Spotify’s latest quarterly results are out in a few hours’ time, but Daniel Ek – who is planning to launch a ‘super-premium tier’ on his own platform – might be slightly distracted by some revelatory stats that just arrived out of China.
Tencent Music Entertainment has published its financial results and user metrics for Q3 2024 (the three months ending September 30).
Although its total MAUs of online music fell 3% YoY to 576 million, TME reported on Tuesday (November 12) that the number of users paying for access to its services increased 15.5% YoY to 119 million (see below).
TME – the largest operator of music services in China and owner of the QQ Music, Kugou, Kuwo, and WeSing platforms – added 2 million net music subscribers in Q3 compared to the prior quarter (Q2 2024).
But perhaps even more interesting was TME’s ability in Q3 to convert paid subscribers to ‘Super VIP’ subscribers.
The company confirmed on Tuesday that it counted over 10 million SVIP subscribers as of the end of September 2024.
In other words, 8.4% of TME’s total paid users subscribed to TME’s ‘Super VIP’ tier, which costs five times as much as a regular subscription.
We know that the launch of a more expensive ‘Super VIP’ tier is something Spotify is itself busy planning for launch.
The company hasn’t yet confirmed what extra trinkets such a tier might offer users. But in July, speaking to analysts, Daniel Ek suggested said it would be for “huge music lovers who are primarily looking for even more flexibility in how they use Spotify and the music capabilities that exist on Spotify.”
Ek also mooted a price: “Something like $5 above the current Premium tier… probably around a $17 or $18 [per month] price point”.
Tencent Music’s music subscriber monthly ARPU (Average Revenue Per User), as you’d expect in China, is significantly lower than the numbers cited by Ek.
A standard Tencent Music app music subscription costs around USD $1; a ‘Super VIP’ subscription is closer to $5.
Partly thanks to the growth in ‘Super VIP’, TME’s monthly subscriber ARPU grew 4.9% YoY to RMB10.8 (approx. USD $1.50) in Q3 2024.
TME CEO Ross Liang explained on Tuesday that the company’s “robust music subscription performance”, plus “better-than-expected net subscriber additions and an expanding ARPPU” highlight TME’s “effectiveness of [its] balanced approach to achieve growth,” which he added, is “important to drive paying user base expansion in the coming years”.
But TME’s CEO pointed specifically to what he calls “enriched and differentiated user privileges” – i.e. segmentation of its paying user base as a significant growth driver for the company’s music streaming business.
According to Ross Liang, TME’s “value proposition for more premium memberships ha[ve] been well accepted” amongst its user base, which he added, is “cultivating greater loyalty on our platform.”
The company also cited “attractive membership privileges, optimized user operations and effective promotions, as well as the expansion of [its] SVIP membership program” as reasons behind the growth of its paying user base and monthly ARPPU.
Key players in the global music business will be watching the performance of TME’s ‘Super-VIP’ subscription offering very closely.
At Universal Music Group‘s Capital Markets Day in September, UMG Executive Vice President and Chief Digital Officer, Michael Nash called TME’s Super-VIP tier “another exciting example of how product innovation can significantly enhance customer value”.
He added: “We expect ‘super-premium’ tiers to be deployed by most streaming platforms, enhancing the subscriber experience, bringing fans closer to the artists they love, and significantly increasing subscription revenue”.
At the end of October, on Universal Music Group’s Q3 earnings call, UMG Chairman and CEO Sir Lucian Grainge argued that a key factor in the evolution of the streaming business “will be improving customer acquisition strategies to drive greater conversion from free to paid and then from paid onto the superfan tier”.
“By offering enriched and differentiated user privileges, our value proposition for more premium memberships has been well accepted, cultivating greater loyalty on our platform.”
Ross Liang, TME
Two of the primary growth drivers for the adoption of its SVIP tier in Q3, according to TME, were premium audio quality and “enriched long-form audio offerings”.
Features such as QQ Music’s Premium Sound, DTS sound quality, and Kugou Music’s Viper Ultra Sound “helped enhance” SVIP member experiences, the company said.
“We also expanded the Viper series privileges to in-vehicle use through strengthened partnerships with Xiaomi, Li Auto, and NIO,” added TME on Tuesday.
The company also said that it collaborated with artists and labels to offer Super VIP members “additional privileges,” which it said, “enhance[es] conversion and loyalty”.
Additional privileges for SVIP subscribers include what TME calls “complimentary access to an extensive digital album collection” as well as “Proprietary concerts and fan engagement activities”, such as pre-sales for ticket concerts by G.E.M., Mariah Carey, and TIA RAY during the quarter.
Elsewhere within Tencent Music Entertainment’s most recent results, in terms of finances, the company reported that its revenues from online music services increased 20.4% YoY to RMB5.48 billion (USD $781m) from RMB4.55 billion in the same period of 2023 (see above).
TME said that this increase “was driven by solid growth in music subscription revenues, supplemented by growth in revenues from advertising services”.
Revenues generated by TME from music subscriptions specifically reached RMB3.84 billion (USD $547m) in Q3, representing 20.3% YoY growth compared with RMB3.19 billion in the same period of 2023.
“The steady expansion of our music subscribers and diversified music services continue to drive overall growth and profitability.”
Cussion Pang, TME
Cussion Pang, Executive Chairman of TME, added: “Our commitment to high-quality growth is reflected in another solid quarterly performance.
“The steady expansion of our music subscribers and diversified music services continue to drive overall growth and profitability.
“We are encouraged by the growing synergies between our platform and well-established content ecosystem, which have become a vital force in empowering us to seize new opportunities for long-term, sustainable growth.”Music Business Worldwide
