Tencent Music Entertainment Group (TME) reported strong growth in the number of paying users across its apps in the third quarter, driving the company’s revenue for the period to exceed analyst expectations.

Why it matters: TME owns some of the most popular music apps in China such as Kugou Music and QQ Music. The company is also known for entering exclusive licensing deals with major music labels and then passing the costs to its smaller competitors.

Details: Total revenues for the third quarter rose 31.0% year on year to RMB 6.51 billion ($910 million), beating IBES estimates of RMB 6.45 billion, according Reuters. Gross profit for the company increased by 12.6% to RMB 2.21 billion compared with the third quarter in 2018.

  • Paying users for TME’s online music services rose 43.2% year on year and its social entertainment services attracted 23.2% more users than the same period a year earlier.
  • The company may be converting paying users from its existing users rather than attracting new subscribers, as mobile MAU growth figures were relatively modest: online music mobile MAUs rose 0.9% year on year and social entertainment MAUs increased 7.6% compared with the same period a year earlier.
  • Revenues from online music services increased by 26.2% compared to the same period last year, mainly attributable to increased paying users and better paying user retention.
  • Revenue from social entertainment services rose 32.9% year on year to reach RMB 4.66 billion, driven primarily by growth in the number paying users for the online karaoke and music live-streaming services.
  • The monthly average revenue per paying user (ARPPU) growth for TME’s social entertainment apps slowed significantly compared with the previous two quarters, growing 7.4% year on year compared to 16.5% the previous quarter and 28% in the first quarter of the year.
  • The company reported 661 million total monthly active users (MAUs) for its online music business and 242 million MAUs on its social entertainment platforms during the quarter, which include karaoke app WeSing and music live-streaming platforms Kugou Music and Kuwo Music.

Context: In August, Bloomberg reported that the State Administration of Market Regulation was looking into TME’s deals with music labels such as Universal, Sony, and Warner Music, causing its shares to drop by 6.8%.

  • Licensing from Tencent Music could be twice as expensive as licensing directly from major labels, according to the report.

Tony Xu is Shanghai-based tech reporter. Connect with him via e-mail: tony.xu@technode.com

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