Tencent Music Entertainment (TME) unveiled rising revenues and paying user numbers in its Q1 figures, although Covid-19 had an impact on the company’s social entertainment services business.
In figures released today for the three months ending March 31, TME said online paying users grew 50.4% year-on-year to 42.7 million, while total revenues were up 10% on Q1 2019, to $891m (£721.1m). Online music subscription revenues soared 70% to £170m (£137.6m) as the company developed more original content.
Execs from Tencent, whose parent company Tencent Holdings led a consortium that recently purchased a 10% stake in Universal Music Group, indicated moves into livestreaming, original content and longform audio content would form part of its long-term strategy alongside its popular music apps QQ Music, Kugou Music, Kuwo Music and WeSing.
"We achieved healthy first quarter performance primarily fueled by robust growth from online music subscription revenues,” said Tencent Music CEO Cussion Pang. “The year-over-year growth of our online music subscription revenues accelerated to 70.0%, up from 48.3% and 60.1% in the third and fourth quarters of 2019 respectively. Online music paying users reached 42.7m in the first quarter of 2020, growing 50.4% year-over-year with underlying paying ratio reaching 6.5%, up from 4.3% for the same quarter last year.
“While acknowledging the impact on our social entertainment services from the Covid-19 pandemic, we have started to see a moderate recovery recently," he added. "By ensuring our model offers a win-win situation for both the artists and ourselves, we were able to attract even more talented musicians and develop more original content. Leveraging our massive and in-depth user insights, we successfully discovered and promoted many hit songs to gain nationwide popularity, which reinforces our distinctive value proposition as a leading indie musician platform in China."
While Average Revenue Per Paying User (ARPPU) rose 13% in online music, it fell 12.9% in social entertainment. Tencent attributed that fall to the impact of the coronavirus and “adjustments to certain features in livestreaming”. Total social entertainment services revenues still rose 3.3% to $603m (£488.3m).
"We are pleased to see strength in both our online music and social entertainment monthly active users, especially during the Covid-19 outbreak, which impacted businesses in many different ways,” said Tony Yip, chief strategy officer. “Most notably, we have made significant progress in expanding our long-form audio content offering. Apart from adding thousands of new audio works adapted from popular IPs, we have also begun attracting well-known vocal talents to produce more premium UGC content.
“This holistic approach will enable us to offer a comprehensive audio entertainment user experience and build a solid foundation for our future development. Additionally, in our continuous efforts to explore new opportunities to better serve our users, we launched TME Live, an innovative model that integrates offline concerts with online livestreaming experiences. The user responses we received on TME Live exceeded expectations, and affirmed the virtuous cycle between online music and social entertainment services."
Overall gross profit was down 2.8% to $279m (£226m). Gross margin dropped from 31.3% from 35.4% in Q1 2019 due to “higher revenue sharing fees resulted from additional promotions to live streaming paying users to mitigate the impact from Covid-19 and live streaming interactive features adjustments, as well as the increased revenue sharing ratio to online karaoke performers to strengthen platform's competitiveness”.
"We achieved sustained strong performance in online music services with 27.4% year-over-year revenue growth for the first quarter of 2020," added CFO Shirley Hu. "In particular, our music subscription services delivered an impressive year-over-year revenue growth of 70.0% with continuous ARPPU improvement, resulting from the successes of paying user retention and content paywall strategy.
“Looking forward, we continue to be optimistic about the future of the broader music industry and are confident in the overall ecosystem and product pipelines that we are building. We'll continue to focus on enhancing and expanding product and service offerings including long-form audio while maintaining core content investments."
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