Sep 24, 2020
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Tencent Music Is Better Than Spotify At Making Money, But Growth Uncertainties Still Loom

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A pedestrian walks past Tencent Holdings Ltd. s new headquarters in Shenzhen China. (Photo by Qilai. [+] © 2016 BLOOMBERG FINANCE LP Tencent Music Entertainment (TME) has raised $1. 1 billion through its much-anticipated initial public offering in New York giving the music streaming company a valuation of $21. 3 billion but some analysts warn of a much wider slowdown for the industry


The corporate which is the online music arm of internet giant Tencent has priced its 82 million American Depositary Receipts (ADRs) at $13 each which is the bottom of a previously expected range of $13 to $15. The forthcoming IPO among the largest ever has been repeatedly delayed amid the market s recent volatility


TME s valuation could have fallen just wanting Spotify s current market cap of $23. 3 billion however the Chinese company is decidedly better at squeezing money out of its users than its loss-making Swedish peer. Both Spotify and TME view music streaming as a fundamental business says Xiong Hui an analyst at Beijing-based research firm iResearch


But in China you could t charge a lot for music so what TME really wants is selling more entertainment products to spice up its income. More On Forbes: China s Tencent Has Quietly Built An Entertainment Empire That Western Tech Giants Can Only Envy PROMOTED UNICEF USA BRANDVOICE | Paid Program
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It operates streaming apps QQ Music Kugou and Kuwo as well as the WeSing karaoke app. Per its prospectus TME has attracted a combined 800 million monthly active users who spend a median of 70 minutes using its services on an everyday basis. To generate more engagement TME allows users to buy virtual gifts and send them to their favorite hosts and artists during performances that are live streamed on its apps


Inside the WeSing karaoke platform users could also view songs and concert events uploaded by their social media contacts and tip them virtual flowers and coins. Further TME can potentially leverage its close relationship with parent Tencent by targeting the massive user base of the WeChat and QQ messaging platforms which boast a combined 1


8 billion users and provides music as portion of their very own entertainment functions. Spotify has a single business line while TME has built an ecosystem around music and entertainment says Ailin Jiang an analyst at Hong Kong-based Blue Lotus Research Institute. a screenshot of a live performance on TME s WeSing karaoke app


BY YUE WANG The strategy has been paying off. Inside the nine months ending September TME s revenue jumped 46% from a year ago to $1. 98 billion while its profit greater than tripled to $394 million per its prospectus. What s more about 70% of its top line comes from social entertainment services and others which refers largely to purchases of virtual gifts and coins inside its apps


Remainder is made of music subscription and digital album payments which cost as little as 12 yuan ($1. 8) a month — much lower than Spotify s $9. 99. More On Forbes: Why Major Labels Would Cash In On A Tencent Music IPO But challenges loom on the horizon. Charging higher prices is out of the question because many Chinese users are unwilling to pay more and might easily switch to rivals NetEase and Alibaba analysts say


TME is likewise contending with a slowdown across the streaming industry. Per iResearch the number of devices which have installed live streaming apps had already peaked in February and has since come down and stabilized at around 150 million units. And that means TME s growth will probably stagnate says iResearch s Xiong


He thinks the corporate will probably need to sacrifice a number of its margins and boost marketing spending to maintain users from drifting away to rival live streaming apps like Nasdaq-listed Momo and YY as well as Douyin s short video platform. Although Chinese users are unlikely to pay more for music live streaming payments still could have room for further growth


Currently TME s users spend a median of 118. 5 yuan ($17. 3) on social and entertainment services every month compared with 360 yuan ($52. 5) at Momo and 172 yuan ($25) at YY. Live streaming is a mature business here and TME can grow it in a short time says Blue Lotus s Jiang


Though user growth will be limited their payment levels still have room to grow

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