Tencent Music (TME) has announced its latest quarterly financial results, with the headline being a 42.2% year-on-year increase in paying online-music users to 35.4 million. As the company pointed out, this growth has been accelerating: Tencent Music’s streaming services added 4.4 million new paying-users in the third quarter of 2019, compared to 2.6 million in Q2, and 1.4 million in Q1.

TME reported 661 million mobile monthly-active-users (MMAUs) for Q3, which represented just 0.9% year-on-year growth. Its conversion rate has thus improved: 3.8% of its listeners were paying a year ago, but 5.4% are now. TME’s revenues from online-music grew by 26.2% year-on-year to RMB 1.85bn ($258m), including a 48.3% increase in music-subscription revenues to RMB 942m ($132m).

Among the notes from its financials announcement: TME talked about its promotions for Taylor Swift’s recent music. “The title song of her new digital album Lover sold nearly 6 million copies within 24 hours on its platform after release,” explained its filing, which also noted that a partnership with artist Jay Chou generated “record sales” of his ‘Won’t Cry’ single, and “inspired more than 12 million karaoke recordings by the Company’s WeSing users within 10 days after its release”.

(Chou was recently the subject of a lawsuit between TME and NetEase Cloud Music, with TME reportedly prevailing this week.)

TME also talked about its work with independent artists, who can upload their music directly to its platform for distribution on its streaming services – a feature Spotify recently pulled away from in the west, but which is far less controversial in China. “The total number of uploaded songs by up-and-coming musicians for the first nine months of this year more than doubled year-over-year,” announced the company. “The average number of daily streams of original songs on TME’s integrated music platform including QQ Music, Kugou Music and Kuwo Music was up almost 200% compared with the same period a year ago.”

As for WeSing, and the wider ‘social entertainment’ business division for TME, that continues to be much bigger than music-streaming, if slower-growing. Its revenues (which besides karaoke also come from live-video and other social apps) grew by 32.9% year-on-year to RMB 4.66bn ($652m) in the third quarter, accounting for 71.6% of Tencent Music’s overall revenues. This, despite its number of paying social-entertainment users (12.2 million people) being nearly a third of its music subscribers.

These two divisions can work together in service of artists, though: a live-video stream of a concert by Chinese group TFBOYS attracted 45 million viewers, and used a virtual gifting feature to enable fans to “show appreciation”. In TME’s earnings call, CEO Cussion Pang made it clear we can expect more of this. “Frankly speaking, we think that the fan-based economy is going to be one of the very important drivers for our business [going] forward,” he said.

There was also an insight into how TME’s multi-faceted paywall is working: not just reserving some music for paying subscribers to its streaming services, but sometimes drawing the paywall even tighter. Chief strategy officer Cheuk Tung Tony Yip explained, with reference to Jay Chou’s latest album. “In the sales period, the Jay Chou actually helped our digital album revenue as opposed to the music subscription revenue, because only users who bought the digital album are able to listen to the song, not even the monthly subscribers for the time being.”

However, Pang said that TME is planning to “continually add in more content behind the paywall: right now, we’re just in the high single digits and we will continue to add on top of this… but we are going to do it in a gradual manner”. Again, this is one of the big differences between Spotify’s past battles against paywalling music in the west, and what’s becoming an established part of the music-streaming world in China, where it’s seen as a key factor in growing conversion rates.

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Stuart Dredge

Music Ally's Head of Insight

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