Tencent Music Reports Smaller Revenue Decline Amid Growth in Music Streaming Subscribers

Tencent Music Entertainment (HKEX:1698), a leading Chinese music streaming platform controlled by Tencent Holdings (HKEX:0700), reported a smaller-than-expected decline in its second-quarter revenue, aided by a significant increase in paying subscribers. The company has been navigating regulatory pressures in China, particularly in its live-streaming segment, which has faced intensified scrutiny from Beijing.

Quarterly Revenue Overview

For the quarter ending June 30, 2024, Tencent Music reported revenue of 7.16 billion yuan ($999 million), marking a 1.7% year-over-year decline. This represents the fourth consecutive quarterly revenue drop for the company as it continues to grapple with the impact of Beijing's crackdown on live-streaming. However, the revenue figure slightly exceeded analysts' average forecast of 7.14 billion yuan, according to LSEG data.

Growth in Paying Subscribers

One of the key bright spots in Tencent Music's performance was the robust growth in paying subscribers for its online music streaming platforms. The number of paying users surged by 17.7% year-over-year, reaching 117 million. This growth was driven by targeted promotions through telecom companies, e-commerce platforms, and video platforms, which helped offset the revenue decline in other areas.

The company's online music business, which saw a 27.7% increase in revenue, continues to be a critical driver of its overall financial performance. This segment's strong growth contrasts with the steep decline in the company's social entertainment business, which includes live-streaming activities.

Challenges in Social Entertainment

Tencent Music's social entertainment segment experienced a significant 42.8% drop in revenue during the quarter. This decline is largely attributed to the Chinese government's crackdown on live-streaming, which began nearly a year ago as part of broader efforts to regulate online gambling and other illicit activities. Live streamers have been accused of colluding with viewers to manipulate lucky draws and share prizes, prompting regulatory interventions.

In response to these regulatory challenges, Tencent Music has discontinued several live-streaming features, further impacting its social entertainment revenue. During the company's earnings call, Cussion Pang, executive chairman of Tencent Music, acknowledged that the social entertainment business would likely continue to face headwinds due to competition, macroeconomic factors, and regulatory pressures.

Strategic Outlook

Despite the challenges in its social entertainment segment, Tencent Music remains focused on growing its core online music business. Pang emphasized that as this segment continues to expand, its contribution to total revenue will increase, thereby mitigating the impact of the declining social entertainment business. The company's strategy appears to be shifting towards strengthening its position in the music streaming market, where it sees more sustainable growth opportunities.