Tencent Music Entertainment has published its financial results and user metrics for Q3 2024 (the three months ending September 30).
Although it saw its total MAUs of online music fall 3% YoY to 576 million, TME reported on Tuesday (November 12) that the number of users paying for access to its services increased 15.5% year-over-year to 119 million (see below). TME added 2 million net subscribers in Q3 compared to the prior quarter (Q2 2024).
The company – the largest operator of music services in China and owner of the QQ Music, Kugou, Kuwo, and WeSing platforms – saw its ARPPU (Average Revenue Per Paying User) grow 4.9% YoY to RMB10.8 (approx. USD $1.50) in Q3.
Tencent Music said that it owed its ability to convert non-paying users to paid subscribers in Q3 to the “enhanced recommendation algorithms” on its platforms, noting that its “recommendation-driven streams are reaching a record high”.
But perhaps even more interesting was TME’s ability in Q3 to convert paid subscribers to Super VIP subscribers.
The company also cited “attractive membership privileges, optimized user operations and effective promotions, as well as the expansion of [its] SVIP membership program” as reasons behind the growth of its paying user base and monthly ARPPU.
TME CEO Ross Liang explained on Tuesday that the company’s “robust music subscription performance”, plus “better-than-expected net subscriber additions and an expanding ARPPU” highlight TME’s “effectiveness of [its] balanced approach to achieve growth,” which he added, is “important to drive paying user base expansion in the coming years”.
But TME’s CEO pointed specifically to what he calls “enriched and differentiated user privileges” – i.e. segmentation of its paying user base as a significant growth driver for the company’s music streaming business.
We’ve previously written about TME’s Super VIP (SVIP) tier, which costs five times as much as a regular subscription.
The company reported on Tuesday that it counted over 10 million SVIP subscribers as of the end of September 2024, with “blended ARPPU and user engagement higher” for those SVIP subscribers versus non-SVIP subscribers.
In other words, over 8% of TME’s total paid subscriber base are Super VIP members.
According to Ross Liang, TME’s “value proposition for more premium memberships ha[ve] been well accepted” amongst its user base, which he added, is “cultivating greater loyalty on our platform.”
Two of the primary growth drivers for the adoption of its SVIP tier in Q3, according to TME, were premium audio quality and “enriched long-form audio offerings”.
Features such as QQ Music’s Premium Sound, DTS sound quality, and Kugou Music’s Viper Ultra Sound “helped enhance” SVIP member experiences, the company said.
“We also expanded the Viper series privileges to in-vehicle use through strengthened partnerships with Xiaomi, Li Auto, and NIO,” added TME on Tuesday.
The company also said that it collaborated with artists and labels to offer Super VIP members “additional privileges,” which it said, “enhance[es] conversion and loyalty”.
Additional privileges for SVIP subscribers include what TME calls “complimentary access to an extensive digital album collection” as well as “Proprietary concerts and fan engagement activities”, such as pre-sales for ticket concerts by G.E.M., Mariah Carey, and TIA RAY during the quarter.
“By offering enriched and differentiated user privileges, our value proposition for more premium memberships has been well accepted, cultivating greater loyalty on our platform.”
Ross Liang, TME
Key players in the global music business will be closely monitoring the performance of TME’s ‘Super-VIP subscription offering.
At Universal Music Group‘s Capital Markets Day in September, UMG Executive Vice President and Chief Digital Officer, Michael Nash called TME’s Super-VIP tier “another exciting example of how product innovation can significantly enhance customer value”.
He added: “We expect ‘super-premium’ tiers to be deployed by most streaming platforms, enhancing the subscriber experience, bringing fans closer to the artists they love, and significantly increasing subscription revenue”.
As we know, one of those platforms is Spotify, which is working on a new $17/$18-per-month “super-premium” tier. This tier is expected to include hi-fi audio and superfan experiences.
At the end of October, on Universal Music Group’s Q3 earnings call, UMG Chairman and CEO Sir Lucian Grainge argued that a key factor in the evolution of the streaming business “will be improving customer acquisition strategies to drive greater conversion from free to paid and then from paid onto the superfan tier”.
Elsewhere within Tencent Music Entertainment’s most recent results, in terms of finances, the company reported that its revenues from online music services increased 20.4% YoY to RMB5.48 billion (USD $781m) from RMB4.55 billion in the same period of 2023 (see above).
TME said that this increase “was driven by solid growth in music subscription revenues, supplemented by growth in revenues from advertising services”.
Revenues generated by TME from music subscriptions specifically reached RMB3.84 billion (USD $547m) in Q3, representing 20.3% YoY growth compared with RMB3.19 billion in the same period of 2023.
“The steady expansion of our music subscribers and diversified music services continue to drive overall growth and profitability.”
Cussion Pang, TME
Cussion Pang, Executive Chairman of TME, added: “Our commitment to high-quality growth is reflected in another solid quarterly performance.
“The steady expansion of our music subscribers and diversified music services continue to drive overall growth and profitability.
“We are encouraged by the growing synergies between our platform and well-established content ecosystem, which have become a vital force in empowering us to seize new opportunities for long-term, sustainable growth.”Music Business Worldwide