The Chinese government’s increasing regulation of the tech sector is a current concern for China’s major internet and online entertainment companies. But the latest quarterly results announcement for China’s biggest digital music company, Tencent Music Entertainment pointed to business as usual, at least for the moment.
First quarter revenues, spanning the January to March 2021 period, at Tencent Music grew by 26% year on year. Net profits increased 10% to RMB979 million ($149 million).
The Shenzhen-based, New York Stock Exchange-listed firm announced its results in a regulatory filing published Monday evening in New York, or Tuesday morning in China.
The results were achieved despite a high level of churn among casual users that resulted in the monthly average number of users declining. But other data appears to show that the group is succeeding in converting some casuals into regular and paying users. Total music user time increased in the quarter, and the number of online music paying users reached 60.9 million, a year-on-year increase of 43%.
“Net addition of online music paying users reached a record high of 4.9 million during the quarter, and the quarterly paying ratio was 9.9%,” the company said.
Revenues from social entertainment services such as karaoke grew by 19% and was “driven by increased revenues from live streaming and advertising on social entertainment platforms. On a year-over-year basis, average revenue per paying user increased by 36% in the first quarter of 2021 while paying user of social entertainment services decreased by 12%,” the company said.
Called on, in a subsequent audio conference with financial analysts, to address the regulatory climate, executive chairman Cussion Pang suggested a wait and see approach.
“In recent months, we have received increased regulatory scrutiny from relevant authorities and have been actively cooperating and communicating with the relevant regulators. At this point we are not in a position to comment or predict potential outcomes of such dialog with the regulators. We are committed to complying with all relevant laws and regulations including those related to anti-trust,” said Pang.
“The online entertainment environment is highly competitive and dynamic. Our goal is to deliver valuable products and services that can provide more and more value-add to our users, to musicians, to the industry and to society as a whole. We wish to establish ourselves as a healthy force for the industry, that is providing value-add to the society as a whole.”
Tencent Music had a previous brush with Chinese regulators in the past two years over the exclusive nature of its content contracts with western music giants, but it has adjusted some of these into non-exclusive deals, and it announced the renewal of its digital distribution deal with Sony Music Entertainment, but in a non-exclusive arrangement that also gives rival NetEase a piece of the action.
It is unclear whether those adjustments will continue to satisfy Chinese authorities which are increasing their efforts and are probing multiple aspects of the so-called ‘platform economy.’ The probes are understood to include contractual exclusivity, mergers and acquisitions, links with payments systems, and sharing of consumer data across multiple divisions of large conglomerates.
Tencent Music is part of a Chinese consortium that recently increased its ownership stake in Universal Music group to 20%.
The giant Tencent group is the largest shareholder of Tencent Music. Local media and finance industry sources have indicated that Tencent should expect a significant fine for violations of monopoly regulations, though that has not been made official. Tencent is set to report its quarterly results later this week.