The Crossroads of Tencent Music

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Written | Edited by Wen Yehao | Wu Xianzhi

Source: Photon Planet

On August 16, Beijing time, Tencent Music announced its unaudited financial report for the second quarter of 2022. According to the financial report, Tencent Music’s revenue in the second quarter was 6.91 billion yuan, a year-on-year decrease of 13.8%; the net profit attributable to the company’s shareholders was 856 million yuan, a year-on-year increase of 3.5%.

In the second quarter, Tencent Music and the video account joined forces to create a number of online concerts, mercilessly brushing a wave of presence and returning to the overall business level. Although this powerful medicine did not “cure the disease”, but At least people can see signs of recovery, and business performance has exceeded market expectations.

The decline in the number of social entertainment users has always been the main reason for affecting revenue, which is related to the transition period between the old and the new live broadcast track. Fortunately, the data rebounded in the second quarter. Combined with the steady rise of online music subscription services, Tencent Music’s current situation doesn’t look so bad.

Middle-aged anxiety of “cash cow”

If the online music business of the “player” attribute is the “facade” of Tencent Music, then the social entertainment service, which accounts for nearly 60% of the revenue, is the backbone of this music building.

In the second quarter of 2022, Tencent Music’s social entertainment services and other revenue decreased by 20.4% year-on-year. Since the high point in the fourth quarter of 2020, this business has been in a downward trend, forming a strong trend with the continuous rise of online music subscription services. comparison.

In response, Tencent Music responded in the second quarter financial report that the decrease in revenue was mainly due to the impact of the changing macro environment and increased competition from other platforms. This is true. The main battlefield of social entertainment services lies in the live broadcast sector. Not only does the track face external threats from short video platforms and mobile games to seize user time, but the characteristics of Tencent Music’s live broadcast business also put a shackle on its road to breaking the game. .

Compared with a comprehensive live broadcast platform, Tencent Music’s fundamentals make its live broadcast business bound within the framework of an online music platform, focusing on show live broadcasts. Although the live show has a higher ability to attract money, it is more sensitive to external shocks.

Taking game live broadcasting as an example, although it is not as lucrative as show live broadcasting, it can gain a steady stream of popularity through new games produced by the game industry every year. Competitive games and e-sports events with a stable user pool will also attract users for a long time. And this kind of gravity, to a certain extent, it has resisted the impact of external competitors.

In contrast, the live broadcast of the show is not so stable, especially when the short video platform is attacking the live broadcast one after another, the growth of Tencent Music social entertainment users is weak. In the second quarter, monthly active users of Tencent’s social entertainment services fell by 20.6% year-on-year.

Although the month-on-month has achieved a slight recovery, considering that the paying users of this business have declined for 6 consecutive quarters, the recovery is likely to be related to users diverted from online concerts. Users who pour in with the mentality of watching the excitement are not very willing to pay. They are typical worthless users and can only play the role of “atmosphere group” at most.

On the other hand, the tightening regulatory environment will also put pressure on Tencent Music’s social entertainment service for a long time. In May of this year, new regulations for live broadcast of online anchors were introduced. Not only did the “big brother on the list” become history, but the ranking and PK functions of the big brothers to compete for financial resources were subject to varying degrees of restrictions. Obviously, this round of supervision is a big blow to Tencent Music, which emphasizes the live broadcast of the show.

The loss of users and the weakening of revenue capacity mean that the cash cow of social entertainment services has shown signs of fatigue. Of course, this does not mean the collapse of the live broadcast business. On the contrary, it will still play an important role in Tencent Music’s revenue map, but it will slightly weaken the overall upward traction of Tencent Music.

Therefore, in this “intermediate period”, instead of relying on the social entertainment business to drive growth, Tencent Music should focus on new business segments with more potential.

Looking for a live heir

If you only look at the growth dimension, the “player” business may be a good choice.

In the second quarter, Tencent Music’s online music subscription service revenue was 2.11 billion yuan, a year-on-year increase of 17.6%, with 82.7 million paying users, a year-on-year increase of 24.9%, and both user and subscription revenue increased. It is worth noting that in the three years since the second quarter of 2019, Tencent Music’s online music subscription service revenue and the number of paying users have maintained growth.

However, subscription services will struggle to prop up the broader market anytime soon. In the second quarter, the payment rate of Tencent’s music subscription service was only 13.9%, and the potential conversion crowd was huge.

Take Spotify, the leading online music platform, as an example. It targets users in the global market, with a payment rate of nearly 50%, and is still plagued by business models. In a state where the membership price does not increase and the gross profit margin changes relatively stable, Tencent Music, which has a limited total number of users and a payment rate of only 13.9%, has a long way to go for the “player” business.

Judging from the information disclosed in the financial report, there are three potential successors to live broadcasting, one is online concerts, the other is long audio, and the third is music metaverse.

Some time ago, the online concerts that were repeatedly swiped in the circle of friends are definitely a rare highlight of Tencent Music in the past year or so.

On April 1, 2022, at the beginning of the second quarter, Tencent Music, together with PolyGram, re-screened the restored Leslie Cheung’s “Passion” concert online, which attracted more than 17 million viewers. After that, Cui Jian, Jay Chou, and Luo Dayou all came, or re-screened classic concerts, or live broadcast online. Online concerts almost ran through Tencent Music’s second quarter.

It also enjoys making money from the traffic field of online concerts. When Jay Chou’s “Magic Tianlun” concert was re-screened, Tencent Music once added an entrance on TME live to divert users to the official store with Jay Chou’s surroundings.

