China-headquartered DeepSeek brought about one thing of a panic amongst AI traders when it unveiled its AI chatbot in January, proving that refined AI might be developed for a lot much less cash (and with far fewer AI chips) than had been beforehand thought.
The Chinese language chatbot’s arrival sparked fears amongst some AI builders – together with OpenAI – that DeepSeek had stolen components of their massive language fashions. (Some famous the irony of OpenAI – which is dealing with a number of lawsuits over its alleged use copyrighted supplies to coach its LLMs – now turning into frightened about unauthorized use of its personal IP.)
Regardless of the details, DeepSeek is now firmly a part of the tech panorama — as evidenced by Tencent Music Leisure (TME)’s announcement on Tuesday (March 18) that it has built-in DeepSeek into its music streaming service.
China’s largest operator of music streaming providers has made DeepSeek part of its music creation instruments, CEO Ross Liang defined on the corporate’s newest earnings name.
DeepSeek is now a part of TME’s AI-powered songwriting device, with which “customers can rapidly create songs tailor-made to particular contexts or modes,” Liang mentioned.
However DeepSeek’s participation doesn’t finish there.
TME has additionally built-in it into its AI assistant, remark sections, suggestions pages and different “consumer contact factors,” Liang defined. All of this allows customers to take pleasure in “a extra customized music expertise.”
TME’s transfer has echoes of Amazon’s latest announcement that the subsequent technology of its voice assistant Alexa can be built-in with AI music technology platform Suno.
In an ongoing lawsuit introduced by the music majors (Sony Music Leisure, Common Music Group, and Warner Music Group), Suno has all however admitted to utilizing copyrighted songs with out permission to coach its AI.
Simply as Amazon — proprietor of the Amazon Music streaming service — doesn’t seem to have a difficulty partnering with a possible copyright violator, so too does TME seem snug allying itself with an AI developer suspected of utilizing copyrighted content material with out authorization.
And simply as Amazon Music licenses music from copyright holders, so too does TME, which has beforehand signed licensing agreements with the likes of Sony Music, Common Music Group, Warner Music Group, and Okay-pop big HYBE, amongst others.
TME’s revelation about DeepSeek got here as the corporate reported This fall and full-year 2024 earnings, displaying main enhancements for each the yr and the quarter.
One standout quantity within the report: TME’s income from paid music subscriptions surpassed USD $2 billion in 2024, rising practically 26% year-on-year.
The expansion in income got here from each a rise in paying subscribers (up 13.4% YoY to 121 million in This fall 2024) in addition to enhancements in common income per paying consumer (ARPPU).
A few of that ARPPU progress got here from the rising recognition of TME’s “Tremendous VIP” tier, which prices 5 instances as a lot as a normal subscription and presents listeners long-form audio and on-line karaoke on prime of music streaming, and comes with perks comparable to precedence entry to digital albums and ticket reserving for stay occasions.
TME didn’t replace its Tremendous VIP subscriber numbers within the newest report, however within the prior quarter report it mentioned that 8% of paying subscribers had the Tremendous VIP tier, which might have amounted to round 10 million subscribers at the moment.
TME Govt Chairman Cussion Pang hinted at extra and higher perks for Tremendous VIP subscribers going ahead.
“We’ll roll out extra VIP entry, meet-and-greet alternatives, restricted editions, merchandise, customized experiences and extra whereas empowering artists and document labels to discover new methods to work together with [the] focused viewers,” Pang mentioned on the earnings name.
General, TME’s income rose 2.3% in 2024 RMB 28.40 billion ($3.95 billion) because the speedy progress of music streaming revenues was partly offset by continued declines within the firm’s social leisure phase.
The corporate introduced its third share buyback – $1 billion in shares to be bought over the subsequent 24 months – and a dividend of $273 million for 2024.
Listed below are three different issues we realized on TME’s newest earnings name.
1) The period of streaming providers competing on value is over, even in China
It’s no secret within the music trade that, after years of maintaining subscription costs low to compete for listeners, music streaming platforms have began elevating costs to enhance their backside line – a tactic that has actually labored for Spotify, which final yr reported its first full yr of working profitability.
Within the Chinese language market, income per consumer is significantly decrease than within the developed-world markets the place Spotify has gained its strongest foothold. Whereas Spotify ARPU (common income per consumer) for Premium subscribers got here in at $5.18 in This fall, TME’s ARPPU in the identical quarter was RMB 11.1, or $1.53.
