Tencent Music's revenue beats view as more Chinese users pay for songs

© Reuters. FILE PHOTO: The logo of China's Tencent Music Entertainment Group is seen next to an earphone in this illustration picture taken March 22, 2021. REUTERS/Florence Lo/Illustration

By Josh Ye and Tiyashi Datta

(Reuters) -China's Tencent Music Entertainment Group (NYSE:TME) bettered quarterly revenue estimates on Monday as a slate of original content helped its music streaming platform attract more paying users.

The company's U.S. shares rose 5.9% in extended trading after it said users who paid for online music jumped by a quarter to 82.7 million. Music subscription revenue of the platform that operates like Spotify (NYSE:SPOT) rose 18%.

Tencent Music also benefited from a push for original content, including a partnership with parent Tencent Holdings (OTC:TCEHY) to produce songs from popular game titles.

Its total revenue was 6.91 billion yuan ($1.02 billion) in the second quarter ended June 30, compared with the 6.62 billion yuan expected by analysts, according to Refinitiv IBES data.

Cheuk Tung Yip, Tencent Music's chief strategy officer, said in a call with analysts on Tuesday that the company will continue to build up its paywall to drive up revenue.

"We expect more content partners will be added to the paywall in the second half," he said, adding the company was also committed to catering to non-paying users, who help generate about 10% of its advertising revenue.

Tencent Music's overall revenue, however, fell 13.8% from the same quarter of last year, showing that stiff competition and an economic slowdown sparked by Beijing's zero-COVID policy were weighing on the music business.

Revenue also fell 20% in the social entertainment business - the company's biggest revenue driver and home to its karaoke app WeSing and live concert platform Kuwo Music.

Tencent Music has been in the crosshairs of regulators and was forced last year to end its exclusive contracts with big music labels, eroding its advantage against rivals such as Cloud Music and Bytedance-owned short-video sharing platform Douyin.

Yip, though, said the company is seeing a moderate recovery from advertisers in the second half in China as COVID-19 outbreaks in the big cities such as Shanghai and Beijing had been brought under control. He listed e-commerce, consumer staples and auto as industries experiencing growing demand.

Excluding items, Tencent Music earned 0.63 yuan per American depository share (ADS) for the quarter, above estimates of 0.56 yuan per ADS.

($1 = 6.7715 Chinese yuan renminbi)