Tencent Music Entertainment Group saw revenue climb 7.3 percent in the first quarter as Chinese regulators gave conditional approval for its acquisition of audio platform Ximalaya, a strategic push to counter slowing growth in its core music business.
"As we operate in an increasingly competitive landscape, we remain focused on strengthening the resilience of our platform," Ross Liang, CEO of TME, said in a statement accompanying the results. The company is working to bolster differentiation and expand user lifetime value to compete effectively while driving scalable growth.
The Shenzhen-based company reported total revenues of RMB 7.90 billion ($1.15 billion) for the quarter ended March 31, up from RMB 7.36 billion a year earlier. Non-IFRS net profit attributable to equity holders rose 7 percent to RMB 2.27 billion ($330 million). In a notable shift, the company did not disclose its latest monthly active user numbers, a figure that had been contracting in previous quarters.
The acquisition of Ximalaya, one of China's largest podcast and audiobook platforms, is central to TME's strategy to build a wider audio ecosystem as competition from short-video apps like Douyin and Kuaishou intensifies. However, the deal comes with significant regulatory constraints that could shape the future of China's digital content industry.
Pivoting the Platform Amid Regulatory Scrutiny
China's State Administration for Market Regulation (SAMR) approved the acquisition with five key conditions aimed at preserving fair competition. The merged entity is barred from raising prices, lowering service quality, or reducing the amount of free content available.
Crucially, the regulator prohibited the companies from entering into new exclusive licensing agreements for online audio content and ordered them to terminate existing exclusive deals within a specified period. This condition directly challenges a long-standing industry practice and is designed to prevent the new entity from locking up valuable IP. The other conditions prevent anti-competitive bundling with auto manufacturers and stop the company from restricting content creators from distributing work on rival platforms.
This regulatory oversight arrives as TME's growth drivers are shifting. While music membership revenue grew a modest 6.6 percent to RMB 4.57 billion, revenue from other music-related services, including advertising and offline performances, surged 28 percent to RMB 1.94 billion. This highlights the company's increasing focus on diversifying its income away from simple subscriptions. The company's gross margin improved to 44.9 percent from 44.1 percent a year prior, which it attributed to the growth in membership services and lower channel fees.
The market reacted positively to the dual news, with TME's U.S.-listed shares jumping over 10 percent in pre-market trading on May 12. For investors, the key question is whether the Ximalaya integration, despite the regulatory hurdles, can create new, defensible revenue streams. The company's success will determine if it can retain a growth-oriented valuation or if it will transition into a more stable, dividend-paying entertainment utility.
This article is for informational purposes only and does not constitute investment advice.
