NEW YORK, NEW YORK - DECEMBER 12: Cussion Kar Shun Pang, CEO of Tencent Music Entertainment, (center) rings the opening bell of the New York Stock Exchange (NYSE) as the Chinese music-streaming service launches its IPO on December 12, 2018 in New York City. Tencent Music priced its IPO shares late Tuesday at $13 per American depository share. (Photo by Spencer Platt/Getty Images) Getty Images

Tencent Music Entertainment (TME) reported double-digit quarterly revenue growth as the leading Chinese digital music platform rolled out plans to expand its subscriber and free offerings beyond streaming into live experiences, fan communities and merchandise.

TME reported total revenues for the first quarter rose 7.3% to RMB7.90 billion (US$1.15 billion), driven by 12% growth in the company’s music related services division, formerly called online music, which topped RMB6.51 billion (US$944 million). Revenue from membership services, which includes the company’s SVIP offering, rose 6.6% to RMB4.57 billion (US$662 million), and non-membership music related services revenues rose 28% to RMB1.94 billion (US$282 million) compared to a year ago as TME’s offline concert business achieved another quarter of triple-digit year-over-year growth.

TME is leaning into the growth of that non-member division through partnerships with Tencent’s Weixin Video Account and AI-driven recommendations that users can save to playlists to attempt to create a funnel for passive users to become paying subscribers. TME hopes to goose the steady growth in its SVIP membership business through digital album and physical collectible offerings for artists like BLACKPINK and fan clubs, like one launched for Silence Wang, which give fans first dibs on premier concert tickets and merchandise.

“We are transitioning to a membership based model that goes beyond content subscriptions to deliver more immersive music experiences,” Tencent Music Entertainment CEO Ross Liang said on a call with investors. “We are broadening user reach and deepening penetration, while advancing a tiered subscription strategy to better address diverse user needs.”

TME Chairman Cushion Pang said investments in TME’s evergreen catalog like label partnerships it renewed with JVR Music, Linfair Records, and MOK-A-BYE BABY MUSIC, and deals that give it access to the catalogs of Jay Chou, Karen Mok, Harlem Yu, and Angela Zhang, are enhancing its value to listeners. Relationships with artists also helped TME grow live revenues by triple digits in the quarter by hosting BABYMONSTER’s concerts in Taiwan, and NCT WISH’s in Hong Kong.

AI-generated songs created by users of these TME tools account for a growing share of new daily releases, including authorized AI covers of some of those iconic catalog songs, the company said.

AI-generated songs created by users of these TME tools account for a growing share of new daily releases, including authorized AI covers of some of those iconic catalog songs, said Pang.

“While AI is broadening participation in content creation, it does not replace human creativity and, in many ways, reinforces the scarcity and intrinsic value of premium IP — which remains central to deeper engagement and greater wallet share,” Pang said. By growing its access to popular music, TME is reinforcing “strong copyright protection … [and] channeling this value to elevate the creative economy, unlock new opportunities across the music industry, and drive enduring long-term value.”

Unauthorized AI-generated music, meanwhile, is presenting headwinds for TME’s music subscription business, as rival streaming platforms that pad their library with AI-generated content and siphon off more passive users from TME’s platform, executives said on a call with investors.

“We are working closely with creators [and] regulators to champion creatives,” Pang said. “We have successfully navigated copyright headwinds before. We remain confident we will be able to adapt.”

Revenues from TME’s social entertainment services division fell 11.0% to RMB1.38
billion (US$200 million), as the company continued to deemphasize that side of its business.

Total operating expenses rose by 5.9% to RMB1.21 billion (US$176 million), driven in part by investments in live performances, IP related services and advertising services.

Adjusted earnings before interest tax, depreciation and amortization (EBITDA) rose 10.5% to RMB2.83 billion (US$410 million), but adjusted earnings of RMB1.34 per average diluted share ($0.19) missed analyst expectations of RMB1.43, according to Yahoo Finance.

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