Tencent Music is seeking alteration to keep its crown- PingWest

Tencent Music is seeking alteration to keep its crown

Rebbeca Ren

posted on 4 hours agoEditor : Wang Boyuan

The expiration of exclusive music rights and the expansion of rivals pose challenges to TME.

Tencent Music Entertainment (TME), China's biggest music streaming provider, released its financial report for the first quarter of 2021 on Monday. Its revenue reached 7.82 billion yuan ($1.22 billion), a year-on-year increase of 24%.

Behind the steady revenue growth, the expiration of exclusive music rights, and the expansion of rivals still pose challenges to the company's future development.

In order to consolidate its core business to better deal with potential threats, the company announced the organizational and personnel adjustments last week. Ross Liang, who became CEO of TME in April this year, will directly manage the company's most important service, QQ Music.

Since Tencent Music's brand operates independently, the wall between its own developed products and acquired products remains high, making it troublesome to collaborate on operations, technology, marketing, etc.

Therefore, two new departments, one R&D unit for business operations and security, and one content management unit responsible for music copyright were established amid the structural adjustment.

TME is an absolute dominator with more than 60% market share in China. For years, the company elbowed out competitors with exclusive digital distribution contracts with the three major labels, Universal, Warner, and Sony. Then it sub-licensed some songs out to competitors like NetEase, usually at twice or three times the original price. 

But the easy days are coming to an end as China's market regulator is deepening the anti-monopoly campaign.

Last month Reuters reported that Tencent, which controls TME, was told by Chinese anti-trust regulators to pay a fine, give up exclusive music rights and sell some of its music assets. In the latest earnings call, Tony Yip, chief strategy officer of TME, told the press that in recent months they have received increased regulatory scrutiny from relevant authorities and have been actively cooperating and communicating with the relevant regulators.

On Monday, Sony Music announced digital distribution agreements with TME and NetEase Music, ending an exclusive arrangement with the former. In 2020, NetEase Music reached similar agreements with Warner and Universal, respectively.

It signals that Tencent will not only lose its sub-license revenue but also the music copyright hegemony.

As short videos occupy more users' spare time, TME also faces the loss of users. According to the recent financial report, MAUs for TME's music and social entertainment platforms declined by 6.4% and 14.2% year-on-year, respectively. In the fourth quarter of 2020, music MAUs dropped by 3.4% year-on-year, and social entertainment MAUs dropped by 4.3% year-on-year.

Short video platforms, which control massive traffic, can also better connect creators and audiences. While diversifying the platform's content and attracting users, it can also help musicians expand their visibility and even make money by obtaining virtual gifts from followers. Therefore, it seems natural to expand their tentacles to the music streaming business.

"Followers of musicians account for 70% of the total daily active users of Kuaishou, which means that 7 out of every 10 users follow at least one music creator," said Yuan Shuai, head of music business at Kuaishou, the Tencent-backed short video platform.

Kuaishou set up an independent music department in March 2018 and reached a partnership with TME, bringing tens of millions of music to the video platform for users to create content. In recent years, Kuaishou is stepping up, raising support for cultivating original music on its own platform. In 2020, it launched the "100 million yuan reward program" to attract musicians to join.

ByteDance's move may be more pressing for TME. A music department in April has been founded by the TikTok owner, to integrate the music business of various departments. The social media unicorn has reached cooperation on copyright with mainstream Chinese and foreign music companies, including Sony, Universal, Warner, Avex, and Taihe. Feiyue (飞乐), the company's music streaming service targeting the domestic market, is reportedly undergoing internal testing.

Resso, Feiyue's sister app for the overseas market, has quietly been racking up users. As of last August, the app secured 15.2 million total installs on the App Store and Google Play, according to data from Sensor Tower. It ranks first in music categories in India, Indonesia, and Brazil, making JOOX, TME's music streaming services facing emerging markets, dwarfed. 

But TME's WeSing is playing an imperative role. The recent company-level adjustments also aim to better integrate the free Karaoke service with the music streaming business. 

"WeSing it is important for us to find ways for musicians to interact with the fans through a short video-based format," Cussion Pang, executive chairman, told in the earnings call. Currently, the app is well-accepted in Thailand, Malaysia, and the Philippines, remaining in the top three in the music category.

Image Credits: TME