Cloud Music, China’s second-largest operator of music streaming services, has reported at 26.6% YoY jump in revenue from online music services in calendar Q2.
The company, formerly known as NetEase Cloud Music, reported RMB 2.6 billion (USD $359.0 million at the average exchange rate for Q2) from online music services, up from RMB 2.0 billion in the same quarter a year earlier.
Of that, RMB 2.1 billion ($289.9 million) came from sales of music subscriptions, up 25.5% YoY, which the company said was “driven by an increase in the number of subscribers.”
In a break with previous practice, Cloud Music’s mid-year earnings report didn’t break out the number of paying subscribers or monthly active users (MAUs).
“Our total user base remained largely stable, with a DAU/MAU ratio (daily active user/monthly active user ratio) consistently staying above 30%,” the company said in its report to investors.
“We continued to propel quality development across our music-centric ecosystem, strengthening our music-centric monetization, resulting in improved profitability.”
In its most recent full-year report, NetEase reported 44.12 million paying subscribers at the end of 2023, a 15.3% YoY increase.
That puts it behind its primary rival, Tencent Music Entertainment, which reported 106.7 million paying subscribers at the end of 2023, and 117 million paying subscribers in Q2 2024.
Going forward, “we aim to continue driving solid revenue growth by leveraging enhanced content and functions, broadening membership privileges and expanding consumption scenarios for our online music subscribers,” Cloud Music Investor Relations Director Angela Xu said on the company’s earnings call Thursday (August 22).
“We have made online music membership benefits more accessible by offering special promotions for student subscribers and graduation special activities. We are confident that by increasing the number of users enjoying premium privileges on our platform, especially younger generation users, we can attract more high-quality active and paying users, driving long-term growth in scale and commercial development.”
“We aim to continue driving solid revenue growth by leveraging enhanced content and functions, broadening membership privileges and expanding consumption scenarios for our online music subscribers.”
Angela Xu, NetEase Cloud Music
Overall, revenue at Cloud Music came in at RMB 4.1 billion ($566.1 million), a 4.1% YoY increase. That number was held back by a decrease in its social entertainment services division, which saw revenue fall 21% YoY, to RMB 1.5 billion.
Like its larger rival, Tencent, Cloud Music has been grappling with a decline in social entertainment income following a crackdown by the Chinese government on online gambling last year.
However, Cloud Music’s bottom line showed significant growth, with gross profit coming in at RMB 1.426 billion ($196.9 million), a 47.7% YoY jump from RMB 965.1 million in the same period a year earlier, “primarily due to increased revenues from sales of membership subscriptions and continued improvement in cost control measures,” the company said.
Adjusted net profit was RMB 880.7 million ($121.6 million), up 165.4% YoY from RMB 331.9 million in the first half of 2023.
The company’s gross margin improved to 35.0% in the half, from 24.7% a year earlier.
Cloud Music said the improvement in profitability was “primarily driven by the benefits of economies of scale.”
The company cited “increased business scale, strong monetization of our core online music business that led to ongoing improvement of operating leverage, as well as a one-off adjustment of certain copyright costs that boosted the gross profit margin by approximately 2.6 percentage points for the first half of 2024.”
Cloud Music also updated the numbers on its independent artist program, which now counts 732,000 registered artists, up from 684,000 at the end of 2023. The company says the artists on its platform have contributed 3.6 million music tracks to its library.
Cloud Music highlighted expanded deals with music rights holders as one of the drivers of its growth, noting that in H1 it signed new partnerships with K-pop agency JYP Entertainment and with Kakao Corp., controlling shareholder of K-pop label SM Entertainment.
The company also renewed copyright deals with Korean labels YG and CUBE, among others, and added J-pop music from Japanese labels such as Vap Japan and B-Zone, known for anime soundtracks, on top of signing new partnerships with Chinese labels KC DIGITAL and Guoran Entertainment.
It also boasted of expanded collaborations with music industry partners, including an “innovative, exclusive” tab page for Taylor Swift’s recently released album The Tortured Poets Department.
“The album achieved over 100 million streams on our platform in just 19 days after its release,” Cloud Music said.
“In addition to driving stable growth in our membership subscription model, we remain committed to exploring additional monetization initiatives,” Xu told investors on the earnings call.Music Business Worldwide
