Tencent Music is a different type of streaming service
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Tencent Music is a different type of streaming service

Tencent Music Entertainment Group (comprised of China’s four most popular music apps: QQ Music, Kugua, Kuwo, and WeSing) is going to an IPO. Chinese internet giant Tencent announced the listing recently, and investors are looking to make sense of the new offering against established music streaming players like Spotify and Apple Music. However, while there’s value to such a comparison, what it really highlights is the disparity between the services.

tencent graph

Source: Tencent Music, Bloomberg

The first thing that stands out about Tencent Music is that it’s smaller than massive global streaming services like Spotify. That’s to be expected, as the former service is decidedly local. But the story doesn’t end there. As a whole, Tencent Music boasts over 800 million monthly active users, and there are signs that it has more bargaining power than its bigger rivals (the company pays a far smaller portion of its revenue to artists as royalties – just 32.9%, whereas Spotify and Apple Music pay out over 50% each). It’s far from a minnow in a shark tank.

Additionally, it’s not clear that Tencent Music is a comparable platform to Spotify and others in regards to the depth of its business model. Where the latter companies are fairly simple propositions (you pay a fee per month to stream music), Tencent Music leverages its parent company’s expertise in social media. This is how it describes itself:

“Our platform is an all-in-one music entertainment destination that allows users to seamlessly engage with music in many ways, including discovering, listening, singing, watching, performing and socializing.”

You can’t do karaoke, or watch live streaming concerts, on Spotify (yet, anyway). So investors should bear in mind that they may be comparing Apples to something that – if not quite an orange – is not exactly another Apple either.

tencent graph 2

 

Source: Tencent Music

The most interesting area of Tencent Music’s future might concern marketing costs. As part of Tencent, the business has access to the more-than 1 billion users of popular social messaging app WeChat. This helps it spur growth without some of the bigger publicity costs that other platforms face. Some of the big question (to which we do not yet have answers) are these: Will Tencent Music try to go beyond China? If so, what are its growth prospects? And does the company plan any further monetisation strategies that could help drive revenues higher?

Disclosure
Dominion holds Tencent in its Global Trends Ecommerce Fund.


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