Spotify rival Tencent Music posts maiden quarter loss of $130M on one-off costs

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Tencent Music Entertainment Group, the Chinese answer to Spotify that Tencent spun out and floated on the New York Stock Exchange in December, reported a net loss of 876 million yuan ($127 million) in its first set of quarterly results since going public.

The loss, which TME forecasted in its prospectus filed ahead of the IPO, is mainly due to a one-off 1.52 billion yuan ($221 million) share-based charge related to equity issuance to label partners Warner Music Group and Sony Music Entertainment.

In a similar move back in August, Warner Music sold all its shares in Spotify, the Swedish music streaming startup that has swapped shares with Tencent. Sony also cashed in half of its Spotify shares in July.

Barring the share-based charge, TME’s non-IFRS net profit attributable to equity holders was 916 million yuan ($133 million) for the fourth quarter. Revenue from the period grew 50 percent year-over-year to 5.4 billion yuan ($785 million).

According to a note in TME’s IPO prospectus, Warner and Sony had acquired its shares for an aggregate cash consideration of approximately $200 million to deepen “strategic cooperation.” In return, the two investors divided 68 million total shares in TME between them.

The deal is telling of TME’s ongoing licensing spree in recent years. The group claims to own the largest music library in China with 20 million licensed tracks from over 200 domestic music label partners such as China Record Group and international allies including Sony, Warner and Universal Music Group. These content tie-ups give the Chinese firm a significant lead over its local rivals NetEase Music and Alibaba’s music app Xiami. As of February, TME owns China’s top four music apps by user number, according to app ranking data collected by iResearch.

TME isn’t the only music app busy teaming up with music label giants. Beijing-based TikTok, which doesn’t compete directly with TME but is making waves around the world with its music video app, has nailed licensing deals with Warner, Universal and other major labels to secure music and sound bites for its video creators.

TME’s differentiated model has made it a more lucrative business compared to many of its peers. The group, which runs a suite of music streaming, karaoke and live streaming apps, generated 71 percent of its fourth-quarter revenue from “internet services” such as virtual gifts that users reward influencers on its karaoke and live streaming apps. About 28 percent of TME’s quarterly revenue came from more conventional forms of monetization for music streaming businesses, including user subscriptions, sales of digital albums and sub-licensing to third-party music platforms.

While TME has focused mainly on the China market, Reuters reported citing sources last month that it was mulling acquisition bids for Universal, with which TME has an existing licensing deal. A partial acquisition can potentially strengthen the partner’s collaboration, said the sources. Meanwhile, once nailed, owning stakes in Universal could also boost TME’s sub-licensing income in western countries.

Written by Rita Liao
This news first appeared on https://techcrunch.com/2019/03/19/tencent-music-entertainment-q4-2018/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29 under the title “Spotify rival Tencent Music posts maiden quarter loss of $130M on one-off costs”. Bolchha Nepal is not responsible or affiliated towards the opinion expressed in this news article.