Shulou(Shulou.com)06/01 Report--

On December 12,2018, Tencent Music Entertainment Group, which had been preparing for about two years, was listed on the New York Stock Exchange. Tencent music this move, inside and outside the industry have different understanding, some optimistic, some people sing decline. But for Tencent Music itself, this move is undoubtedly the beginning of a new era.

On November 12, Tencent Music Entertainment Group announced its third-quarter earnings report, which showed that its total revenue in the third quarter of 2019 increased by 31.0% year-on-year to RMB 6.51 billion yuan, realizing operating profit of RMB 1.19 billion yuan, net profit attributable to shareholders of the company of RMB 1.03 billion yuan and net profit attributable to shareholders of the company of RMB 1.24 billion yuan under non-international financial reporting standards.

It can be seen from the data that it continues to grow, whether relative to the total revenue of 5.9 billion yuan in the second quarter of 2019 or 4.97 billion yuan in the same period in 2018. Moreover, online music payment users reached 35.4 million, an increase of 42.2% compared with 31 million in the third quarter of 2018, and this is also higher than 2.6 million in the second quarter of 2019.

For now, Tencent music seems to be singing all the way up. It has become the "overlord" of online music domestically and can compete with Spotify internationally. However, it is not easy to rest easy. Challenges and threats always exist.

Behind the growth of financial results: social entertainment ecological strategy works

Tencent music in the previous domestic online music copyright chaos, piracy rampant survival and development to the market, it is not easy. Throughout the history of online music, contemporary competitors have either stopped playing forever or disappeared into the commercial wave.

After Tencent launched QQ online music service in 2003, its development has been unsatisfactory for a long time due to fierce market competition and poor copyright protection environment in China. It was not until July 2016 that Tencent acquired China Music Group with about 61.6% equity through a series of transactions and merged with the domestic online music business to establish Tencent Music Entertainment Group. At that time, Tencent Music became the "overlord" of domestic online music, thus opening its way to dominate the domestic music market.

Tencent Music Entertainment Group, after resource reorganization, chose to go public in 2018. It is currently the first music platform to go public in China, and it is also the only music platform that continues to make profits in China, but all this is not accidental, but it comes through bloody struggle.

Behind the successful listing, Tencent Music is no longer a traditional company that only provides online music playback. It relies on Tencent, a big tree, to continuously integrate resources, eventually forming a social entertainment ecosystem centered on online music.

Under this ecosystem, Tencent Music uses its leading music applications in the domestic online music market: QQ music, cool dog music, cool music and national K songs, as well as cool dog live broadcast, cool star, Tencent musicians and many other products to create digital music, online K songs and music live broadcast. Through these three business lines, all kinds of social entertainment services from music creation to realization are incorporated into their own ecosystem.

In Tencent music ecosystem, users can listen to songs and watch MV on cool music and other broadcast platforms, watch anchor performances on cool dog live broadcast and cool star gathering, and finally users can use national K songs for entertainment and music social interaction. It can be seen that in the whole ecosystem created by Tencent Music, users can create a socially-driven, one-stop music entertainment experience by meeting almost all their entertainment needs through seamless connection of different categories of music products.

In the third quarter of 2018, Tencent Music's online music paying users grew 36% year-on-year to 24.9 million; social entertainment paying users grew 23.8% year-on-year to 9.9 million. In Tencent's third-quarter earnings data released in 2019, its online music paying users grew 42.2% year-on-year, and social entertainment paying users grew 23.2% year-on-year.

As can be seen from the continued growth of paying users, Tencent Music's social ecosystem is gradually working, injecting new strength into its continued profitability. But it will take time to see whether this new force can survive the vagaries of market competition.

Netease Cloud Music Provocates More Than Just

Although Tencent music development momentum is rapid, in China is undoubtedly the largest "overlord," but the rising star Netease cloud, chatter, fast hand, etc., are also in the fast horse whip. In an attempt to gain a foothold in the year-on-year growth of the music payment market.

In April 2013, Netease launched Netease Cloud Music. In the market environment of that year, Netease Cloud Music only accounted for about 1% of the market share. Since then, it has continuously adjusted its development strategy, absorbing the product interface of Domi Music and Spotify's song list recommendation function, and adding its own "follow-up" function. Relying on the unique mode of "music single + music review," Netease cloud music rises rapidly with lightning speed.

After the number of users exceeded 100 million users in July 2015, with the recognition of the majority of users and the improvement of public praise, the number of users soared all the way. It took only one year to obtain the second 100 million users, and then only 7 months to obtain the third and fourth 100 million users. By August 2019, the number of users of Netease Cloud Music had exceeded 800 million.

Although Netease Cloud Music is not optimistic about the number of active users compared to Tencent Music, its potential market of 800 million users still has a certain impact on Tencent Music.

Netease CEO Ding Lei once said when talking about future planning: To tap the deeper social functions of cloud music, not only community, but also social. This shows that Netease Cloud Music, which started with "music single + music review," has begun to build its own social music ecosystem.

After being removed from the shelves in July this year, Netease Cloud Music, which was revised online, successfully laid out the "Cloud Village Community." The launch of "Cloud Village Community" has also become a hot topic in the field of online music.

Whether or not "Cloud Village Community" can successfully incubate Netease Cloud Music's social music ecosystem in the end, this is not good news for Tencent. Because as its strongest opponent, Netease Cloud Music has not been defeated by its own music copyright strategy, but in the copyright disadvantage situation, hard to rely on social play a day, won the industry second place.

