In the face of competition from ByteDance's "Soda Music," Tencent Music's growth relies on "premium memberships + offline concerts."

Faced with the competitive pressure brought by ByteDance's "Soda Music," Tencent Music is building a new growth engine by expanding premium memberships and increasing its offline concert business.

Citigroup pointed out this strategic path in a report released on November 12. Although TME's third-quarter performance exceeded expectations, market concerns about competition have put pressure on its stock price. Citigroup believes that behind this is investors choosing to hedge amid the noise of "Soda Music under ByteDance potentially intensifying competition."

Citigroup noted that this sell-off is "unfounded" and views it as an excellent opportunity to increase holdings.

Dual Drivers: Premium Membership and Fan Economy

The report believes that the market's sell-off of TME's stock price is an overreaction. In the face of low-price competition, TME's response strategy is not a simple price war, but rather enhancing user value and stickiness through a carefully designed multi-tier membership system. This system ranges from free, ad-supported models to standard memberships and premium memberships, aiming to meet the needs of different user groups.

Citigroup pointed out: "Multi-tier membership services and SVIP memberships will drive the growth of paying users and ARPPU (average revenue per paying user). The driving force comes from high-quality music content, privileges for artists' offline concerts, star cards, and continuously optimized sound quality."

This indicates that TME's core strategy lies in upselling, retaining and converting high-value users through value-added services rather than low prices.

Increasing Offline: Concerts Build an Ecological Closed Loop

Offline performances are another strategic focus for TME. The report emphasizes that the company is heavily investing in large-scale tours and proprietary IP events (such as TMEA), which not only brings new revenue sources but, more importantly, deepens cooperation with artists and provides exclusive rights for paying members, forming an ecological closed loop that links online and offline.

"The concert business not only helps build experience but also establishes deeper cooperative relationships with artists and the ecosystem... By organizing these concerts and events, TME aims to provide users with more privileges and products based on the fan economy, which helps promote the growth of SVIP subscriptions."

This move expands the pure music streaming service into a more experiential comprehensive music entertainment platform.

Core Barriers: Content, Experience, and Tencent Ecosystem

In terms of competition, TME's management shows full confidence. The report cites management's view that its core advantages lie in a rich music content library, years of user asset management experience, and high penetration across multiple terminals such as PC and in-car services. Additionally, the synergy with Tencent's gaming and video IPs is a unique advantage that competitors find difficult to replicate. TME is not limited to mobile apps; its multi-device coverage and ecological synergy capabilities form a solid moat

Citigroup ultimately reaffirmed its "Buy" rating on TME, believing that it is transforming into a social music ecosystem platform with higher barriers. Although the offline concert business may initially impact gross margins, in the long run, this strategic investment in fan economy and ecosystem will drive the company towards more sustainable growth.