Author: Li Zhujiang
Source: GPLP
No social, no music. Tencent Music relies on social entertainment for 70% of revenue.
Although the pay rate of Tencent Music (TME. NYSE) has increased, more than 70% of the current revenue is still contributed by the social entertainment business.
On March 17, Tencent Music released the unaudited financial report for the fourth quarter and the whole year ended December 31, 2019. According to the report, Tencent Music achieved 7.29 billion yuan in the fourth quarter of the revenue, an increase of 35.1% year-on-year; its net profit was 1.04 billion yuan, while the net loss in the same period of 2018 was 876 million yuan, a significant slowdown in the growth rate month on month. In 2019, the annual revenue was 25.43 billion yuan, an increase of 34.0% year on year; the net profit was 3.98 billion yuan, an increase of 117.2% year on year.
The revenue and profit performance in the fourth quarter has exceeded expectations for Tencent Music, but the inherent problems of Tencent Music could not be concealed. From the perspective of revenue, Tencent Music doing a huge investment for online music business, while the majority of revenue comes from social entertainment business.
The online music revenue include users’ recharging, new members, and purchasing songs on music platforms, etc. Social entertainment include products and services such as national karaoke, live music, etc.
According to the financial report, in the fourth quarter of fiscal year 2019, The online music business revenue was 2.14 billion yuan, accounting for 29.4% of the revenue; social entertainment and other business revenue was 5.15 billion yuan, accounting for 70.6% of the revenue. In fy2019, the revenue of online music business is 7.15 billion yuan, accounting for 28.1% of the revenue; the revenue of social entertainment and other businesses is 18.28 billion yuan, accounting for 71.9% of the revenue.
On the other hand, Tencent Music is also increasing the investment in royalties, and the cost of content is also rising. According to the financial report data, the cost in the fourth quarter of 2019 was 4.81 billion yuan, up 34.9% year on year. However, the cost for the whole year of 2019 is 16.76 billion yuan, an increase of 43.2% compared with 11.71 billion yuan in the same period of 2018. Tencent Music said the main reason for the increase in content costs was the rise in market prices and the increase in the number of licensed and original music content.
According to GPLP, Tencent signed exclusive copyright agreements with Warner Music and Sony from 2014 to 2016. In 2017, Tencent Music and Universal Music signed a strategic cooperation agreement on digital copyright distribution in China. In December 2019, Tencent Music participated in the acquisition of 10% equity of global music group, the world’s largest record company.
This means that the input-output ratio of Tencent Music of online music business is not optimistic.
From the perspective of user data, although the payment rate of online music has increased, it increased to 6.2% in the fourth quarter of 2019, surpassing the 4.2% payment rate in the same period of 2018.
However, the growth of mobile MAU of online music almost stagnated. In the fourth quarter of 2019, the mobile MAU of online music was 644 million, unchanged compared with 644 million in the same period of 2018, but fell by 3% month on month.
