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Paying Users Push Tencent Music to Greater Q3 Growth

Tencent Music Entertainment (TME), one of China’s biggest online music entertainment platforms, saw better than expected revenue growth in its third quarter thanks to a rise in paywalls and paying users.

Announced on Monday, revenue beat analyst estimates by growing 31% to $910 million (RMB6.51 billion) for the quarter ending Sept. 30, up from RMB4.97 billion in the same period last year. The rise was driven by better revenues from music subscriptions, up 48% year-on-year to $132 million (RMB942 million), thanks to a rise in paid users and better retention rates of paying users.

TME’s total user base is three times that of Spotify’s, but it has fewer paying users. Currently, it tallies 35.4 million of them, an increase of 42% year-on-year. Spotify has more than 100 million paid users, and so its $2.2 billion Q3 revenue was far greater than TME’s. (The two announced a strategic share swap back in 2017.)

TME owns streaming platform QQ Music and social entertainment apps such as the karaoke platform WeSing and concert livestreaming apps Kugou and Kuwo, among others. While QQ Music has more users, the latter category brings in more business. The firm is itself controlled by tech conglomerate Tencent Holdings, which also owns the ubiquitous WeChat social media app and the world’s largest gaming company, among a host of other divisions.

Despite a solid quarterly performance, monthly average revenue per paying user on the company’s social entertainment services – a key metric for the core business – grew at the slowest rate since the New York-listed firm went public in December, rising 7.4% to $18.10 (RMB127.3). Tencent Music’s social entertainment sector now has 12.2 million paying users, up 23.2% from last year.

“We recognize that [revenue] may be slightly below where we previously thought it would be,” TME chief strategy officer Tony Yip was quoted as saying on a conference call, attributing the lag to growing competition from short video platforms like Douyin – China’s version of TikTok – and Kuaishou, which is also backed by Tencent.

TME CEO Cussion Pang told investors that the company planned to “continually add in more content behind the [streaming] paywall,” a process it began at the start of the year, when none of its content was behind a paywall. “Right now, we’re just in the high single digits; we will continue to add on top of this…in a gradual manner,” he said of plans to grow the percentage of paywalled content, according to Music Business Worldwide.

Tencent Holdings remains in talks to acquire a minority stake in Universal Music Group.

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