China’s online music market giant Tencent Music Entertainment Group (NYSE: TME) released its second-quarter earnings report for 2019. Tencent Music achieved revenue of 5.988 billion yuan, a year-on-year increase of 31%, and operating profit of 1.085 billion yuan, a year-on-year increase. 7%; the number of paid users of online music services was 31 million, an increase of 33%; the number of paid users of social entertainment services reached 11.1 million, an increase of 16.8%. Tencent Music has maintained growth in terms of revenue and scale of paid users.
For the previous Tencent acquisition of Universal Music shares, Tencent executives responded at the performance call: “The discussion is still in the early stages and no final decision has been made. The group will also actively discuss. We are open to strategic cooperation. For example, our cooperation with Sony and Warner will continue to evaluate and explore opportunities for cooperation.”
Social entertainment is still the main force of growth
At present, the total number of paid users of Tencent Music is second only to Spotify and Apple Music, ranking the top three in the world. This quarter is the quarterly net growth of TME paying users since the first quarter of 2018, but the highest proportion of profit is still social entertainment business.
According to official information, Tencent Music’s revenue sources are mainly divided into online music services and social entertainment services, which account for 26.5% and 73.5% of total revenue, respectively. Among them, online music service revenue includes subscription services, single and digital albums, advertising, copyright transfer, etc. Social entertainment service revenue includes live rewards, membership fees, and smart device sales.
Operating costs soared
Music copyright is the focus of competition in the online music market, and it also makes the copyright expenditure in Tencent’s music operating costs high. According to the statistics, the operating cost of Tencent Music in the second quarter was 3.96 billion yuan, an increase of 46.1% from the 2.71 billion yuan in the same period last year. The year-on-year growth rate of operating costs exceeded the year-on-year growth rate of 31% in the second quarter.
Tencent Music said that the year-on-year increase in operating costs was mainly due to the increase in content expenditure and revenue share. The increase in content expenditure was mainly due to the increase in the price and quantity of authorized music content and the growth of the company’s social entertainment services. The increase in revenue share is because it provides users with more professional content and encourages users to interact through initiatives.
The industry is still in a difficult stage of commercial realization
Although Tencent Music has achieved profitability, the profitability of the overall online music market still needs to be improved. According to the analysis of the Prospective Industry Research Institute, in the various types of APPs frequently used by mobile Internet users in 2018, the length of network music usage was 8.6%, second only to instant messaging (15.6%) and online video (12.8%), and the usage rate was higher. Music software has become the third-largest category of applications behind communications software and video software.
The number of users of Tencent Music is also constantly improving. According to the financial report, the mobile MAU (monthly active users) of social entertainment services in the second quarter was 239 million, an increase of 4.8% year-on-year, of which 11.1 million were paid users, up 16.8% year-on-year, and ARPPU (average pay per user) From 111.8 yuan in the same period last year to 130.2 yuan. The online MAU has a mobile MAU of 652 million people, a year-on-year increase of 1.2%. The number of paying users was 31 million, an increase of 33.0% year-on-year. The ARPPU decreased from 8.7 yuan in the same period last year to 8.6 yuan.
Industry insiders pointed out that the current domestic streaming media platform is still in a difficult stage of commercial realization, the cost of music copyright is high, the registered users are almost saturated, the user’s willingness to pay is low, and it takes a long time to cultivate users’ awareness of payment. After the Internet enters the era of stock competition, Continuous user value mining and business exploration have become urgent issues for domestic streaming media platforms such as Tencent Music.