financial report, Tencent Music once rose by more than 8% before the market. The recent collective large fluctuations in Chinese stocks listed in the United States have proved that the operating status is not the only factor affecting the stock price of a technology company. From a long-term perspective, the key factor that determines the success or failure of a technology company is still its future competitiveness.
So after experiencing a new normal in the industry that is not independent in copyright in the past year and actively launching the largest organizational structure upgrade since the establishment of the group, is TME more competitive?
In the view of [Penguin Ecology], the answer is yes.
First of all, under the non-independent normal of copyright, TME's online music paid users can still maintain a high growth rate, showing TME's more capabilities beyond upstream copyright accumulation;
Secondly, reflected in the business data level, TME's video content capabilities have been strengthened in 2021, and the expansion of long audio content has also been quite successful. After the strategic adjustment, TME is transforming short video content and even more cutting-edge content forms into its own growth driver.
In addition, TME's revenue and profit structure are also improving, from the past profit margins that significantly rely on social entertainment, to the current advertising and membership services gradually supporting growth. Copyright is superimposed on the freshly released annual report, [Penguin Ecology] is as follows:
1. Under the non-independent normal, the growth rate of online music paid users has not decreased
TME's online music monthly active users have stabilized at more than 600 million. After the scale of online music paid users reached 76.2 million, as of the fourth quarter of 2021, TME's online music payment rate has reached 12.4%. This not only supported Tencent Music's growth in the fourth quarter, but also proved that the path of "music payment" is working in China.
According to people familiar with the matter, Tencent Music’s payment rate was only about 2% in 2017, and it increased to 4.2% when Tencent Music was launched in December 2018, and now it has reached an astonishing 12%. This proves that Tencent Music's long-term strategic layout, investment and cultivation are reaping a steady stream of long-term value.
It is worth noting that this is the data obtained in the second half of the year after the release of the new music copyright policy. TME paid users can still maintain a growth rate, proving that its competitiveness is not entirely in the copyright dimension. TME's long-term accumulation of product and technological innovation, content ecology, and improved services to users are important factors that attract users to pay.
More than
investment banks predict that the number of paid users will still be the most important growth highlight for TME in the next few years, and it still maintains great growth potential. UBS previously predicted that TME's paid users will exceed 100 million and 140 million in 2023 and 2025, respectively, and the payment rate will continue to rise from 7.7% in 2020 to more than 20% in 2025. At the analyst meeting after the release of
financial report, Tencent Music also expected that will maintain a quarterly growth of 3.5 million to 4 million paid users in 2022. Compared with the payment rate of 50% or more of the global mature market, Tencent Music and the Chinese online music market behind it still have huge growth space and is far from reaching its peak.
2. The service capacity for "people" and "industry" continues to be enhanced
In June 2021, TME took the initiative to upgrade its organizational structure, set two major directions of content and platform, one body and two wings, and develop together.
Judging from the annual report, this important change has begun to show initial results. After the changes, TME has emphasized its service to the industry and the "people" in the industry.
From the perspective of content strategy, on the one hand, Tencent Musician Platform continues to encourage and support musicians to create original music works.
At the end of 2021, with the release of the QQ Music Annual Report, a pure music song also topped the QQ Music Hot Songs List. This song is the song "Time Sampling" by the original musician Fu Yi. This work sets a record for the first day of playing songs from independent musicians. Similar cases include "Flowers Along the Way", a song sung by music newcomer Wen Yixin, which appeared on the New Year's Eve Gala on Zhejiang Satellite TV and Hunan Satellite TV.
On the other hand, based on a deep understanding of music and rich internal and external resources, TME has established a complete original content production system that can systematically create, evaluate and promote music works. It has developed and applied a number of tools and technologies to successfully explore and incubate the popular national style song "Lonely City". Since its release, it has soared to the top of the national style vertical list and received nearly 1 billion views in the fourth quarter of 2021.
TME's investment in the original content production system has begun to achieve good results, and more and more independent musicians have found their homes on the Tencent Musician platform. As of the end of the fourth quarter of 2021, the number of independent musicians entering the Tencent Musician platform reached 300,000.
From the perspective of platform strategy, TME is also increasing product and technological innovation to enhance its own competitiveness, while better serving the industry.
TME's original AI music appreciation recognition technology: PDM (Predictive Model) model can intelligently filter out original songs that are most likely to become popular from more than 2.1 million new uploaded tracks each year, with twice the accuracy than professional content editors. With this technology, new music no longer has to worry about not being able to appreciate talent.
After the organizational structure is upgraded, one of TME's important measures is to connect with the broader Tencent products and content ecosystem, and introduce users, traffic and content resources of the entire Tencent ecosystem for musicians, including direct connection with WeChat Video Account, social interaction functions, ringtones, and Tencent Ecological Products such as WeChat Video Account, Tencent Video, etc., to link up super content IPs including Mayday New Year's Eve concert, animated series "League of Legends: Battle of the Two Cities", and the TV series "Swordsmanship in the Snow".
Under the non-innovative normal of copyright, "service power" has become an important factor in the competitiveness of digital music platform enterprises. Only by improving services to musicians, music content and the industry can we win the future of the industry.
3. Exploring the path of the next generation of Internet for Chinese digital music
The consensus gradually formed in the entire industry last year is that the ten-year mobile Internet dividend period in the Chinese market has ended, and the competition for the next generation of Internet has begun. Overseas Microsoft, Meta, domestic Tencent, ByteDance, Alibaba, etc., almost all leading technology companies are competing to deploy cutting-edge technology sectors such as Metaverse and Blockchain.
Music, as a form of urgently needed content that existed since the beginning of human civilization, will inevitably become one of the earliest application directions of cutting-edge technology. As China's largest digital music content platform, TME will also focus on increasing R&D investment in 2021, and will make arrangements in almost all cutting-edge technical directions related to music content.
This is directly reflected in TME's 2021 annual report: In 2021, TME's general and administrative expenses were 4.01 billion yuan, an increase of 29.3% over the same period in 2020. The reason behind this is mainly the increased R&D investment in order to expand the competitive advantages of product and technological innovation.
Some of the results produced by them have changed our listening experience. The case that Tencent Music highlighted in its annual report is TMELAND. As China's first virtual music carnival, TMELAND has gained recognition from young users.
In addition, TME will also explore multiple directions such as NFT and digital collections in 2021. In August last year, TME announced the launch of the first batch of "TME digital collections". While combining NFT technology to break the limitations of time and space, it allows musicians to record and preserve for eternal purposes, it also allows musicians to gain more value from cutting-edge technology. On March 12, TME Digital Collection was a "digital figure" created by independent musician Zhang Gasong. It had a total of 50,000 users booked it and was officially released in 1.3 seconds. Although the long-term benefits of these early explorations still need to be evaluated, they all have the potential to change the form of the music industry. If China's digital music industry wants to maintain global competitiveness, it needs to have leading platforms to invest heavily in exploring new technologies.
But the exploration of new technologies in the music field is actually just the beginning. As Liang Zhu, CEO of Tencent Music Entertainment Group, said: “Looking forward, we will continue to work hard to promote product innovation and provide our users with a richer immersive music entertainment experience on the platform.”
Tencent Music insists on deepening its industry and continuously investing, and explores the path of entering the next generation of Internet for China’s digital music, while also laying the long-term value of the industry’s future growth.
