Tencent Music promotional photos Source: Official website
Tencent Music increased revenue last year but did not increase profit
Today, Tencent Music Entertainment Group (TME, hereinafter referred to as Tencent Music) released its fourth quarter and full-year financial reports as of December 31, 2021.
According to the financial report, Tencent Music's annual revenue last year was 31.24 billion yuan, an increase of 7.2% compared with the previous year's revenue of 29.15 billion yuan. But what is embarrassing is that Tencent Music is in a situation where revenue increases but profits are not increased.
In the first quarter of 2021, Tencent Music's net profit attributable to the company's shareholders fell to 4%. In the following two quarters, the net profit margin decreased year-on-year, net profit in the second quarter fell 12% year-on-year, and even fell 35% in the third quarter. By the fourth quarter, net profit was RMB 536 million, a year-on-year decrease of 55.3%. The net profit attributable to the company's shareholders for the whole year was 3.029 billion yuan, a year-on-year decrease of 27%.
In addition, Tencent Music's overall users are also losing, and the monthly active users of online music services decreased by 7 million year-on-year. However, it is worth noting that the number of paid online music users has increased.
Last year, under the anti-monopoly policy, copyright was no longer exclusive, but Tencent Music online music paid users still achieved relatively rapid growth, with paying users reaching 76.2 million, a year-on-year increase of 36.1%; online music payment rate reached 12.4%; online music subscription revenue was 7.33 billion yuan, a year-on-year increase of 31.9%. This has also become the main reason why online music service revenue continues to grow.
Tencent Music Financial Report Source: Official
Chinese music payment market is vast
Tencent Music's payment rate in 2017 was only about 2%, which is a rapid growth for today's 12.4%. Industry insiders said that this is the result of Tencent Music’s layout and development, and it is also the result of users’ support for genuine music and the cultivation of music payment awareness.
Compared with the payment rate of about 50% of the global mature market, the Chinese market still has huge room for growth. As a leading company in the domestic online music market, Tencent Music will naturally continue to make efforts and continuously expand its user scale. UBS previously predicted that its number of paid users will be expected to exceed 100 million in 2023, and the payment user is expected to reach 140 million in 2025, and the payment rate will rise to more than 20%.
However, compared with the huge market space and industry forecasts, many users are also complaining about the high membership fees, especially the latest super membership service launched by QQ Music, which is as high as 40 yuan per month. For users who are unwilling to pay, Tencent Music has launched features such as watching ads for free and listening to music. It requires watching the platform's ads for 15 seconds before listening to member songs for free.
It can be seen that in commercial monetization, Tencent Music is doing its best to try various models, not only to allow users who are willing to purchase value-added services to pay higher fees for members, but also to use users who are only willing to listen to songs for free in exchange for advertising revenue.
Tencent Music’s financial report monthly active users Source: Official
Social entertainment service users are severely lost
Compared with the increase in online music paid users, Tencent Music’s social entertainment service users have suffered severe loss, with the number of users falling from 223 million to 175 million, and the number of paid users has also dropped from 10.8 million to 9 million. This also led to the revenue of Tencent Music’s social entertainment services and other services in the fourth quarter of 2021 being only 4.73 billion yuan, a year-on-year decrease of 15.2%.
Regarding the loss of users, Tencent Music explained that it is mainly due to the increasingly fierce competition and the loss of some temporary users. In the future, it will improve its competitiveness by establishing more vertical fields, including audio live broadcast, virtual interactive products, business overseas, etc.
Last year, Tencent Music made innovations in these aspects, such as strengthening digitalization and launching "TME Digital Collections". Digital figures created for independent musicians have also achieved high sales. For example, the "digital figures" created by independent musician Zhang Gasong have accumulated 50,000 users to book, and they are officially released in 1.3 seconds. In addition, Tencent Music also launched its first virtual music carnival at the end of last year.
In terms of audio live broadcast, Tencent Music is also linking Tencent’s platforms, such as in-depth cooperation with WeChat Video Account, and jointly broadcast the Mayday New Year’s Eve concert and the Xicheng Boys online concert.
The latter's flood of the Moments also made the public realize the influence of video account in music communication. According to Zhang Xiaochao, the head of the video account team, the number of online viewers of this concert exceeded 27 million, with the highest number of online users reaching 1.5 million. At the same time, he revealed that more musicians will be invited to broadcast live on the video account in the future.
ByteDance "Soil Music" APP Source: Official introduction
deepens cooperation with video accounts to deal with external troubles
Tencent Music has actually indirectly reflected that under the competition of Douyin, a powerful opponent, Tencent Music's awareness of crisis has deepened.
Previously, ByteDance did not have its own professional music products, but in early March, it was reported that ByteDance's music product "Soi Music" launched in internal testing. Since 2016, Byte has been in the music field. At the end of 2019, information about Byte is about to be a music streaming product.
. Original musicians are also gathering on Douyin, and through cooperation with NetEase Cloud and other platforms, it has won many musicians. It has also invited many heavyweight singers to open accounts and hold online live concerts. In terms of promotional and distribution effects, it was once considered to have more explosive power than QQ Music.
has new and highly disseminated scenes for music, and also has the ability to detonate and turn popular songs twice. In addition, with huge traffic, ByteDance, which has Douyin, will give the market room for imagination in the future, and Tencent Music will have to be worried.
ByteDance launches music distribution and distribution platform SoundOn Source: Official
Secondary listing in Hong Kong in the form of an introduction
In addition, Tencent Music stated that in order to provide shareholders with greater liquidity and protection in the changing regulatory environment, Tencent Music is seeking to conduct secondary listing on the Hong Kong Stock Exchange through an introduction listing, but it must obtain approval from regulatory authorities.
The so-called introduction to listing is a way to apply for listing of issued securities. The company will not issue new shares, but shareholders will apply for listing of old shares, which does not involve financing.
According to the financial report, Tencent Music’s $1 billion stock repurchase plan announced by it in March 2021 has been completed more than half and will continue. This operation is also regarded by the industry as a reflection of Tencent Music's confidence in maintaining long-term value in the company and the Chinese music industry.
Tencent Music Executive Chairman Peng Jiaxin said that in the future, the company will focus on optimizing cost structure and improving the operational efficiency of various businesses, while continuing to promote innovation, better user experience and healthy industry development.
