earnings release.
The company also expanded its catalog of songs, which it says has now reached 149 million tracks – nearly 50% more than the approximately 100 million tracks available on Spotify – and it says it is actively promoting “advantageous” music genres.
“Music genres such as hip-hop and Chinese folk have seen a surge in popularity on our platform,” the company noted.
NetEase Cloud Music is notable for its efforts to increase listener engagement by developing DIY artist talent. The company reported that, as of the end of 2023, nearly 684,000 artists had signed up to its independent artist program, and had contributed some 3.1 million music tracks to its library.
That represents an 11.9% YoY increase in the number of registered artists.
The company has rolled out a number of features and services for those artists, including what it called “a suite of AI-enabled tools to make music creation more accessible and efficient”.
It added: “The NetEase Tianyin platform is an all-in-one AI music creation tool that assists musicians with songwriting and music arrangements. We made NetEase Tianyin accessible to all musicians beginning in August 2023, and continually streamline the process of creating and releasing music.”
NetEase has also rolled out X Studio, an AI-driven voice synthesizer that “offers a wide range of natural singing voices, covering styles like pop and folk, that musicians can conveniently select from”.
The company is also employing AI to enhance the user experience, for example with Private DJ, an AI-driven song recommendation tool that is not unlike Spotify’s AI DJ.
Also not unlike Spotify, NetEase Cloud Music is expanding its offering to include long-form audio content. The company has been rolling out professional and user-generated podcasts, as well as audiobooks and radio dramas. Total listening time on long-form audio grew by 70.9% YoY in 2023, NetEase said.
The company’s earnings release also offered some insight into future plans, which include continuing its efforts at reining in costs, deepening collaborations with rights holders (for instance through direct sales of digital and physical albums), and strengthening community engagement by “explor[ing] innovative interpersonal interaction via comprehensive enhancements to our product offerings.”
Finally, the company plans to “cultivate our users’ willingness to pay and subscribe to premium offerings by improving user experience, deepening user engagement, enhancing membership privileges and broadening consumption scenarios.”Music Business Worldwide
