Author | Zhang Qingyue

Source | Industrial science and technology

Tencent Music, the halo is fading.

As a leading player in China's online music market, Tencent Music takes QQ Music, Kuwi Music and KuGou Music as the main platform, sets up a music streaming framework supplemented by national singing, and acquires lazy people to listen to books and enter the online audio industry.

With the advantage of Tencent traffic and diversified product layout, Tencent Music was listed on the New York Stock Exchange two years after its establishment. At that time, Tencent Music ranked first in music streaming, with exclusive copyright as a sharp weapon, with a market share of more than 50% and an exclusive copyright share of more than 80%.

From Chinese to European and American, Japanese and Korean pop music, almost all the most popular singers are included in the bag of Tencent Music, and "the Song of Jay Chou" is Tencent Music's trump card. The heavy money won the copyright war, which also formed a deep binding on Tencent Music's commercial value.

The good times will not last long, the supervision of the anti-monopoly governance of platform enterprises will uncover the hidden dangers of Tencent Music's exclusive copyright. In July 2021, the General Administration of Market Supervision issued a notice ordering Tencent Music to lift the exclusive copyright of online music and other penalties, and Tencent Music's outstanding advantage was taken away.

For the music communication platform, content is the top priority. After the loss of copyright advantage, Tencent Music turned his attention to diversified content construction. Recently, QQ Music launched the function of releasing digital albums independently, which can not only enable more musicians to release works, but also give more people access to the music of ordinary musicians.

Although the idea is good, it is not known how much benefit it can really bring to the platform. What is certain, however, is that music and audio streaming are dominant, and Tencent Music, who once relied too much on copyright endorsement, the story of long-term doctrine became narrower at the beginning, and in a more fair market environment, the pressure to get guests, stay, and live guests increased.

Behind the decline in performance

The number of paying users of online music business has increased, which makes it difficult to break the trend of overall revenue and profit decline.

Revenue and profits fell at the same time. According to the financial report, Tencent Music's revenue in the first quarter of 2022 was 6.64 billion yuan, down 15.1 percent from the same period last year, while net profit was 649 million yuan, compared with 979 million yuan in the same period last year, down 33.7 percent.

The changing situation of music subscription is more optimistic. Music subscription revenue was 1.99 billion yuan, an increase of 17.8% over the same period last year. The number of paying users for online music reached 80.2 million, an increase of 31.7% over the same period last year. The payment rate was 13.3%, up from 12.4% and 9.9% in the fourth and first quarters of 2021.

It's just that the growth of music subscriptions doesn't make a lot of money. Gross profit in the first quarter of 2022 fell to 1.86 billion yuan from 2.47 billion yuan in the same period in 2021, a decrease of 24.6%; gross profit margin dropped from 31.5% to 28.0%. Tencent Music explained in the financial report that the main reason for the decline in gross profit margin is that online music accounts for a relatively high proportion of revenue, while online music's gross profit margin is usually low.

Online music revenue is still down slightly. Tencent Music's online music service revenue was 2.616 billion yuan in the first quarter, down 4.8 percent from 2.749 billion yuan in the same period last year. The monthly ARPPU of online music (average income per paying household) was 9.3 yuan, down 10.8 percent from the same period last year.

The number of paying users has increased, and the average amount paid has declined. In order to attract payment, Tencent launched a lot of member discount activities. A post-00s user said he was a monthly member of QQ Music for four consecutive times from March to June this year, with a monthly price of 6.80 yuan (the original price was 15 yuan). The introduction of a discount of about 8 yuan less than the original price, which is not difficult to explain the decline in the average revenue of monthly paying users.

Substantial preferential activities may be Tencent Music's helpless move. Social entertainment income is not as good as before. Tencent Music started as a music streaming media to attract paying users and stabilize online music revenue, which is more helpful to avoid the risk of business income fluctuations.

In the social entertainment business, the number of households paying for social entertainment in the first quarter of 2022 was 8.3 million, down 26.5 per cent from 11.3 million in the same period last year. Revenue from social entertainment services and other services was 4.028 billion yuan in the first quarter of this year, down 20.63% from a year earlier. There is a tendency to shift payment revenue from social entertainment to online music.

When it comes to mobile MAU, social entertainment loses more users than online music. In the first quarter of 2022, online music MAU was 604 million, down 1.8% from a year earlier, while social entertainment MAU was 162 million, down 27.7% from a year earlier. Tencent Music has to pay attention to the retention of users.

In order to retain users, Tencent Music made efforts in content and function research and development, and the expenditure structure changed significantly. Sales and marketing expenses in the first quarter of this year were 330 million yuan, down 50.9 percent from the same period last year. Due to the control of marketing expenses and the optimization of the overall promotion structure, Tencent Music is more inclined to use internal flow to attract users and promote the brand.

General and administrative expenses were 1.01 billion yuan, an increase of 14.6% over the same period last year. Due to increased investment in research and development, in order to expand the competitive advantage in product and technological innovation. At the beginning of this year, Tencent Music announced the official launch of China's first virtual music carnival, TMELAND, where users can create their own virtual images and experience virtual concerts and live broadcasts "in person".

Tencent Music also mentioned in the financial report that in the future, we will focus on providing differentiated experiences for users, attach importance to investment in original content production, and continue to build an immersive music entertainment ecosystem, bringing innovative possibilities for music lovers to listen, watch, sing and play. "Music album" is also an important part of the content ecosystem.

