Having delayed plans to go public last month, Tencent Music Entertainment is uniquely poised to pull the trigger on its planned public offering over the next 30 days. This merits a closer look at the company and its parent's unique family of apps, as well as the micropayments which have been a key contributor to the streamer's fast-growing profitability.
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Digital Music News recently explored how international events have made the music streamer's decision when to schedule its offering into a high stakes guessing game, as it seeks to raise a minimum $2 billion valuation on the portion of its stock offered for sale. As investors ponder whether the sale will arive in time to make it onto their personal Christmas lists, the unusual profitability of TME's micropayments are impressive but deserve scrutiny.
China's two leading internet companies are Alibaba and Tencent, hosting scores of apps each for a nation of 1.4 billion people that went online primarily mobile-first. In early October, Tencent Music Entertainment filed documents to go public as its own separate entity. They own several apps and TME's parent Tencent operates many more. As uncovered thanks to the filing, the profitability behind TME is mostly from the millions of dollars it receives in service fees from micropayments that users can make to their favorite artists as well as other personalities online.
Major internet platforms and music streaming services in the West do things differently and none of them have made kicking some spare change over to artists an option, although there are independent payment services such as Patreon where fans can support creators. Tencent has leveraged its scale and control to also allow large-in-aggregate micropayments to flourish.
The SEC filing revealed that TME's $263 million profits rose 341 percent compared to last year. Only 9.5 million of TME's more than 23 million paying users contributed by making donations through the micropayments feature, but the company's cut of this action added up to 70 percent of TME's growth in profit. Who knew busking for spare change on the internet could be so lucrative? The company's plans to go public are still being scrutinized by investors doing "due diligence," but Sony, Spotify and Warner Music have already invested.
Copyright law in China is growing but internet infringement in China is common despite the Chinese government's efforts. The combination of TME's corporate profit-margin and ease-of-use for micropayments raises the unexpected question that our internet giants might be leaving money on the table. On the other hand, one thing voluntary payments to artists don't have going for them is fairness. Easier donations with aggregate service fees has fun and corporate profit going for it, but the push in the U.S. and Europe is to close the "Value Gap" that chisels all streaming artists of fair compensation.
In the U.S., the Music Modernization Act was unanimously passed by Congress and sined into law by President Trump on Oct. 11 — a generational success after years struggling to make U.S. copyright law more fair. Donations to musicians is an old business that could play more of a role someday online, but it's no substitute for rational incentives in a fair music marketplace.
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