(Bloomberg) — China tech investors weary of the nation’s relentless price competition can look to one pocket that’s thriving by moving in the opposite direction: online music.
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Hong Kong-listed shares of Tencent Music Entertainment Group and smaller rival NetEase Cloud Music Inc. have more than doubled since the end of 2023, outperforming most Chinese internet peers. That’s come as they shift to focus on monetization of their loyal user bases while beefing up their podcast and live event offerings.
Tencent Music has notched four-straight quarters of growth in revenue per paying user by successfully driving subscribers to more expensive plans. That’s a refreshing break from the frequent headlines on deep price cuts for EVs and e-commerce that has sparked volatility in China tech stocks in recent years.
“Music is becoming more important to the lives of young people in China, and you’re not going to just save one or two yuan to abandon all your playlists and jump to another platform,” said Ivan Su, an analyst at Morningstar Inc. “The monthly subscription price — which costs about the same as a cup of coffee — is very low.”
The Chinese online music industry has consolidated over the past few years, leaving the units of Tencent Holdings Ltd. and NetEase Inc. in a virtual duopoly. Spotify is blocked by a firewall in China.
Tencent Music is the leader with about 555 million monthly active users as of the end of March, some 22% of which were paid subscribers. That compares with a paid penetration rate of around 40% for Spotify.
One of the key planks of Tencent Music’s monetization strategy is its Super Premium VIP tier, where users pay roughly $4 per month for exclusive content plus early access to special artist merchandise and live events. Subscribers pay about $2 for a basic monthly subscription.
The percentage of premium members relative to all paying users could rise to 19% in 2027 from 12% this year, Goldman Sachs Group Inc. analysts including Lincoln Kong wrote in a note this week. The bank added they expect 10% growth in average revenue per paid user this year and high-single digits for 2026 onward.
Like Spotify, Tencent Music is also making moves into other services. This month it announced a plan to buy Chinese podcasting startup Ximalaya, and in May it disclosed its purchase of a stake in South Korean K-pop agency SM Entertainment Co.
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