Meet the Largest Music Streaming Service on Earth

Tencent (TCEHY -0.94%) Music is preparing to go public soon. Its business model is similar to its peers in many ways, but different in other important ways. You could say that Tencent Music is like a hybrid between Spotify (SPOT 2.77%) and Amazon's (AMZN -1.65%) Twitch. In this episode of Industry Focus, Dylan Lewis is joined by Motley Fool contributor Evan Niu to look at Tencent Music.

A full transcript follows the video.

This video was recorded on Oct. 12, 2018.

Dylan Lewis: We have done a lot of shows on the ____ of China. We have another business that we are going to be talking about today that fits that bill. That is Tencent Music.

Evan Niu: Right. You could call it the Spotify, you can also call it the Twitch of China. Both fit that fun little ____ of China.

Lewis: You alluded to that there, there's kind of a hybrid business model that we'll get into. Some of it is going to be very familiar to people that follow Spotify and the streaming music space. Some of it is going to be very familiar to people that follow the Twitch and gaming space here. It's a fun one for us. This is a company that was supposed to be going public relatively soon. More on that later. Those plans have changed. It is the largest online music platform in China, over 800 million mobile active users across its four properties. You mentioned, it's the Spotify of China, kind of. We have this conventional streaming content approach. This is music, video, studio, live music recordings. That all happens within some of these portfolio products they have -- QQ Music and KuGou Music platforms. It looks a lot like Spotify, Evan.

Niu: I would also mention that at 800 million users, that makes them not only the biggest service in China, but also the world. If you compare that, their online music, they have about 650 million users, of which 25 million are paid. For reference, Spotify has 100 million free and 85 million paid. Apple Music, of course, has no free tier. They only have a paid version, which they have 40 million. Tencent Music is enormous, in terms of users.

Lewis: This is the part of the model that will feel familiar to most folks. It's paid subscriptions, digital music sales, and online advertising. They also have something that is quite a bit different than what we think of with the online music space. That is their social entertainment services. When I think of this, it's primarily the Wesing platform that they have.

Niu: This is things like karaoke and little live music performances. Tencent Music mentioned in their F-1 registration statement that the Chinese market for live offline music performances has always been very small because it hasn't been very accessible compared to the U.S. Here, we like to go out and see shows and see bands pretty commonly. It's a pretty big industry here. Over there, the market is just so small. That's created this alternative market, demand for live streaming online performances instead.

Lewis: As for what this experience looks like, it's video sharing, it's karaoke parties, it's virtual karaoke rooms, and I think even some duets with celebrities. Kind of unlike anything we have here in the United States. But, it's very similar, if you port over to the gaming side of things and think about Twitch and the idea of this shared experience, even though it's a digital experience, doing video game walkthroughs with people and watching people play. The monetization for this type of business is very similar to Twitch. Its paid subscriptions, its gifts, its online mini payments, the way you would almost have with a video game.

Niu: Right. On Twitch, people might not be familiar with how Twitch works. It's predominantly video games and e-sports. You're live streaming yourself playing a game and you have these viewers that will contribute cash donations as well as, like you mentioned, these virtual gifts or paid subscriptions to their channels. Basically, instead of just video games over in Asia, they have all sorts of different types of ways to create this entertainment with these live streaming platforms. For example, in Korea, people in Korea like to watch people eat. People live stream themselves eating. In China, it's karaoke and other live music performances.