Tencent Music’s AI-powered tech can ‘predict the next hit song,’ and 5 other things we learned from its latest annual report

The idea of using data from streaming services to predict hit songs has been around for some time, and a number of research papers have been written on the subject. But AI is bringing this idea closer to reality, and now, Tencent Music Entertainment (TME), China’s largest operator of music streaming services, says it has cracked the code.

In its latest annual report, filed with the US Securities and Exchange Commission in April, the company says it has successfully deployed its AI-powered “PDM” technology to predict “the next hit song” on its QQ Music platform. (QQ Music is one of TME’s music streaming services, along with Kugou, in-car music app Kuwo and karaoke app WeSing.)

PDM is short for “predictive model,” and according to TME, this predictive model can provide “insights and predictions on market potential for tracks based on audio and lyrics only.” It can also “reveal the most suitable playlists” for various users, and identify target audiences for music based on “AI analysis of artist data, music content… and track-down of changing music trends around the world”.

“QQ Music is the first in China’s online music industry to adopt the PDM with the highest accuracy among its peers,” the annual report stated. “Using the proprietary deep learning content value assessment algorithms, the PDM is capable of predicting the next hit song by analyzing recent popular music trends and user preferences for precise content discovery and distribution to interested users.”

The report added that this technology was “recognized by MIREX,” which is an ongoing project of the International Society for Music Information Retrieval, a forum for research on the organization of music-related data.

It’s not clear from the annual report how exactly TME is using this new capability. However, from the promotional materials TME is circulating about PDM, it appears it’s making the technology available to interested streaming services and music distributors.

“PDM is capable of predicting the next hit song by analyzing recent popular music trends and user preferences for precise content discovery and distribution to interested users.”

Tencent Music Entertainment

The annual report for 2023 caps off a solid year for TME, at least in terms of paid subscriber growth at its streaming services, which saw growth of 20.6 YoY, to 106.7 million paying subscribers.

Revenue from music subscriptions jumped 45.3% YoY in the fourth quarter, to RMB 3.42 billion (USD $481 million), thanks in part to a 20.2% increase in average revenue per paying user (ARPPU).

However, overall revenue for Q4 was down 7.2% YoY, mainly due to a steep drop in revenue in TME’s social entertainment revenues, which were impacted by a crackdown on online gambling by the Chinese government last year. Revenue came in at RMB 6.89 billion ($971 million) for the quarter.

That’s likely to be a blip for TME, which continues to be focused heavily on developing new technologies to drive its business forward, and as we’ll see further down below overseas expansion. Besides the company’s ability to predict hit songs, here are five other things we learned from TME’s latest annual report.

1. 2023 was the year TME incorporated AI into the listening and music creation experiences

For some time, TME has been signaling, in its earnings reports and on investor calls, that it’s all-in on AI-generated content; the company has been busily developing new AI tools not only for backend work like hit-song prediction, but to enhance the user experience on its services, and to help in the music creation process.

The latest annual report offers a fair bit of information on just what TME has accomplished on this front so far.

“We are incorporating AI into various parts of our product offerings. For instance, in 2023, we launched a full suite of AI-powered music production tools on Venus, our all-in-one platform for music production and promotion, and we use AIGC [AI-generated content] tools to improve artists’ music content creation and production efficiency,” the TME report stated.

Among those music creation tools are the ability to separate different music instruments on a recorded track; the ability to automatically generate sheet music; a lyric-writing assistant; and a composition assistant.

These are all tools available to creators working on the Tencent Musician Platform, which had accumulated 480,000 artists by the end of 2023, who have collectively contributed around 3 million songs to TME’s platforms.

But AI is now enhancing the listening experience as well.

“In 2023, we integrated AI technologies into [the] listening experience, such as the launch of AI music companion, to elevate users’ music discovery journey,” the report noted.

The “music companion” isn’t exactly the same as Spotify’s AI DJ – while these companions can offer music suggestions, a la AI DJ, they can also host live music events, and in the “Listen Together” feature, they can “listen” along with real users, simulating the experience of a music listening party.

In its karaoke apps, TME integrated “an AI singing function” that allows users to “perform duets with virtual singers, enriching their social music experience.”

Additionally, in 2023, “we introduced a leading selection of AIGC-powered music players, featuring a range of AI-generated visual themes that allow users to customize their music player experience,” the report states.

TME notes: “We currently do not rely on these ancillary services and initiatives to generate any material revenues or profits. However, by allowing users to listen, sing, watch and share music in different ways and in a variety of use cases, they greatly complement our major music apps and form an essential part of the all-in-one music and audio entertainment ecosystem that offers a one-stop experience to all users.”

