Chinese streaming giant Tencent Music came out for an IPO - what it means and what to expect competitors

    The company that owns the most popular music applications in China, Tencent Music Entertainment, launched an IPO and earned about a billion dollars.

    We will tell about the service itself and how its IPO will affect its competitors.

    Photo W_Minshull / CC BY

    What makes Tencent Music

    Tencent Music Entertainment (TME) is a subsidiary of Tencent, a Chinese Internet conglomerate. She owns Q Music, Kugou Music, Kuwo Music and WeSing karaoke apps.

    A feature of TME streaming applications is that users can not only listen to the recordings of professional performers, but also download their own music or perform songs live. Tencent Music apps are used by 800 million people every month.

    Streaming platform plays the role of a kind of social network. TME receives about 70% of its income not from the purchase of subscriptions, but from the social functions of applications and the sale of additional products. A significant part of the income comes from paid gifts that viewers of the broadcasts send to their favorite performers. In addition to services in applications, Tencent Music sells headphones and microphones for online broadcasts and concert tickets.

    In the future, Tencent Music plans to develop other business models. One of the goals is to increase subscription sales revenue. So far, only 3.6% of users of TME applications pay for access to music without advertising, but the company hopes to change the situation.

    Why did you need an IPO

    In the middle of 2018, the first rumors appeared that Tencent Music plans to become a public company. The information was confirmed in October. According to analysts, the main reason for the IPO is the restructuring of the parent company. Tencent not only works with music, it has subsidiaries in the field of medicine, cloud technology and retail. And some of these organizations will start working in the B2B sector.

    To simplify the structure of the conglomerate, Tencent decided to withdraw the most successful B2C-divisions to IPO and give them greater autonomy. Among these "daughters" was Tencent Music.

    Another reason for entering the IPO is attracting foreign users and investors. TME ’s public offering was one of the largest in the United States last year. This will make the organization more famous outside of China and is likely to attract the attention of users of other world streaming platforms.

    How was the placement of shares of the company

    Tencent Music stock trading began on December 12, and the company managed to raise a billion dollars. The publication of The Telegraph estimates that after placing shares on the New York Stock Exchange Tencent Music caught up in value with Spotify. This makes TME one of the most expensive public technology companies that have placed shares in the past few years.

    At the same time, according to the investor Mark Schlarbaum (Mark Schlarbaum), Tencent Music securities is a good long-term investment, and their price will rise in the near future. Nevertheless, Tencent Music initially expected big results from the IPO. Earlier Reuters reportedthat the company plans to raise two billion dollars. The reason for the "low fees" - the start date of the auction. Statistics show that wealthy American investors do not buy shares of large companies before the "dead" holiday season.

    How Tencent Music IPO will affect the market of streaming services

    According to experts, Tencent Music does not plan to “drag” subscribers from Western streaming services. TME applications are more social networks than content platforms. The main competitor of the company in the western market is Facebook. By the way, in 2018, the social network just announced the launch of its own karaoke application.

    Although Tencent Music does not plan to compete with streaming platforms, the latter have something to learn from the new player. For Western IPO organizations, Tencent Music may be a reason to think about changing their business model.

    Now platforms like Spotify and Pandora are making money by selling subscriptions and advertising. But this monetization model is inefficient - the platforms spendtoo much money for royalties for using music and cannot cover the cost.

    Photo by Nick Harris / CC BY-ND

    Another difficulty with the existing business model is that users are tired of advertising. In 2018, Spotify 's ad revenue declined . This is partly due to the fact that users of streaming services are increasingly blocking advertising through third-party applications.

    One of the options for increasing profits that western platforms can learn from Tencent Music is selling equipment . This monetization model may be planning to implement Spotify - in February, the organization postedSearch Engineer Ads to Develop Your Audio Devices.

    Another option is the monetization of social functions . In Western streaming services there are almost no opportunities to communicate with other listeners. For example, personal messages were removed from Spotify in 2017 . Now users of the platform can only see the listening history and playlists of each other, but cannot communicate directly.

    According to analyst and investor Eric Peckham, the streaming services should develop and monetize additional functions for fans of performers. Like Tencent Music, Spotify can create a virtual community that will send gifts to your favorite musicians or pay for exclusive online concerts on the platform.

    Thus, analysts are convinced that Western streaming services should pay attention to the experience of Tencent Music and borrow some approaches to working with clients in order to develop further and expand the user base.

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