However, the protagonists of this round of concert craze are competing video accounts and Douyin, and Tencent Music plays more of a logistical role, which means that the hot online concert has limited traction on the total number of Tencent Music users.

On the other hand, online concerts are nothing new. Whether it is Rainie Yang and Liu Ruoying, who are familiar to the older generation, or Wutiaoren and Sunset Speed, which are preferred by the new generation of audiences, they have all held online concerts, but very few people have come out of the circle. Often only a few people’s carnival. It can be seen that Luo Dayou in the circle, or Stefanie Sun, are both superstars with a huge fan base.

This means that maybe only absolute superstars can create viral spread, but the number of stars worthy of this status is limited, and normalization is bound to face high cost pressure, not to mention that public sentiment will also follow online singing. will be flooded and consumed. In addition, the aforementioned wave out of the circle is actually the product of the war between the two armies, and once the online concert loses the full push of the platform, even if it enters the venue at the top, it will be difficult to replicate the previous grand occasion.

There is a high probability that the online concert will be the same as Jay Chou’s new album, and the positive impact will stay in the short term. After all, Jay Chou will not release a new album every year or every quarter.

Look at the music metaverse again. Although Tencent Music did not mention Metaverse in the financial report, but carefully read its business highlights, whether it is Kugou’s “KK Show”, or AI singer “Beyond AI”, or virtual music carnival TMELAND and virtual album room, Both exude a metaverse meaning.

Most of them are early adopters at the product level, not just needed by users, and have limited business traction. It is worth noting that TMELAND, the virtual rap concert created with Adidas Originals has achieved over 7 million views, and the answer sheet submitted is still convincing.

This is also the form of “content is advertising, advertising is content” among the many monetization businesses of Tencent Music.

The digital collections that Tencent Music often promoted were not mentioned in the second quarter financial report, which may be related to the closure of Tencent’s digital collection platform Magic Core. For Tencent, phantom core is a typical worthless business, and if TMELAND wants to shine, it still needs to find a clear way to increase its income.

It can be seen that businesses with strong innovative attributes such as online concerts and TMELAND can produce results in the short term, but long-term increments may still be supported by more competitive businesses. To this end, Tencent Music has turned its perspective to the relatively stable long-term audio and ToB business.

open up the next battlefield

To put it more narrowly, long audio does not belong to the big framework of online music, and Tencent Music can use this to cut into another market.

Although the logic of long audio and music is mainly based on the content ecology, the main body is audiobooks, the audience is relatively narrow, the requirements for content consistency are high, and the requirements for high-quality IP are obviously an order of magnitude higher—— A user might be able to finish listening to a 3-minute unpleasant piece of music, but never finish a novel that doesn’t interest you.

Based on this, the reason why Tencent Music develops long audio is likely to be related to the innate advantages of Tencent Video and China Literature Group on the content side. Compared with music with higher universality, Tencent Music’s long audio track still faces multiple challenges such as finding users, retaining users, and cultivating user habits, even if it has significant advantages on the content side.

In the fourth quarter financial report of 2021, Tencent Music disclosed that its long-audio MAU exceeded 150 million, a year-on-year increase of 65%; another set of data showed that as of September last year, the cumulative playback volume of the audiobook “Knife in the Snow” has exceeded 1.4 100 million. In the financial report for the first quarter of 2022, the data of “Northern School Tomb Raiders Notes”, which is a long audio case, has passed its peak.

In the second quarter financial report, Tencent Music only gave long audio cases, but the data was not mentioned. In contrast, the rest of the bright spots are supported by data. Judging from the financial statements of the past three quarters alone, Tencent Music’s attitude towards the long audio business seems to be no longer as ambiguous as it used to be.

However, all the aforementioned narratives around Tencent Music are centered on the C-end business. But if the dimension is switched, the B-side may become a major attraction in its future.

For example, on August 16, the day the second quarter financial report was released, QQ Music announced that it would launch an in-vehicle Dolby Atmos music service for NIO.

Although its products have been launched through the car-machine application store before, cooperation with a single car company is rare. Before that, Tencent Music’s biggest rival, NetEase Cloud Music, had also reached out to the hot new energy track and reached cooperation with a number of car companies.

The reason is that the B-end market has a demand for music retention, but if you communicate with the copyright owner in person, not only the communication cost is huge, but it is also difficult to afford the cost of buying out the copyright at one time. As an online music platform, Tencent Music naturally plays a role in copyright integration and distribution.

For Tencent Music, if it completely opens up the distribution of ToB copyrights, it can reduce the cost pressure of purchasing copyrights to a certain extent, thereby improving profit margins.

Although Tencent Music “gets in the car” is bound by various car regulations, the imagination is not lower than “headset”. The confined space and split screen of the cockpit allow users to have a better entertainment experience. In addition, in the pursuit of differentiation among many new car-making forces, the “K song” function is actually expanding paying users for it in a sense.

However, it is not easy to develop the ToB market, whether it is a car-end scene or a living room scene, each has its own pain points that need to be solved urgently.

As an online music platform distributing copyrights aggressively, how to distribute benefits with upstream copyright owners may also become a point of contradiction. Based on this, how to market itself to the broader B-end market and how to strengthen its position in the music industry chain may become issues that Tencent Music needs to think about in the next stage.

(Disclaimer: This article only represents the author’s point of view and does not represent the position of

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