The advantage is dispersed

After the loss of exclusive copyright advantage, Tencent Music was restricted by Qinglang policy and seemed to have more difficulty in content construction.

In the wake of the anti-monopoly copyright control, the state's policy of "clearness" and crackdown on the food circle came, stipulating that the purchase of digital albums was restricted, and users could buy only one copy per person instead of unlimited copies. It was not until June this year that everyone was able to buy 10 albums.

None of the best-selling albums are released during the restricted period. On the best-selling list of QQ Music's digital albums, Jay Chou's "greatest work" (released in July this year), with sales of 152 million yuan. The sales of digital singles released by Xiao Zhan in April 2020 were 142 million yuan, while those of Cai Xukun's digital albums released in April 2021 were about 86.62 million yuan.

The main sources of income for online music are members, digital albums, advertising services and licensing business. Judging from the rule of resuming the purchase of 10 copies in June this year, as an important part of online music revenue, the restriction on the purchase of digital albums has greatly affected the revenue of the platform, and it is difficult to recover by selling members alone.

Content is the basis to support the operation of the streaming media platform. Apart from relying on the income of members and digital albums brought by the works of popular singers, the construction of its own musicians on the platform has also been put on the agenda by QQ Music. When "Music Man Records" comes, musicians can publish their works on the platform and sell them.

On the square page of QQ Music community, you can see the "musicians record" column, where musicians release digital singles or albums, most of which sell for 1-2 yuan per song. The best sellers can sell 400 to 500 copies, many of them can sell 100 or 200 copies, and many of them do not show sales. There is an obvious gap between unit price, sales volume, popularity and artists' records. Tencent Music still has a long way to go to make money by supporting musicians.

In the content ecological construction, Tencent Music lacks obvious characteristics. NetEase, Inc Yun Music, Tencent Music's biggest competitor, started with comments featuring "emo", which has become a slang among the young population. NetEyun's Yuncun community and villager square provide users with an open and harmonious communication environment.

After losing the patron of exclusive copyright, Tencent lagged behind in the content community. Most of the popular dynamic comments in the community were in double digits, and likes on NetEyun's popular posts could reach three to four digits, with a significant gap.

In addition to the policy regulation of the online music business, the social entertainment business is also affected. In May this year, the four departments issued articles to regulate webcast rewards, strictly implement the requirements of the real-name system, and prohibit the provision of various reward services such as cash recharge, "gift" purchase and online payment for minors.

Streaming media has entered the era of strict supervision, Tencent Music's next performance backer, has not yet appeared.

The industry is getting tired.

Looking around the world, the music streaming market is facing many difficulties in recent years, and the way for the industry to break the situation still needs to be explored.

Compared with the global streaming music market, the income structure of China's music streaming market is not reasonable. Overseas streaming music platform revenue is mainly subscribed, while China's online music market revenue mainly comes from derivative social entertainment services. This can also be found in Tencent Music's financial report.

The growth rate of users is slowing. According to the National Internet Information Center, the compound growth rate of users in China's music market was only 7% from 2016 to 2020, and user growth may be in a bottleneck period. The competition among the major music streaming media platforms is the transfer of users between the platforms, so it is difficult to find new user increments.

As a rare profitable digital audio platform in the world, Tencent Music is still facing difficulties in declining performance, and the difficulties of other platforms can be imagined. Although it is difficult to find new users, these platforms still take measures such as choosing price increase members in order to save their revenue performance.

Foreign streaming media platforms have already set a precedent for price increases. In recent years, members of Neflix, a streaming video platform, have raised prices several times, and music streaming platform Spotify has been testing member prices since 2017 and last year in the UK. Domestic iQIYI, Inc., Tencent, mango video members have also raised prices one after another.

Members' prices will rise "whether they go up or not". QQ Music membership price is maintained at 15 yuan / month, on the surface, there is no price increase, after buying ordinary members, can not listen to digital album songs, 3 months later can listen to. Only those super members who buy 30 yuan per month can listen to the songs of digital albums for free.

Users can choose more platforms, member + digital album mode may be difficult to retain users. For Apple Inc mobile phone users, iTunes members are free for the first three months, and then 10 yuan a month, no need to buy additional digital albums, and there are no copyright restrictions, you can also hear songs by celebrities like Jay Chou. Members of QQ Music, Kuwi, KuGou and NetEase, Inc pay 15 yuan per month and need to buy additional digital albums.

Overseas music platforms are also within the range of choice of domestic users. "A certain treasure buys spotify members for only 24 yuan a year. There are music libraries in Chinese, Japan, South Korea, Europe and the United States, which is more than a little more cost-effective than QQ Music." One listener who likes KPOP said.

It is the impact of the rise of short videos that allows long video and music streaming platforms to make such a big response. In addition to taking up users' entertainment time, short video APP also began to lay out the online music business. Tik Tok launched a "on-demand streaming music service" with social functions in 2019. Last year, TikTok partnered with Universal Music Group to allow users to create short videos using all of Universal's music, and music creators will receive "fair pay" from it.

Similarly, in China, short video platforms dominated by Douyin and Kuaishou Technology are grabbing users' attention. Douyin APP has more and more functions, and it is possible to enter music listening in the future, which brings no small threat to Tencent Music and other major music streaming media.

To deal with the impact of new media forms, every streaming media platform needs to respond quickly. How to reverse the decline in profits, even for some enterprises, the difficulty of turning losses into profits is not only a difficult problem for Tencent Music, but also a problem that streaming media enterprises need to think about.