September 22, 2021

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Tencent changes music focus after regulatory slap, profits drop

3 min read

Adjusting its business model after China’s Tencent Music Entertainment regulator was fined and its share record plummeted. This will reduce control of music streaming and exclusive content and instead emphasize related services such as karaoke and social entertainment.

The company, which is listed on the New York Stock Exchange but is controlled by China’s Tencent, released its quarterly results for three months from Tuesday (Monday evening in New York) to June. They showed a 16% increase in revenue to RMB8.01 billion ($ 1.24 billion) and profits fell from RMB943 million to RMB871 million.

In a filing, the company prioritized an apology for its recent regulatory issues to comment on the decline in profitability.

“We would like to reiterate that TME wholeheartedly approves the decision regarding the exclusive music licensing system issued in July. We are committed to fully complying with all requirements in a timely manner,” said Executive Chairman Chushan Pang. . “These were not measured.

There was no mention of a possible secondary share listing in Hong Kong. Asian Business Media recently reported that Tencent Music has scrapped such plans.

Chinese regulators have launched a campaign to manage the business, data handling and market position of leading technology and media companies. Tencent Music, which has been accused of monopolizing content and setting predatory prices for its competitors, was ordered to cut off its monopoly supply relationship with music majors around the world and was given a small fine.

Regulators appear to have discouraged Chinese companies from listing abroad, part of a larger move that would put companies in Chinese regulatory orbit and at the same time make them less dependent on foreign capital.

While the end of exclusive content licensing means that music streaming competitors will become more competitive and potentially more numerous, Tencent Music says it has multiple responses. These include the development of more unique content, a greater emphasis on already influential social activities, and a greater leaning towards the Tencent ecosystem.

“We will actively focus on the dual flywheels of content and platform and take several important steps to expand our ecosystem to empower artists and provide one-stop music and audio services to users,” Pang said.

“In terms of content, we will continue to expand partnerships with music labels, and work with artists and content partners to develop more unique content while strengthening our self-production capabilities. We have also strategically improved TME Live’s business model, with offline events. Integrating online concerts provides significant services and solutions for artists ranging from notable superstars to incoming and indie musicians, ”Pang said.

The new strategy means working more with Wexin videos to create visibility for artists (WeChat), creating online music events, and translating AI songs from English to Chinese.
In the quarter, monthly active users for music streaming fell 4% to 623 million, but the number of paid subscribers increased from 40% to 66 million. The average earnings per streaming user remains weak, and the monthly average per user decreases by 3% from RMB9.

In terms of social entertainment, MAU fell 13% to 209 million. The number of payment subscribers has similarly dropped to 11 million. But the average revenue per user increased by 23% per RMB153.

Stock trading on Monday before the results were announced, ADRs fell another 9% to 8. 8.92 after a recent break. At that price, the stock is 31% lower than its December 2018 IPO price of $ 13. The group is currently valued at .1 15.1 billion.

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