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 large Spotify is readying to roll out a brand new “Tremendous-Premium” subscription tier designed to raised monetize music superfans – a improvement eagerly awaited by the music business.
We don’t know but for positive what can be a part of this new “deluxe” tier (as Spotify CEO Daniel Ekdescribed it in a latest earnings name), although there’s a superb likelihood it can embrace high-fidelity audio (a characteristic that has been conspicuously lacking from Spotify’s service up to now), and doubtlessly “superfan golf equipment” in addition to new playlisting and tune administration instruments.
All Ek is prepared to inform us to date is that it is going to be for “big music lovers who’re primarily on the lookout for much more flexibility in how they use Spotify and the music capabilities that exist on Spotify.”
Ek additionally hinted on the value of this new tier: “One thing like $5 above the present Premium tier… in all probability round a $17 or $18 [per month] value level”.
That’s definitely 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 can be roughly 50%-60% above the present charge for a person Premium subscription, holding out the promise of considerably greater royalty payouts from the streaming service.
But if Spotify continues to be working to determine precisely what so as to add to its “deluxe” tier, and simply the way it must be priced, it could need to try Tencent Music Leisure (TME), China’s largest operator of music streaming platforms.
On its Q2 earnings name Tuesday (August 13), TME brass talked concerning the earnings increase the corporate has seen – and expects to see within the coming quarters – from its “Tremendous VIP” membership tier.
Based on CEO Ross Liang, a Tremendous VIP membership prices round RMB 40 per thirty days, or about 5 instances as a lot because the RMB 8 going charge for a typical paid subscription to certainly one of 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 prices in its most profitable developed markets.
RMB 40 interprets to round USD $5.60 at present change charges, and RMB 8 is simply $1.12.
That’s definitely effectively beneath the $11.99 that Spotify prices within the US for a person premium subscription (after two value hikes prior to now 12 months, 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 value distinction isn’t any shock; however the extra salient facet right here is likely to 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 value?
Based on 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 energetic members with complete on-line and offline privileges, resembling precedence entry to digital albums and… ticket reserving for stay music occasions, together with our TMEA [Tencent Music Entertainment Awards].”
One benefit that TME has right here is that, not like Spotify, it has severely moved into the stay occasions area, 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 intervals for brand spanking new music releases, as an 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 mentioned 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 effectively, in fact. However provided that SPOT’s present paid subscription tiers already provide entry to podcasts and embrace 15 hours of free audiobook time per thirty days, Spotify could also be restricted in how a lot it might probably leverage long-form audio for its ‘Tremendous-Premium’ tier.
“Frankly talking, [this] is a very comparatively low-cost leisure that could be very inexpensive to all customers.”
Cussion Pang, Tencent Music Leisure
So how effectively has Tremendous VIP been working for TME financially? Based on Liang, it’s been a key driver of the corporate’s development in month-to-month ARPPU (common income per paying consumer), 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 development by way of driving the corporate’s gross revenue margin, largely on the energy of Tremendous VIP subscriptions. And that’s saying one thing, provided that subscriber development has been no slouch: TME recorded 117 million paying subscribers in Q2, a 17.7% enhance from the identical interval a 12 months 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 mentioned that development was because of a “distinctive mix of premium advantages, unique content material, and a wide range of partaking use circumstances” that “drove sustainable subscriber development”.
Listed below are two different key issues we realized 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 mentioned that whereas the macroeconomic surroundings “will carry some challenges to completely different points of the enterprise,” he expects the music streaming aspect to stay sturdy, due to the “worth for cash” it offers to customers.
“Frankly talking, [this] is a very comparatively low-cost leisure that could be very inexpensive to all customers,” he mentioned.
Pang conceded that China’s financial slowdown would possibly impression TME on the ad-supported aspect of the enterprise.
“However we’re seeing that we’re nonetheless doing a superb job” on the advert aspect, 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 happening that aspect of the enterprise.
“So I believe 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 concerning the music business’s long-term potential and are dedicated to sustainably attaining our mid- to long-term objectives, at a wholesome tempo, and with the best 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 share level enhance 12 months over 12 months, which she attributed partly to the rising paid consumer base and enhancing month-to-month ARPPU, in addition to elevated advert revenues.
But in addition, 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 lately renewed multi-year licensing deal with international large Common Music Group – it has additionally targeted on creating content material in-house.
The financial advantage of that’s fairly clear: Reduce out middlemen like third-party file labels and distributors, and you may maintain a bigger chunk of the revenue to your self.
“We are going to proceed to spend money on high-quality content material, unique content material manufacturing in addition to revolutionary applied sciences to additional enhance consumer engagement and improve [the] consumer expertise.”
Min Hu, Tencent Music Leisure
One key aspect 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 mentioned in its most up-to-date annual report.
Amongst these instruments are the flexibility to separate completely different music devices on a recorded monitor, the flexibility to routinely generate sheet music, a lyric-writing assistant, and a composition assistant.
“We are going to proceed to spend money on high-quality content material, unique content material manufacturing in addition to revolutionary applied sciences to additional enhance consumer engagement and improve [the] consumer expertise,” Min Hu informed analysts on the earnings name.Music Enterprise Worldwide
