TME(US:TME)2025-07-16 00:55Summary of Key Points from the Conference Call Industry Overview - The online music service industry has experienced significant growth over the past 20 years, characterized by streaming and globalization. According to IFPI, the global recorded music industry revenue is projected to reach approximately $30 billion in 2024, with a year-on-year growth of 5%. Streaming revenue accounts for nearly 70% of this total, with paid subscription revenue expected to reach $15.1 billion, growing by 9.5% year-on-year. Advertising revenue is anticipated to grow by 1.2% [2][3]. Key Characteristics of the Online Music Service Industry - The industry has high entry barriers due to high content copyright costs and strong two-sided network effects. High copyright costs make it difficult for new entrants to compete effectively in the short term. The market is dominated by major record labels, which control a significant portion of the content [3][4]. - The upstream of the industry is primarily controlled by record companies, which manage a large number of tracks. The downstream monetization relies on the user base of platforms, generating revenue through subscriptions and advertising. The three major music groups in the U.S. control 85% of the track count and 74% of the global digital music upstream [5][6]. Competitive Landscape - In the overseas market, platforms like Spotify, Apple Music, and Amazon Music dominate, with market shares of 36%, 31%, and 24% respectively. However, their profitability is affected by the monopoly of upstream record companies. In contrast, in the Chinese market, Tencent Music and NetEase Cloud Music hold the majority market share, approximately 70-80% combined, while the emerging platform, Soda Music, poses limited threat due to its recent establishment and lack of quality content [6][7][8]. Trends in the Domestic Online Music Market - The main trends in the domestic online music market focus on increasing the number of paid users and raising the average revenue per user (ARPU). Tencent Music's monthly active users are nearing their peak, with future growth relying on paid user numbers and pricing. NetEase Cloud Music and Soda Music are currently in the phase of expanding their user base [9][10]. - The domestic market has seen significant regulatory changes, such as the strict copyright regulations in 2015 and the administrative penalties against Tencent in 2021, which have allowed competitors like NetEase Cloud Music to accumulate more tracks [10]. Profit Growth Strategies - Online music platforms are achieving profit growth by optimizing content costs, expanding user bases, and increasing subscription revenues. The market is valuing internet companies highly due to their stable business models and favorable competitive landscapes. Tencent Music and NetEase Cloud Music have room for long-term profit margin improvements [11][12]. Valuation and Market Sentiment - The online music sector has seen significant stock price increases this year, driven by favorable policies, market regulatory guidance, and content cost optimization. Despite low double-digit revenue growth, investor confidence remains high due to these factors [13][14]. - In 2025, internet companies are receiving high valuations due to their stable business models and competitive environments. Tencent Music and NetEase Cloud Music are particularly well-positioned, with Tencent Music's non-GAAP P/E ratio around 26-27 times and NetEase Cloud Music's around 31-32 times [15][16]. Future Development Potential - Both Tencent Music and NetEase Cloud Music have significant growth potential, with opportunities to double their paid user bases. They are also actively expanding into long audio, artist management, and fan operations [16][17]. - Tencent Music has made strategic investments, including a $1.26 billion cash acquisition of Himalaya and a stake in South Korea's SM Entertainment, indicating its intent to strengthen its position in the long audio content and fan economy sectors [20]. Notable Developments in NetEase Cloud Music - NetEase Cloud Music is enhancing its social attributes and UGC ecosystem, showing considerable potential for profit improvement. The platform has a high proportion of users born after the 90s, and its recent features, such as "Music Notes," are expected to enhance its financial performance [21].