Short Video threaten like a knife in the back

Tencent's music business is not just an online music service, but is gradually infiltrating into the business ecosystem outside music, so it has to face the danger of being invaded by other content giants.

In recent years, Short Video represented by chattering and fast hands have developed rapidly and have become a force that cannot be ignored in the Internet industry. Short videos occupy more and more time for users in video, social networking, music and other fields.

According to the 2018 Big Data Report released by chatter, as of December 2018, the number of daily active users in China exceeded 250 million and the number of monthly active users exceeded 500 million. In fact, chatter has become a force that cannot be ignored in the music industry. When chattering integrates copyright, originality, live broadcasting and Short Video, its position in the music industry chain is self-evident.

Not only that, but some market participants had previously estimated that the valuation of chatter had reached $30 billion. For music, this is not a good thing. Because in the future, as the Short Video industry continues to grow and develop, it is not impossible to compete with it in some areas of the market.

Users spend more and more time on Short Video, which means that users are becoming more and more sticky to the Short videos platform. The less commercial value the platform has for online music, which relies on user time to measure its value. However, as far as the current situation is concerned, the number of users of Short Video is not saturated, its scale is still growing rapidly, and the music layout is also beginning to show signs.

In January 2018, chatter launched the "See Music Project," which has produced more than 80,000 original works and attracted 14,000 original musicians, according to data. At the beginning of February, chatter became the strategic cooperation platform for Short Video of Modern Sky Music Group.

In August, it was announced that it had successively reached cooperation with a number of record and song copyright companies including Universal Music, Warner Music, Universal Music, Taihe Music, Warner Shengshi, etc., and obtained the right to use the music of the whole music library of these companies.

For Tencent Music, China's largest online music platform, the future adverse impact of these actions can be imagined.

Stable Jiangshan, Tencent music still needs to do these things well

Lao Tzu said that fortune and disaster depend on each other. There is no general who always wins on the battlefield, and it is also the case in the commercial war. Behind the rise in earnings data, Tencent music should not only be happy, but should seriously think about how to make their outstanding advantages play greater value, how to keep up with the pace of the times, keep up with the needs of users. Only in this way can we make ourselves invincible in the unpredictable market competition, and keep approaching our ultimate value in the bloody journey-creating music unlimited possibilities.

1. Content is king to improve user experience

After Tencent Music's third-quarter earnings report was released on November 12, in the face of Bank of America Merrill Lynch analyst Eddie Leung's questions about Tencent music content, its executives answered:

Ye Zhuodong: As for the price of copyright license, the content cost has been rising all the time, but the revenue contributed by the company's paid members still grows faster than the content cost.

Peng Jiaxin: The company is also constantly investing in technology to optimize the efficiency of content distribution. Tencent Music has the largest content library in the market. We will make full use of our content to help the future development of the company.

After the release of the national "strictest copyright order" in 2015, the music platform purchases copyright music directly to the level of ten million yuan. In 2017 and 2018, it has soared to 100 million yuan. Although content costs have been rising, Tencent Music, which has just entered the international market, cannot relax in improving users 'content experience.

We should not only let our high-quality music go out, but also let foreign high-quality music come in. Only in this way can we continue to meet the increasingly differentiated needs of users, and also let content continue to help the future development of the company.

2. Retain old users and improve conversion rate of potential users

Tencent Music relies on Tencent as a big tree with a large number of potential users. According to the third quarter earnings data, its online music business growth is very good, users are willing to pay for high-quality content, user Retention rate is also increasing. But compared with the overall number of potential users, Tencent Music still has a long way to go in terms of conversion rate.

Over the past 19 years, Tencent Music has also made some attempts to convert potential users. For example, domestic and foreign pop stars and new stars are used to promote sales in an attempt to acquire some young users. Ye Zhuodong, a Tencent music executive, once said bluntly: Promotion does boost revenue growth in the company's electronic album business, but it has little effect on the growth of monthly paying users, who also need to pay to listen to the song, at least for now.

Therefore, for Tencent Music at present, it is still very challenging to retain old users and improve the conversion rate of potential users.

Only by following this path can we ease the pressure of rising content costs with user-paid revenue. Thus, more funds are reserved to carry out other businesses.

3. Pay attention to the development of Short Video at home and pay attention to the development of new markets overseas

Obviously, the rapid development of domestic Short Video in recent years has a great impact on Tencent Music's market share. However, as an excellent music entertainment ecosystem company with huge number of users, Tencent Music should also think about how to combine the advantages of Short Video with its own business, so as to give full play to its larger platform advantages and attract more users.

Although under the potential market pressure, Tencent Music has also begun to explore the combination of Short Video and online music, but as far as the current effect is concerned, the impact is not very big, and more attention and investment are needed in this respect.

In addition, there are reports that Tencent Music's international version of the national K song "WeSing," is also infiltrating the Southeast Asian market. It is reported that in the past three months, WeSing has maintained the No.1 download ranking of music and audio apps in Google Play in the Philippines. This shows that WeSing still has a huge potential market internationally.

But for now, WeSing's main task is to increase the number of users, expand the business area, of course, in the future with the increase of operating experience, but also can launch corresponding commercial revenue generation plans, such as virtual gift exchange, song room service, user-generated content service and so on.

Wen/Financial Foreign Reference Reporter Ma Hui, Public ID: jrwaican

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