Streaming Growth Helps Lift Profits by a Third

Tencent Music Entertainment, China’s largest online music firm, raised its profits by a third in the April to June second quarter of its financial year, despite a marginal decrease in revenues.

The company reported three-month revenues of RMB7.16 billion ($985 million), a year-on-year decrease of 2%, and net profits of RMB1.79 billion ($247 million). On a first-half view, revenues similarly slipped 2% to RMB13.9 billion while net profits grew 30% to RMB3.32 billion.

A breakdown of the data shows the company’s lucrative social music businesses (karaoke and other derived music services) suffering a massive 45% decline in average revenue per paying user (ARPPU), a 31% drop in casual users and only modest (5%) subscriber gains.

These backward steps, however, were more than offset by growth in its music streaming business. Paying user numbers climbed by 17% year-on-year to 117 million, while ARPPU simultaneously increased by 10%.

The increase in the number of paying users was primarily due to high quality content, attractive membership privileges, and optimized user operations and effective promotions. During the period, Tencent Music renewed contracts with Sodagreen and Korea’s CJ ENM.

Zhou Shen’s digital album Shenself topped sales volume on the platform for this year. The digital albums of Lay Zhang and Korea’s aespa were also strong.

The streaming service also saw its advertising revenues increase. This, the company explained, was primarily due to more diversified product portfolio and innovative ad formats, the introduction of ad-supported mode and sponsorship advertising. Additionally, increased revenues from offline performances also contributed to the growth in revenues from online music services.

In contrast, the continued decrease in the social music side “was mainly the result of adjustments to live-streaming interactive functions, more stringent compliance procedures and increased competition from other platforms.”

“With over 10 million net subscriber additions in the first half of 2024 and ARPPU expansion, we continue to break new grounds within China’s streaming landscape. We remain optimistic about the music industry’s long-term potential and are committed to sustainably achieving our mid- to long-term goals, at a healthy pace and with the right balance,” said Cussion Pang, executive chairman of the firm. “This approach has been instrumental in the past as we effectively navigated across various development stages and changing external environments, and it will continue to fuel innovation and growth for the years to come.”

Parent company, Tencent will report its second quarter financial data on Wednesday.