KrASIA Weekly: Tencent Music’s solution for Chinese music streaming industry

2018-10-07

Hi there, it’s Robin.

During this past week as China celebrated its National Day, China’s Tencent Music Entertainment Group (TME) went ahead and filed its prospectus with the US Securities and Exchange Commission (SEC) for its upcoming US public float, paving the way for an opportunity for interested parties to take a closer peek at the financial results of this private music streaming company.

Tencent Music, also commonly known as China’s Spotify, is often said to be simply following the footsteps of its Western competitor and investor Spotify by heading to the public markets. However, Tencent Music’s latest filings revealed two stark differences between these two music streaming mammoths.

Tencent Music v.s. Spotify

Tencent Music has been consistently profitable since 2016, whereas Spotify is still loss-making.
Taking the first half of 2018, for instance, Spotify incurred an operating loss of €131m (US$151m) even after narrowing its losses via its subscription revenue. Tencent Music, on the other hand, posted a handsome profit of US$263 million over the same period.

Tencent Music actually has a much more diverse revenue stream when compared with Spotify.
Tencent Music’s revenue covers a wide range from music streaming, digital downloads, ad-supported music services, sub-licensing music all the way to providing content. Spotify’s revenue mainly comes from its music service subscriptions (90%) or ad-backed music streaming services (10%).

And there could be many underlying reasons for these differences.

After all, the Western music consumption and distribution culture are inherently different from that of China.

While it may be true that China’s mobile ubiquitous has sparked many changes in digital life and consumption, including music streaming, some of the changes are still in its early days.

A case in point can be Tencent Music, China’s music industry spin-off of social media giant Tencent, report of a low paying ratio of 3.6% for its online music services, according to its recently filed prospectus, despite having already secured 75% of China’s music streaming market.

This constraint probably forced Tencent Music to think out-of-the-box by offering more than just music streaming in its app. It has now effectively become a one-stop music app where music lovers can search, listen, watch, sing, and perform on top of social networking functions which then translates into wider revenue streams that have enabled TME to become profitable so quickly.

The truth is that its music-centric social entertainment services – including live broadcasting – brought in 70.4% of its revenue for H1 2018. The music streaming business accounted for the other 29.6%.

SCMP cited Singapore-based analyst Sumeet Singh from Aequitas Research who wrote in a research note about how Tencent Music has been very successful at exploiting local knowledge – the Chinese avidness for karaoke sessions online and live streaming – to profit despite difficulties in growing its subscription revenue effectively.

This could serve as an inspiration for other Asian music streaming companies, where more music-centric services are offered to enhance the music experience, and also provides more sources of revenue for music streaming companies.

This one-stop shop solution is, however, not new in other verticals. Singapore-headquartered Grab and Indonesia’s Go-Jek are just some examples.

Southeast Asia’s on-demand giant Grab moved from being a simple app that allows its users to summon the nearest taxi to become an on-demand service provider offering other services like food delivery and payment services, on top of other transportation services.

Go-Jek began as a call centre for motorcycle taxi drivers and has since expanded into other verticals. Some examples include on-demand services like beauty treatments, home cleaning, food deliveries, and even payment services to name a few.

As expected, the rivalry between these two is only set to accelerate. This week, we reported of Grab’s announcement of its partnership with Fave to usher in cashless Southeast Asia, even as Go-Jek looked set to bring the competition up another notch by planning its foray into Singapore’s ride-hailing market as early as this month.

This week we also had an interview with Jerry Lim who’s at the helm of Grab’s Vietnam office, to hear about how he led Grab’s Vietnam operation over the past two years, the dos and don’ts. the challenges and rivalries.

Read on to find out more interesting stories from last week, and feel free to tip us if you have news clue or you just want to talk with us, email us at hello@kr-asia.com and we are looking forward to hearing from you.

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