On November 11, Tencent Music Entertainment released its unaudited financial results for the third quarter ended September 30, 2019. And here are some key numbers:

• Profitability: Total Revenues reached 6.51 billion RMB (910 million USD), up 30% year over year. Operating profit was 1.19 billion RMB (166 million USD), which increased by 11.9% from Q3 of last year. Net profit attributable to equity holders was 1.03 billion RMB (144 million USD), which increased by 6.4% from Q3 of last year.
• Revenue Breakdown: Revenue from online music services increased by 26.2% to 1.85 billion RMB (258 million USD). Revenue from social entertainment services and others rose by 32.9% year-over-year to 4.66 billion RMB (652 million USD). 
• Paying Users: Online music paying users reached 35.4 million, up by 42.2% year-over-year and 4.4 million from Q2 of 2019. Social entertainment paying users rose by 23.2% to 12.2 million. 
• MAU: Mobile MAU of online music services is 661 million, and that of social entertainment services is 242 million. 

The result exceeded expectations, resulting in a 2.64% increase in stock price right after the announcement. 

Paying users are increasing rapidly. When TME handed in its IPO prospectus in last October, only 3.6% of its users are paying users, significantly lower comparing to Spotify’s 43% paying rate. In Q3 of 2019, the paying user base grew to 5.4%. We believe the paying user base is multiplying, and it will continue to grow at high speed for many years to come. 

For the first time, TME’s paying user base grew at a faster pace than that of video streaming platforms iQiyi (31%) and Tencent Video (30%). We attribute TME’s impressive third-quarter growth to its successful content strategy as well as user strategy. 

Content Strategy

In this quarter, digital album sales doubled year-on-year. Jay Chou’s September new single Won’t Cry sold over 10 million copies on TME streaming platforms at 3 yuan per copy. Hit drama The Untamed soundtrack also sold a staggering 1.5 million copies at 20 yuan per copy since it was released on July 8th. Taylor Swift’s new album Lover sold for nearly 6 million copies within 24 hours. TFBoys’ 6th year anniversary concert drew in 45 million viewers and received 300 million gifts and comments. 

Besides digital album promotions, TME also did an excellent job mobilizing independent musicians and the public to generate content. On the musician side, 74% of independent musicians, and 81% of independent musicians with more than 50,000 fans joined TME’s streaming platforms. The number of songs uploaded on TME platforms in the first three quarters of 2019 more than doubled from the same periods last year. A recent study done by the Communication University of China showed that more than 60% of musicians on QQ Music and Kugou Music approves of the platforms for its promotional capabilities, reputation, and licensing agreement. On the user side, streams of original songs on all TME platforms rose by 200% year-on-year. 

Social entertainment apps enable TME to utilize its copyright contents fully. TME owns the copyrights of many popular music varieties shows such as Let’s Band, Voice of China, and Super Vocal, which allows users to karaoke these songs on WeSing, post on their Wechat account, and direct their friends to the original song. Jay Chou’s Won’t Cry also generated more than 12 million covers on WeSing. In the third quarter, TME’s social entertainment revenues grew by 32.9%, and the paying user base increased significantly. 

User Strategy

TME has ramped up its investment in the student users in the third quarter. According to the Ministry of Education of the People’s Republic of China, there are about 39.3 million high school students and 38.33 million students receiving higher educations. These 80 million teenagers and young adults in school are the ones most receptive to new music, most active on social media, and the demographic most willing to pay for music.

TME partnered up with many universities and higher education institutions and set up many programs to specifically appeal to younger users. For example, QQ Music launched a summer program, providing students discounted subscription services and live concert streaming on campus. Kugou Music launched a promotional program connecting students to idol singers, which helped Kugou’s music program to achieve 460 million views in the first nine months of 2019. 

To appeal to Gen Z, TME devoted time and energy into anime music, electronic music, ancient Chinese style music, as well as PGC, UGC short videos. WeSing added micro variety shows and virtual collaboration features.

TME has broken many boundaries between music and social media. It’s innovative operation yield impressive financial results. TME’s CFO Hu Min confirmed that TME would continue to explore and invest in the synergy between streaming and social entertainment. 

We have reasons to believe that TME considers music marketing as a new growth point for its business. With the robust basic business model and an eye for innovation, TME will sure lead the Chinese music industry towards greater success.