Tencent Music Profits Surged in 2023 on Paid Subscription Growth Despite Hit to Social Business

China’s Tencent Music Entertainment Group saw its profit jump 36% to 5.22 billion yuan ($735 million) in 2023 as growth in paid subscriptions helped offset mixed results in its social media business, according to an earnings filing on Tuesday (Mar. 19).

The leading music streaming company in China — Tencent Music operates QQ Music, Kugou and Kuwo as well as the social karaoke game WeSing — reported that revenue from music subscriptions rose 39.1% to 12.10 billion yuan ($1.70 billion) thanks to 18.2 million more net paying subscribers in 2023. (That compares to a net increase of 12 million paying subscribers in 2022.) Tencent Music’s paying subscribers now total 106.7 million, or nearly as many U.S.-based subscribers as both Spotify and Apple Music combined.

Still, the company reported that its full-year revenue of 27.75 billion yuan ($3.91 billion) fell 2.1% from 2022 and that its fourth-quarter 2023 revenue of 6.89 billion yuan ($957.06 million) fell 7.2% from the year-ago quarter due to a revenue drop in its social entertainment services business.

Tencent Music executives said that the company’s “dual engine” strategy, which drove a 38.8% increase in year-over-year revenue for its core online music business, allowed it to absorb the hit to its social business.

“The fourth quarter recorded accelerated year-over-year growth in music subscription revenue, anchored by consistent increases in subscribers and (average revenue per paying user),” said Cussion Pang, Tencent Music’s executive chairman. “Online music services’ strong performance mitigated headwinds from social entertainment services and contributed to expanded quarterly net profits.”

Revenue for the company’s social entertainment services business in full-year 2023 fell by 34.2% to 10.43 billion yuan (US$1.47 billion) from 2022, due to “adjustments to certain live-streaming interactive functions and more stringent compliance procedures,” the company said. Tencent Music, along with other content platforms like NetEase’s Cloud Music, removed a popular live-streaming feature that analysts said was often exploited for gambling after the Chinese government launched a crackdown on gambling in mid-2023.

The crackdown prompted Tencent Music and others to disable their live-streaming services, which were popular and highly lucrative, leaving the social entertainment services division of Tencent Music to struggle to bounce back, Reuters reported.

U.S.-listed shares of Tencent Music had risen 6.8% by 2:30 p.m. ET following the earnings release.