Dealmaking in China’s digital music ecosystem is changing fast, moving on from the time when big labels would license their catalogues exclusively to one streaming company, which would in turn sub-license it to its rivals. Nudged by, well, let’s call it strong encouragement from the Chinese government, the market is now moving away from exclusivity and sub-licensing.
Witness a pair of Sony Music announcements overnight. First, an extension of its deal with Tencent Music (TME) covering that company’s three music streaming services as well as its livestreaming and karaoke offerings and devices including smart speakers, TVs and in-car systems. Second, a new direct deal with TME’s rival NetEase Cloud Music. Separate, direct agreements is very much the pattern now.
In separate news, Tencent Music announced its latest financial results overnight too. It ended the first quarter of this year with 60.9 million online music paying users – a metric that, as ever, includes streaming subscribers but also people buying digital albums from TME services.
That means TME added 4.9 million paying users in Q1: “the largest quarterly net increase since 2016” according to the company. 9.9% of its listeners – overall it has 615 million of them – are now paying, which suggests there is more room to grow its conversion rate in the quarters and years ahead.
TME’s music services have actually lost 42 million monthly active users in the last year: the figure stood at 657 million at the end of Q1 2020. “Primarily due to some churn of our casual users served by pan-entertainment platforms,” was the company’s explanation for this. “For our core music users, they have become more engaged with our platform, as evidenced by a year-over-year increase in total music user time spent during the first quarter of 2021.”
TME is also facing increased competition in its other main business of ‘social entertainment’ – karaoke and livestreaming mainly. The number of monthly active users for those services has fallen from 261 million this time last year to 224 million now, while (unlike streaming music) the number of paying users has also dropped, from 12.9 million to 11.3 million.
Other points of note: TME’s music subscription revenues grew by 40.2% year-on-year to RMB 1.69bn ($258m) but its advertising revenues more than doubled; the company posted a net profit of RMB 979m ($149m) on revenues of RMB 7.82bn ($1.19bn); and it now has more than 200,000 independent artists uploading directly to its Tencent Musician platform – another figure that more than doubled year-on-year.
There are also some interesting things afoot in TME’s social features on its streaming services. The company says its Putong Community has become “one of the leading channels for fan-idol interaction and content promotion”, while its Kugou Fans Club has “drawn many leading artists, labels and content IPs to interact with their fans live”.
NetEase Cloud Music is also well known for its thriving comments ecosystem and other social aspects. Another reminder that China may have some important lessons for the global streaming services, if and when they take another crack at doing more with social features.