NetEase Cloud Music, China’s second biggest music streaming provider, posted a 22.5% year-over-year jump in revenue in the third quarter, which the company attributed to the continued growth in its paying user base.
Revenue in the three months ended September 30 reached RMB 2.36 billion (approx. $331 million), up from RMB 1.92bn in the year-ago period and from RMB 2.19bn in the second quarter of the year.
The figures were disclosed by Cloud Music’s majority shareholder NetEase last week (November 17) as it reported its overall (unaudited) Q3 results. Cloud Music accounted for 9.7% of its parent company’s overall revenue of RMB 24.43bn during the quarter.
Internet giant NetEase is publicly-traded Cloud Music’s majority shareholder. When the latter company listed on the Hong Kong Stock Exchange in December 2021, it was reported by the company that NetEase owned a 47.51% share, after making a US $200 million cornerstone investment in its spun-out music subsidiary.
Sony Music Entertainment also backed the listing, investing $100 million to acquire 3,801,000 shares in Cloud Village (see below).
NetEase’s Chief Financial Officer Charles Yang told analysts during an earnings call that Cloud Music’s revenue grew as the unit continued to expand its paying user base and optimize its pricing strategy.
During the quarter, Cloud Music further improved its “music-oriented community and content ecosystem” and continued to accelerate its monetization efforts and “gain meaningful operating leverage,” according to the executive.
“Our paying user ratio was also stable quarter-over-quarter.”
Yang revealed during the call that Cloud Music’s MAU remained steady, while its DAU over MAU ratio stayed well above 30%.
“Our paying user ratio was also stable quarter-over-quarter,” Yang added.
The actual figures for Cloud Music’s subscriber number by the end of the quarter were not disclosed.
As these are only preliminary results, reported by Cloud Music’s majority shareholder NetEase, publicly-traded Cloud Music will report its own Q3 results including paying user numbers.
Until we get an update on those numbers, it’s worth looking back at Q2 to see how many users NetEase had in the three months to end of June:
In the second quarter, Cloud Music added 872,000 paying music users, ending that period with 37.6 million monthly online music paying users. In comparison, its rival Tencent Music Entertainment (TME), which operates multiple streaming services including QQ Music, Kugou Music, and Kuwo Music, added 2.5 million new paying users, ending the first half with 82.7 million paying subscribers.
Most recently, TME last week reported that it added another 2.6 million paying music users in Q3, raising its paying subscriber number to 85.3 million.
Cloud Music’s gross profit margin in Q3 rose to 14.2% from 13% in Q2 and from 2.2% in Q3 2021. Its gross profit surged nearly eight-fold to RMB 333.6 million in Q3 from RMB 42.8 million a year earlier.
NetEase attributed the improvement to “increased net revenues from its social entertainment services, as well as continuously improved cost control measures.”
During the earnings call, Yang noted that Cloud Music witnessed a gradual recovery in advertising, while the unit’s net loss further narrowed both year-over-year and quarter over quarter.
In the first half, Cloud Music’s attributable net loss shrank substantially to RMB 270.8 million from RMB 3.81 billion a year ago, owing to strong sales and a 39% drop in general and administrative expenses, an increase in government grants and value-added tax subsidies, as well as net foreign exchange gains, among others.
Yang further revealed during the earnings call that Cloud Music continued to augment and diversify its copyright library.
Increasing regulatory scrutiny in China forced companies like Cloud Music and TME to give up exclusive deals with global labels in China. Tighter oversight by Beijing also forced Cloud Music to pause its Hong Kong initial public offering last year, but it managed to resume its plan, launching its HK$3.28 billion ($420 million) IPO in December 2021.
“NetEase Cloud Music has been actively in discussion with label companies to secure best content for our music lovers.”
Charles Yang, NetEase
Since then, “NetEase Cloud Music has been actively in discussion with label companies to secure best content for our music lovers. By now, we have managed to bring back most of the major label content, including those from Modern Sky, Emperor Entertainment Group, China Record Group, Feng Hua Qiu Shi, Yuehua Entertainment, Linfair Records, SM Entertainment, TF Entertainment, YG Entertainment and KAO!INC,” Yang said on the company’s earnings call.
In addition to getting more licensed music on its music-streaming platform, Cloud Music has also increased its focus on nurturing aspiring musicians. The company now serves more than 570,000 artists, Yang revealed.
To attract new users and retain its existing paying subs, Cloud Music has rolled out new offerings in Q3 including launching a ‘star-rated comment section’ to display high-quality user comments, as well as a ‘Fans Space’ to connect and encourage interaction among artists and their fans.
Cloud Music also started offering Dolby Atmos to its platform, allowing users to get more immersive ways to listen to music, Yang said.
Shares of Cloud Music in Hong Kong closed down 11% on Tuesday amid a broad sell-off of Hong Kong stocks that was triggered by renewed fears of another lockdown in China.Music Business Worldwide