MBW Reacts is a collection of analytical commentaries from Music Enterprise Worldwide written in response to main latest leisure occasions or information tales. Solely MBW+ subscribers have limitless entry to those articles.
Streaming big Spotify is readying to roll out a brand new “Tremendous-Premium” subscription tier designed to higher monetize music superfans – a improvement eagerly awaited by the music business.
We don’t know but for positive what will likely be a part of this new “deluxe” tier (as Spotify CEO Daniel Ekdescribed it in a latest earnings name), although there’s a great likelihood it’s going to embody high-fidelity audio (a function that has been conspicuously lacking from Spotify’s service to date), and doubtlessly “superfan golf equipment” in addition to new playlisting and music administration instruments.
All Ek is keen to inform us to date is that it will likely be for “big music lovers who’re primarily searching for much more flexibility in how they use Spotify and the music capabilities that exist on Spotify.”
Ek additionally hinted on the worth of this new tier: “One thing like $5 above the present Premium tier… in all probability round a $17 or $18 [per month] worth level”.
That’s actually excellent news for artists and music rightsholders, who’ve lengthy argued that music is undervalued within the digital world.
The value of Ek’s mooted Spotify Tremendous-Premium tier could be roughly 50%-60% above the present fee for a person Premium subscription, holding out the promise of considerably greater royalty payouts from the streaming service.
But if Spotify remains to be working to determine precisely what so as to add to its “deluxe” tier, and simply the way it ought to be priced, it could need to check out Tencent Music Leisure (TME), China’s largest operator of music streaming platforms.
On its Q2 earnings name Tuesday (August 13), TME brass talked in regards to the earnings enhance the corporate has seen – and expects to see within the coming quarters – from its “Tremendous VIP” membership tier.
In line with CEO Ross Liang, a Tremendous VIP membership prices round RMB 40 per thirty days, or about 5 occasions as a lot because the RMB 8 going fee for a typical paid subscription to one in all TME’s music streaming providers. (TME operates QQ Music, Kugou and Kuwo, in addition to the karaoke app WeSing.)
To be clear, these are nonetheless significantly decrease costs than what Spotify fees in its most profitable developed markets.
RMB 40 interprets to round USD $5.60 at present trade charges, and RMB 8 is simply $1.12.
That’s actually properly beneath the $11.99 that Spotify fees within the US for a person premium subscription (after two worth hikes previously yr, bringing the worth up from the $9.99 at which it had sat for years).
Given the significantly decrease spending energy of the common Chinese language shopper in comparison with the common US shopper, that worth distinction isn’t any shock; however the extra salient facet right here could be the ratio between Tencent’s typical commonplace paid subscription and its VIP subscription – a fivefold distinction.
So what do TME’s subscribers get for that a lot greater worth?
In line with Liang, fairly a bit: “A holistic and seamless listening expertise throughout varied gadgets and a number of situations… SVIP integrates music with long-form audio and on-line karaoke providers [plus] at all times superior sound high quality.
“It wins the hearts of our lively members with complete on-line and offline privileges, similar to precedence entry to digital albums and… ticket reserving for dwell music occasions, together with our TMEA [Tencent Music Entertainment Awards].”
One benefit that TME has right here is that, in contrast to Spotify, it has severely moved into the dwell occasions house, together with internet hosting its personal music awards present, full with a number of performances by well-known musical acts.
Plus TME Govt Chairman Cussion Pang famous this week that the corporate has began signing contracts with labels for ‘windowing’ (or “pre-phase”) offers. These give paying TME subscribers 30-day unique entry durations for brand spanking new music releases, for example from Taiwanese indie band Sodagreen and Ok-pop label CJ ENM, which represents the boy band ZEROBASEONE.
These offers have “successfully improved membership conversion and engagement,” Pang stated on the decision.
TME’s Tremendous VIP tier additionally consists of entry to “long-form audio content material,” i.e. podcasts and audiobooks.
That’s an area that Spotify has moved into as properly, in fact. However provided that SPOT’s present paid subscription tiers already provide entry to podcasts and embody 15 hours of free audiobook time per thirty days, Spotify could also be restricted in how a lot it might leverage long-form audio for its ‘Tremendous-Premium’ tier.
“Frankly talking, [this] is a extremely comparatively low-cost leisure that could be very inexpensive to all customers.”
