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Tencent Music confirms revenue declines, but investors seem optimistic

By | Published on Tuesday 17 May 2022

Tencent Music

Chinese digital music giant Tencent Music Entertainment yesterday confirmed its first quarter revenues were down 15%, but the company’s share price rose during the day, partly because the revenue slump was expected, and partly because of hopes that tech sector regulations in China might be relaxed a little in the months ahead.

Although listed on the New York Stock Exchange, Tencent Music’s focus is the Chinese market, where it operates various music services including QQ Music, Kugou Music, Kuwo Music and WeSing. The firm’s social entertainment operations, which include WeSing, are the most lucrative part of the business, and that division saw revenues decline 21% in the first quarter, with paying users down from nine million to 8.3 million.

However, when it comes to Tencent’s more conventional music services, the number of premium users continued to grow, with four million users added in the last quarter, which is good news for the music industry, which has long prioritised turning free streamers into premium streams.

Premium streaming is far more lucrative for the industry than ad-funded streaming, and even more so if and when the ad industry is wobbling, as it has in China of late as a result of some new COVID spikes. Traditionally the vast majority of users of streaming services in emerging markets like China were on free tiers, but the upsell of premium accounts has become more successful in recent years, even if it’s achieved with some discounting.

Despite that welcome growth in premium subscriber numbers, Tencent Music has faced some very specific challenges in the last year as a result of a crackdown by competition authorities in China, especially in the tech sector.

That impacted on Tencent Music – and the Tencent parent company – in a number of ways, though most notably it forced the former to end the exclusivity deals it had with record labels, which had been an important and unusual feature of the Chinese digital music market for years.

The company admitted to investors last year that that crackdown would have an impact on the Tencent Music business, and the company share price has been declining throughout the last year – for various reasons, but including because of concerns over the ramped up regulation in China. However, it’s hoped that moves in China focused on growing the country’s digital economy might result in a relaxing of the recently tightened regulation.

Noting that investors has responded pretty well to the latest Tencent Music financials, despite the revenue declines, Reuters reported: “Analysts said the revenue drop had been well flagged by Tencent Music, and shares gained 3.4% in after-hours New York trading as Chinese state media reported the country’s top political consultative body was hosting a meeting on Tuesday with some firms on how to promote the digital economy”.