2. TME is facing 695 copyright infringement lawsuits

Copyright lawsuits are a well-known hazard of doing business in the intellectual property space, and TME is no exception.

“As of December 31, 2023, there were 695 lawsuits pending in connection with alleged copyright infringement on our platform against us or our affiliates, with an aggregate amount of damages sought of approximately RMB281.3 million ($39.6 million),” the annual report states.

“The [TME] Group is currently not a party to, and we are not aware of any threat of, any such legal or administrative proceedings that, in the opinion of our management, are likely to have any material and adverse effect on our business, financial condition, cash flow or results of operations.”

The numbers provided by TME suggest that many of these lawsuits are fairly small. With $39.6 million on the line across 695 cases, that implies an average of just under $57,000 in damages sought per case.

3. TME is innovating new subscription models for music streaming

Not to malign the various music streaming services that operate in Western countries, but it does seem at times that, when it comes to innovating payment models for music subscribers, they seem to be well behind the innovation seen in China.

While Spotify offers a basic ad-supported tier, and paid subscriptions are limited to the individual, duo and family plans, TME’s services offer a variety of different subscription packages, with various tiers of access to content.

“Subscription packages are available at different prices to provide users with different combinations of features and privileges. For example, users subscribing [to] our basic subscription package are offered a fixed amount of downloads per month of our music content offerings and access to certain pay-for-streaming content, and users subscribing for our premium memberships have access to add-on features and privileges including additional personalized app themes and avatar designs, more sound effects that enhance listening experiences, and faster streaming and download speed,” TME’s annual report notes.

“By offering these exclusive privileges and benefits for different subscription packages, we aim to incentivize user spending, increase conversion to paying users, and enhance user retention on our platform.”

Tencent Music Entertainment

“We also offer users higher-end subscription package Super VIP Membership with a variety of compelling privileges, such as higher sound quality including QQMUSIC AUDIO and Kugou Viper 3D, Blu-ray playback of concert[s] at the highest resolution and cache, projection on TV screens and dedicated artist-fan interaction events.”

(Spotify will be making hi-fi audio available any day now, we’re almost sure…)

“By offering these exclusive privileges and benefits for different subscription packages, we aim to incentivize user spending, increase conversion to paying users, and enhance user retention on our platform,” TME says.

Perhaps most interestingly, TME also operates a “pay-for-streaming” model where certain songs are made available only to paying subscribers, and an on-demand model in which songs and albums can be accessed individually for a fee. Some songs are available only on-demand when first released.

That certainly helps explain that 20%-plus increase in ARPPU.

“We believe that this model has been driving the number of paying users and paying ratio of our online music services,” TME says, adding, “we will continue to implement effective monetization measures as we nurture users’ willingness to pay for premium music content.”

4. TME has integrated music streaming into instant message app WeChat

With more than 1 billion users, the WeChat instant messaging app is the most popular app in China and easily one of the largest worldwide. In 2023, TME integrated its music library with WeChat (known in Chinese as Weixin), “allowing users to access a wide range of music and audio content directly within the Weixin app.”

WeChat was developed by Tencent Holdings, which owns 92% of TME.

The new music listening function with Weixin “broadens our audience reach while also increasing exposure to talented musicians,” TME’s annual report stated.

Music streaming users can now share their playlists from QQ Music on Weixin, and users of either app can sing their hearts out to TME’s karaoke library, which had originally been built for TME’s WeSing app.

Horizontal integration certainly has its benefits. Maybe Spotify could sign a deal with WhatsApp…?

5. TME is investing in ‘an overseas entertainment company’

Finally, there was one very tantalizing – though vague – bit of information revealed in TME’s annual report.

In an update on events at the company beyond 2023, TME said: “In April 2024, a non-wholly owned subsidiary of [TME] entered into a definitive agreement to acquire 10% of the shares of an overseas entertainment company… for a total consideration of either USD $45 million in cash plus certain equity interest of an overseas business of [TME], or alternatively $70 million in cash.

“Upon completion of the transaction, [TME] will hold approximately 6.7% effective equity interest of the investee.”

Which of course begs the question: Which entertainment company is this TME subsidiary buying a chunk of?

Given that the implied valuation of this company is around $700 million, we’re pretty sure it isn’t Spotify or Universal Music Group.

Nonetheless, it’s a timely reminder that TME, a giant in China’s music business, has ambitions beyond its home country’s borders.Music Business Worldwide

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