That’s comprehensible given China’s comparatively low incomes, nevertheless it doesn’t imply there isn’t room for value hikes, as sure analysts have recommended.
“We is not going to sacrifice our curiosity by rolling out aggressive low costs… for short-term progress.”
Ross Liang, Tencent Music Leisure
CEO Liang appears to agree. On the earnings name Tuesday, Liang famous that paying subscribers are “fairly value delicate,” however TME’s technique is that “we is not going to sacrifice our curiosity by rolling out aggressive low costs… for short-term progress.”
At the moment, TME’s fundamental subscription prices RMB 8 ($1.10) per thirty days, whereas premium memberships run between RMB 15 and RMB 18 ($2.08–$2.49) and Tremendous VIP prices RMB 40 ($5.53).
“We hope that we will proceed to enhance our service by enhancing the value,” Liang mentioned. “And by so doing, we will consolidate this consumer base by enhancing the ARPPU for sustainable progress.”
Liang added that he expects the Tremendous VIP tier to proceed rising its subscriber base “irrespective of the value.”
2) Scaling up its personal content material has helped TME enhance its gross margins
For years now, TME has centered not solely on signing licensing agreements with main music rightsholders, however on creating its personal music and different content material.
To that finish, TME has made prolific use of AI tech. In late 2022, the corporate revealed it had created some 1,000 tracks with AI-generated, human-mimicking vocals, and one in all them had clocked greater than 100 million streams.
It additionally launched a Tencent Musician Program again in 2017, by means of which some 390,000 impartial artists had uploaded 2.3 million tracks as of 2022.
A lot of these initiatives assist clarify why TME’s music platforms — QQ Music, Kugou, Kuwo, and WeSing — now boast an enormous library of 216 million “licensed and co-created” tracks, whereas world music streaming chief Spotify boasts “solely” 100 million+ tracks.
(We’ll see how TME’s new DeepSeek affiliation could develop that 216 million quantity but additional…)
“The scaling of our personal content material additional improved our gross margin. This continues to be a key metric in managing our content material royalty prices.”
Shirley Hu, Tencent Music Leisure
However to what finish is TME constructing this big catalog? TME’s Chief Monetary Officer Shirley Hu supplied some perception into that on the earnings name.
“The scaling of our personal content material additional improved our gross margin,” Hu advised analysts on the decision. “This continues to be a key metric in managing our content material royalty prices.”
On condition that music streaming providers hand over one thing within the vary of two-thirds of their income to rightsholders, TME’s capability to keep away from licensing charges on a few of its streamed music can actually make a distinction.
In This fall 2024, TME’s gross margin improved to 43.6%, in comparison with 38.3% in the identical interval a yr earlier, “primarily as a consequence of robust progress in revenues from music subscriptions, together with subscriptions to SVIP membership, and… revenues from promoting providers, and the ramp-up of our personal content material,” TME mentioned in its earnings report.
3) Dwell occasions are a rising a part of the music expertise
Among the many extra notable points of TME’s newest earnings name was Govt Chairman Pang’s concentrate on stay music, and the rising function it has within the streaming music atmosphere.
Pang asserted that streaming customers are more and more much less more likely to be happy with solely the streaming expertise.
Listeners “more and more search the stay ambiance and pleasure that comes from experiencing stay concert events and music festivals,” Pang mentioned.
“As well as, we’re additionally seeing that followers… wish to present assist to [their idols] by means of buying official merchandise. By attending… stay exhibits, followers achieve a extra various and in-depth understanding of the artists, which in flip strengthens their [relationship with artists].
“For the artists, [it] encourages extra music listening on our platform as properly. So it’s going to create a constructive cycle for music content material consumption, which advantages all events.”
“As an increasing number of [live] exhibits are being held, customers’ expectations for the standard of those exhibits have additionally elevated.”
Cussion Pang, Tencent Music Leisure
Dwell music has seen sturdy progress in China over the previous few years, Pang mentioned, “and the willingness of customers to spend on such occasions has surged dramatically, with tickets for a lot of top-tier artists’ concert events and music festivals promoting out in seconds.”
TME has arguably achieved extra to combine stay music with streaming than different main streaming providers. It established TME Dwell in 2020, invested in digital concert events, and partnered with music firms on regional live performance excursions.
Pang sees intensifying competitors within the stay music area.
“As an increasing number of exhibits are being held, customers’ expectations for the standard of those exhibits have additionally elevated,” he mentioned on the earnings name. “So the trade has now entered a section the place solely the strongest survive, and the weaker are left behind.”Music Enterprise Worldwide
