Tencent Music Entertainment Group Announces Cooperation with Apple Music, Unveils Q3 Financial Report

tme
(Source: TME)

Tencent Music Entertainment Group (TME), the online music subsidiary of Chinese internet giant Tencent, announced on Tuesday that record labels and artists who are part of TME Music Cloud can now distribute their music around the world via Apple Music.

Bringing TME’s premium music content from Chinese labels and creators to Apple Music users worldwide will enable music lovers to explore China’s unique music culture and genres, further enhancing the global discovery of Chinese music and assisting in the international development of Chinese musicians.

As a new global music distribution platform, TME Music Cloud will also adopt ‘content self-management,’ ‘online distribution and promotion,’ ‘settlement of royalties,’ and “music data insights,’ providing global level omni-channel distribution for a wide range of partner labels and creators. At the same time, TME’s industry resources and Tencent’s social ecology will offer comprehensive assistance to content creators during production and promotion as well as commercial realization.

TME’s Q3 financial report released on Monday shows that its total revenues were 7.81 billion yuan ($1.21 billion), representing an increase of 3.0% year-over-year. Its net profit attributable to equity holders of the company in the third quarter was 740 million yuan, a decrease of 35% year-on-year.

The music company’s revenues from online music services in the third quarter increased by 24.3% to 2.89 billion yuan. Revenues from music subscriptions were 1.9 billion yuan, representing 30.2% year-on-year growth. Its online music paying users reached 71.2 million, increasing by 37.7% year-on-year. On a sequential basis, the number of online music paying users grew by 5.0 million. The service’s paying ratio was 11.2%, up from 8.0% in the third quarter of 2020 and 10.6% in the second quarter of 2021, respectively.

“To better serve our users, we have launched several initiatives that are showing encouraging progress, including upgraded video and social features on QQ Music and Kugou Music. Moreover, our efforts to expand long-form audio content offerings and features have resulted in long-form audio MAUs exceeding 140 million, growing by 89% year-on-year,” commented Ross Liang, CEO of TME.

The 1.5% of year-on-year decline in online music mobile MAUs in Q3 was primarily due to churns of the platform’s casual users served by other pan-entertainment platforms.

Due to regulatory changes and industry competition, social entertainment services MAUs and paying users decreased year-on-year and quarter-on-quarter. TME noted it would continue to invest in the operations of our social entertainment services through audio live streaming, a virtual live streaming room, as well as cross-platform live streaming events.

In the third quarter, TME launched its “Riding on the Wind Plan” to inspire new music content creation by efficiently pairing musicians with top songwriters and lyricists. The company also upgraded its “One Hundred Million Yuan Incentive Plan,” which incentivizes eligible musicians to collaborate through music creation.

Shirley Hu, TME’s Chief Financial Officer, said in an earnings call on Tuesday that the company will bolster investment in platforms for artists to create original and high-quality music, which she believes will give the firm a “content advantage” as regulators ordered TME to move toward non-exclusive content licensing deals this year.

As the Chinese government has embarked on a regulatory crackdown on the country’s internet giants, Tencent and its majority-owned music wing TME have also come under heightened scrutiny. On July 24, the State Administration of Market Regulation (SAMR) introduced a ban on the entertainment powerhouse’s exclusive licensing agreements with major record labels and fined it 500,000 yuan ($78,171). The market watchdog gave the company a 30-day deadline to give up its exclusive deals with certain global music suppliers.

On August 31, Tencent announced that it had terminated all exclusive music copyright agreements.

Previously, the Spotify-backed online music group concluded exclusive digital distribution contracts with three global record labels, Universal, Warner and Sony, and then sub-licensed some of the catalogues to competitors including NetEase Cloud Music for a higher price. The SAMR launched a probe into TME in 2018 and suspended it in 2019 after the company agreed to stop renewing some of the exclusive rights at the end of their expiration, Reuters reported.

Since then, TME’s biggest rival, NetEase Cloud Music, has struck distribution deals with Universal and Sony, challenging the company’s dominance in China’s online music-streaming services. NetEase has also been able to sign a strategic partnership with Warner Chappell Music for access to lyrics. But according to the statement released by the SAMR in July, TME still held more than 80% of exclusive music library resources in China.

SEE ALSO: Tencent Music’s Net Profits Attributable to Equity Holders Dropped 12% in Q2

Tony Yip, TME’s Chief Strategy Officer, mentioned in the conference call that due to recently-imposed regulations on splash screen ads, the company saw growth in advertising revenue decelerate during the three months ended September 30. “However, we believe the impact would only affect us in the short term, as we digest the regulation changes and introduce more advertising products,” Yip said. “In summary, we see both challenges and opportunities in the operating environment.”