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Tencent Music Entertainment misses revenue estimates as users move to competing platforms

Written by Mengyuan Ge Published on     2 mins read

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The company lost a key advantage when it was ordered to scrap exclusive music licensing agreements.

Tencent Music Entertainment Group (TME) announced financial results for the third quarter that fell short of expectations due to its social entertainment unit’s declining revenues.

The company recorded revenues of RMB 7.81 billion (USD 1.21 billion) in Q3, up 3% year-on-year but missing analysts’ estimate of USD 1.23 billion. This was a drop from Q2’s RMB 8.01 billion (USD 1.25 billion) in earnings. TME generated RMB 788 million (USD 122 million) in net profits, compared to RMB 1.135 billion (USD 177 million) in the same period last year.

TME now has 71.2 million paying users for its music streaming services, a 37.7% increase from a year earlier. Among that user base, 5 million people began to utilize TME’s services in Q3. Online music services contributed RMB 2.88 billion (USD 448 million) in revenue, representing a 24.3% YoY increase. Earnings from music subscriptions were RMB 1.90 billion (USD 295 million), a 30.2% YoY increase.

Although its music streaming unit has seen steady user growth, TME’s main line of business—social entertainment services, such as karaoke apps—recorded a considerable YoY and QoQ drop in terms of monthly active users and paying users. The company’s executives attributed this to the impact of new regulations as well as intensifying competition from other entertainment platforms.

Revenue from social entertainment and other services declined to RMB 4.91 billion (USD 763 million), compared to 5.25 billion in the same period last year. Paying social entertainment subscribers fell from 10.5 million one year ago to 10 million. Meanwhile, monthly active mobile users of TME’s social entertainment platforms decreased by 12.8% over the past year to 205 million, primarily due to “churns of our casual users served by other pan-entertainment platforms,” according to a representative of the company.

“We will continue to invest in the operations of our social entertainment services through audio livestreaming, virtual livestreaming rooms, as well as cross-platform livestreaming events,” a TME representative said on Monday.

There is no shortage of entertainment options for people in China. Short video apps like TikTok sibling Douyin and Kuaishou hold the attention of their users for hours each day, negating the draw of music streaming. TME said it will differentiate itself by continuing to develop social features in its offerings and cultivate indie musicians and original music.

In September, TME scrapped all exclusive music licensing agreements under the order of market regulators. This means music that used to be solely available on TME’s platforms in China can now be streamed on other apps, like Kuaishou and NetEase Cloud Music.

TME’s shares on the New York Stock Exchange closed marginally up at USD 7.96 on Monday, with a slight uptick in after-hours trading. However, the Chinese government’s anti-monopoly regulations have sent TME’s share price tumbling to record lows, retreating by more than 75% from the year’s highest point in March.

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