Facing competitive pressure from ByteDance's "Qishui Music," Tencent Music (TME) is building new growth engines by expanding premium subscriptions and doubling down on live concert businesses.
A Citigroup report released on November 12 highlighted this strategic shift. Despite TME's better-than-expected Q3 earnings, market concerns over competition have weighed on its stock price. Citigroup attributed this to investors seeking shelter amid fears of intensified rivalry from ByteDance’s music streaming platform.
The bank dismissed the sell-off as "unwarranted," calling it a prime buying opportunity.
**Dual Growth Drivers: Premium Memberships & Fan Economy**
The report argued that the market overreacted to TME’s stock decline. Instead of engaging in a price war amid low-cost competition, TME is adopting a carefully designed multi-tiered membership system to enhance user value and retention. This system spans free, ad-supported tiers to standard and premium subscriptions, catering to diverse user needs.
Citigroup noted: "Multi-tiered memberships and SVIP subscriptions will drive growth in paying users and ARPPU (average revenue per paying user). Key drivers include high-quality music content, exclusive perks like artist concert privileges, merchandise like 'Starlight Cards,' and continuous audio quality improvements."
This suggests TME’s strategy centers on upselling—retaining and converting high-value users through premium services rather than discounts.
**Live Concerts: Building an Ecosystem Flywheel**
Live concerts represent another strategic priority. The report emphasized TME’s heavy investments in large-scale tours and proprietary IP events (e.g., TMEA), which not only generate new revenue but also deepen artist partnerships and offer exclusive perks to paying members—creating an integrated online-offline ecosystem.
"Concert businesses not only build expertise but also foster deeper ties with artists and the ecosystem... By organizing these events, TME aims to offer more fan-centric privileges and products, boosting SVIP subscriptions."
This expands TME’s role from a pure music streaming service to an experiential, full-fledged music entertainment platform.
**Core Moats: Content, Experience & Tencent’s Ecosystem**
TME’s management expressed confidence in its competitive edge. Per the report, its strengths lie in a vast music library, years of user data expertise, and high penetration across PCs, in-car services, and other devices. Additionally, synergies with Tencent’s gaming and video IPs create a unique advantage rivals can’t easily replicate. TME’s multi-device reach and ecosystem integration form a robust moat.
Citigroup reiterated its "Buy" rating, citing TME’s transition toward a more defensible, social-music ecosystem. While live concerts may initially pressure margins, long-term investments in fan engagement and ecosystem development are expected to drive sustainable growth.