On November 14th, Tencent Music Entertainment Group released its financial report for the third quarter of 2023. During the reporting period, TME's online music business experienced strong growth, with a year-on-year increase of 20.8% in the number of paid users for online music reaching a new high of 103 million, and a year-on-year increase of 42.0% in subscription revenue. This drove a year-on-year increase of 32.7% in online music service revenue to 4.55 billion yuan, accounting for nearly 70% of the total revenue. The company's adjusted net profit and other key performance indicators also continued to grow in high quality.
The unexpected growth in core performance and the continuous increase in the proportion of online music revenue indicate that Tencent Music's business structure is more resilient and steadily advancing on a high-quality growth track.
Securities firms have also responded positively to this change. In October, CITIC Securities gave Tencent Music a "overweight" rating, Bank of America and Guoyuan International a "buy" rating, while CICC and Haitong International gave a "outperforming industry" rating.
According to CICC's analysis, Tencent Music's revenue structure is becoming increasingly healthy, and its profit stability has improved. The competitive landscape in the music industry is basically stable, and Tencent's leading position in the music industry may be maintained. Under refined operations, the music business is expected to maintain a healthy development momentum.
CITIC Securities believes that the proactive adjustment of Tencent Music's social entertainment business has brought short-term downward pressure on performance, but the magnitude has been fully anticipated, and the subsequent impact will gradually weaken. Meanwhile, CITIC Securities is optimistic about the long-term trend of increasing Tencent Music's online music payment rate and the deep synergy between the company and Tencent's ecosystem.
Returning to music, the ecological attraction behind 103 million paid users
In Tencent Music's Q3 financial report, there is a very noteworthy indicator, which is the proportion of online music service revenue. During the reporting period, Tencent Music's online music service revenue was 4.55 billion yuan, a year-on-year increase of 32.7%, accounting for 69% of the total revenue.
Last quarter, online music services exceeded the revenue contribution of social entertainment services for the first time in Tencent Music's development history, and the revenue weight of online music services continued to grow further in that quarter. Among them, Tencent Music's revenue from subscription business increased by 42.0% year-on-year to 3.19 billion yuan. The number of paid users has also continued to grow to 103 million, reaching a new high, while ARPPU has achieved six consecutive quarters of growth.
All of these indicate that Tencent Music's revenue structure is shifting towards a music dominated business, which will also make Tencent Music's future growth more sustainable and of higher quality.
According to the 2023 Global Music Report released by the International Federation of Phonographic Industry (IFPI), China became the world's fifth largest market for the first time last year. From the perspective of paid users alone, as of the end of 2022, there were 589 million paid subscription users in the global music market, which means Tencent Music alone accounts for one sixth of the global paid users.
The continuous growth of paid users has both internal and external reasons. In terms of external factors, the "emotional value" of music has been continuously increasing in recent years, especially in the context of fast-paced life. More and more people like to find resonance in music and relax by immersing themselves in it, as evidenced by the booming concert market this year. At the same time, after years of cultivation in the entire industry, users' awareness of payment has also been continuously strengthened, making their willingness to purchase high-quality music content and the best listening experience stronger.
In terms of internal factors, Tencent Music has made its appeal to users in terms of music content and platform services stronger by continuously promoting the "one body, two wings" strategy of content and platform. This season, TME teamed up with Zhou Shen to create their 9th anniversary offline concert, which received enthusiastic feedback from users and sold out immediately upon invoicing; At the same time, we will assist strategic partner artist Yuan Yawei and independent musician Liu Jinrui supported by Tencent Music Open Platform to appear on China Central Radio and Television Corporation and provincial-level satellite TV.
Driven by these internal and external factors, the music payment market is also becoming more prosperous. In fact, music is no longer just an entertainment industry, but also has profound cultural, emotional, and economic impacts. It connects emotional bonds between people and creates prosperity and vitality for society. In the process of advancing the music industry, Tencent Music has also played a crucial role. Commercialization and Large Language Models (LLMs) Explore the Way for the Industry to Make Growth More Quality
In addition to online music subscription revenue, Tencent Music has also built a diverse product portfolio and innovative advertising forms around its music business, greatly enhancing its appeal to advertisers. And this is not only improving its own business model, but also building a sustainable business transformation model for the entire music industry.
This summer, Tencent Music and Sprite teamed up to create the "Next Singer National Campus Music Competition" and a series of music events including multiple "Summer Cool Music Festivals". The first Wave Music Awards also received support from brands such as Samsung SAMSUNG and Jixing Motors. Through this rich music IP combination, Tencent Music has linked advertisers to a wide and diverse target audience, This has also gained the favor of advertisers.
In addition, in the face of a new round of technological revolution represented by AI technology, Tencent Music is also actively exploring technological trends related to music. Recently, TME and Hong Sheng Culture (Wang Leehom Studio) have created the first officially authorized "All AI Singer" in the Chinese music industry - AI Leehom. They have taken the lead in exploring the application of the singer's official authorization to create an "AI Singer". Their cover of "Letting Go" has received over 18000 comments on QQ Music in the past two weeks.
In addition, Tencent Music's newly launched Qixing AIGC content production assistant is the industry's first one-stop music production platform, which can provide support for various processes of music production, including intelligent covers, lyrics assistance, music separation, MIR calculation, intelligent score, and more, targeting common creative "pain points" of musicians.
With the continuous development of technology, the music market is experiencing unprecedented prosperity. At the same time, the continuous innovation of the music industry has also provided artists with broader expression space, promoting the diversification and internationalization of music creation.
Moreover, music is not only a cultural expression, but also a huge economic industry. From record sales to digital music platforms, from live concerts to online music events, the music industry has shown a diversified development trend. This growth not only drives creators to invest more actively in music creation, but also brings more business opportunities and employment opportunities to the entire industry chain.
In this context, Tencent Music has made many forward-looking layouts and explorations, which are also exploring the way for the industry. After all, sustainable business models not only provide a solid foundation for the stable development of the music industry, but also play a crucial role in protecting artists' rights, promoting innovation, and meeting consumer needs.