Cussion Pang, Tencent Music Leisure
So how properly has Tremendous VIP been working for TME financially? In line with Liang, it’s been a key driver of the corporate’s progress in month-to-month ARPPU (common income per paying person), which jumped 10.3% YoY, to RMB 10.7 (USD $1.47) in Q2 2024.
Although TME brass aren’t prepared but to share uncooked numbers on Tremendous VIP subscriptions, Liang predicts that within the again half of 2024, ARPPU will outstrip subscriber progress when it comes to driving the corporate’s gross revenue margin, largely on the power of Tremendous VIP subscriptions. And that’s saying one thing, provided that subscriber progress has been no slouch: TME recorded 117 million paying subscribers in Q2, a 17.7% enhance from the identical interval a yr earlier.
In all, TME’s income from music subscriptions got here in at RMB 3.74 billion (USD $515 million) within the quarter ended June 30, a 29.4% YoY soar. Revenues from music providers – together with advert income and downloads, plus subscriptions – got here in at RMB 5.42 billion ($746 million) for the quarter, up 27.7% YoY.
Tencent Music stated that progress was because of a “distinctive mix of premium advantages, unique content material, and a wide range of participating use instances” that “drove sustainable subscriber progress”.
Listed below are two different key issues we discovered on the corporate’s newest earnings name…
1) TME high brass say the music streaming enterprise is recession-proof
Requested by analyst Thomas Chong of Jefferies whether or not China’s financial headwinds may have an effect on TME’s enterprise, Cussion Pang stated that whereas the macroeconomic surroundings “will carry some challenges to totally different elements of the enterprise,” he expects the music streaming facet to stay sturdy, due to the “worth for cash” it gives to customers.
“Frankly talking, [this] is a extremely comparatively low-cost leisure that could be very inexpensive to all customers,” he stated.
Pang conceded that China’s financial slowdown would possibly affect TME on the ad-supported facet of the enterprise.
“However we’re seeing that we’re nonetheless doing a great job” on the advert facet, he added, particularly with regard to tourism and promoting “associated to a few of our offline live performance sponsorships.”
He famous that TME is increasing into new promoting codecs, which Pang expects will maintain the momentum occurring that facet of the enterprise.
“So I feel that the general macro surroundings doesn’t have such a huge impact [on] TME,” he concluded.
As we reported yesterday, Pang’s optimism about the way forward for music – and streaming subscriptions – was summed up on this quote from the exec: “We stay optimistic in regards to the music business’s long-term potential and are dedicated to sustainably reaching our mid- to long-term targets, at a wholesome tempo, and with the precise stability.”
2) Producing its personal content material has helped TME develop its gross margin
TME Chief Monetary Officer Min Hu famous that the corporate’s gross margin reached 42% in Q2 2024, a 7.7 proportion level enhance yr over yr, which she attributed partially to the rising paid person base and bettering month-to-month ARPPU, in addition to elevated advert revenues.
But additionally, she famous, “the ramping up of our personal content material continued to assist enhance our gross margin.”
Whereas TME has repeatedly burdened the significance of its many and rising contracts with music rightsholders – together with a just lately renewed multi-year licensing deal with world big Common Music Group – it has additionally centered on creating content material in-house.
The financial good thing about that’s fairly clear: Reduce out middlemen like third-party report labels and distributors, and you may maintain a bigger chunk of the revenue to your self.
“We’ll proceed to put money into high-quality content material, unique content material manufacturing in addition to revolutionary applied sciences to additional enhance person engagement and improve [the] person expertise.”
Min Hu, Tencent Music Leisure
One key component of this has been the Tencent Musician Platform, which, as of the tip of 2023, had attracted some 480,000 indie artists who had contributed round 3 million songs to TME’s streaming platforms.
Previously few years, Tencent has aggressively deployed AI-driven tech to assist with the music creation course of.
“In 2023, we launched a full suite of AI-powered music manufacturing instruments on Venus, our all-in-one platform for music manufacturing and promotion, and we use AIGC [AI-generated content] instruments to enhance artists’ music content material creation and manufacturing effectivity,” TME stated in its most up-to-date annual report.
Amongst these instruments are the power to separate totally different music devices on a recorded monitor, the power to mechanically generate sheet music, a lyric-writing assistant, and a composition assistant.
“We’ll proceed to put money into high-quality content material, unique content material manufacturing in addition to revolutionary applied sciences to additional enhance person engagement and improve [the] person expertise,” Min Hu instructed analysts on the earnings name.Music Enterprise Worldwide
