INTERNATIONAL – Tencent Music, which owns China’s most popular music streaming apps is helping it hit bigger notes in money making.
The company, majority owned by Chinese tech powerhouse Tencent Holdings and slated for a US IPO next month, made almost $400 million in earnings before interest and taxes in 2017, according to an investor document circulated in August that was seen by Reuters.
Those profits are expected to nearly double to $764 million this year while revenue is seen climbing 72 percent to $3.1 billion (R43 bn), the document said.
By comparison, Spotify, with which it has a cross shareholding deal, lost 90 million euros ($105 million) in the second quarter of this year on revenue of 1.3 billion euros.
Tencent declined to comment on the earnings numbers for Tencent Music or the IPO plans. Reuters could not independently verify the figures.
In a market that until a few years ago was dominated by pirated music, Tencent Music’s strong financials are due to a business model that does not rely primarily on the monthly subscription payments that sustain Spotify and other Western music streaming companies.
Instead, analysts say much of its revenue comes from services such as karaoke live broadcasting where admirers tip performers.
“China music apps are more advanced in their integration of music streaming with live broadcasting, karaoke as well as social community,” said Elinor Leung, managing director of Asia telecom and internet research at CLSA.
“Social interaction is the main difference between Chinese music apps and Western music apps.”
Tencent Music also benefits from differences in music copyright payment in China and the West, according to BOCOM International analyst Connie Gu.
“Some popular musicians in Europe or the U.S. may require royalty payment per play count, while the current practice in China is for companies to sign three-year contracts regardless of play count, so the economy of scale helps the platform’s profit,” she said.
Tencent Music is seeking to raise $2 billion in its IPO, three people close to the deal told Reuters last week, in what will be one of the biggest U.S. listings by a Chinese company this year.
Tencent Music is also seeking revenue offline by selling goods such as microphones and headphones, and opening mini karaoke boxes that can be put in shopping malls. WeSing outlined plans to open 300 such karaoke boxes across China this year, local media reports have said.
All told, Tencent Music has more than 600 million active monthly users and about 80 percent of the online music market, according to the investor document. That includes its QQ Music streaming platform as well as the apps Kuwo and Kugou which it acquired in 2016.
Customers can buy songs or albums on Tencent’s apps, or sign up for monthly subscriptions that cost between 8 yuan to 18 yuan, compared with $9.99 at Spotify.