音乐产业：中国的崛起.docx

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1、Macquarie Research12 February 2019EQUITIESChina pan-entertainment market sizeOnline music pan-entertainment market yoy%Source: iResearch, Macquarie Research, February 2019Paying ratio among pan-entertainment verticalsSource: Company data, iResearch, Macquarie Research estimates, February 2019InsideM

2、usic: rising power in China2Gauging the size of Chinas music panentertainment market6Market consolidation post copyright regulations and content war12Tencent Music Entertainment (TME US)14Analysts (update)Macquarie Capital LimitedWendy Huang, CFA +852 3922 3378 Ellie Jiang +852 3922 4110Frank Chen +

3、852 3922 1433John Wang +852 3922 3578ChinaO MACQUARIEChina Internet and MediaMusic: rising power in ChinaKey pointsImproving IP protection and social networking has sparked rapid growth in online music sales. Music is under-monetized in China, compared to games and video. Music pan-entertainment mar

4、ket forecast to grow from Rmb33bn in 2017 to Rmb215bn in 2023. We initiate on Tencent Music Entertainment with Outperform.IP and content is king in Chinas internet and entertainment spaceAs we enter into the Year of Pig, we conduct an in-depth analysis of Chinas entertainment and media sector, with

5、initial focus on the music industry. Compared to other content, music is highly recyclable and has lower hit-or-miss5 risk than video, games and movies. We believe Chinas internet space is also entering into a new era where content, rather than distribution channel, is king. We initiate coverage of

6、Tencent Music Entertainment, the No. 1 entertainment stock in China, with an Outperform rating and a target price of US$19.5.Improving IP protection fostered good paying behaviour in ChinaChinas music market has been under-developed and fragmented due to deficiencies in copyright protection until 20

7、16, when the government started to terminate unauthorized music online. In 2017, Chinas music market ranked No. 10 globally, with revenue of only US$0.3bn, compared to US$5.9bn for the US. In contrast, China has overtaken the US to be the largest online game market in the world in 2017, with US$33bn

8、 revenue.Higher user penetration, yet lower paying ratioCompared to other entertainment media in China, music has higher internet user penetration (71%) than mobile games (64%), short video (46%) and online literature (17%). User penetration of music is second only to that of video (94%). Although b

9、oth music and video have gained significant users in the past one year, monetisation of the music industry in China is still in its infancy, as is evident from the paying conversion gap vs video and gaming industry. With diversified and innovative revenue models, investment in quality and curated mu

10、sic content, we believe music will be able to tap the deeper pockets of younger consumers and see paying conversion rise from 4% in 2018 to 10% in 2022. iResearch blue-sky forecast is more aggressive, projecting 22% by 2022.A dynamic music pan-entertainment market with two major playersChinas online

11、 music pan-entertainment market consists mainly of subscription/digital music purchases, online karaoke, music-centric live streaming, online advertising, and online music copyright operations. Chinas music market is highly dynamic, which enables Chinese consumers to engage with music in many ways,

12、including discovering music, listening, watching, singing and socializing. According to iResearch, this broad definition panentertainment market for music in China will register 37% CAGR from Rmb33bn in 2017 to Rmb215bn in 2023. Tencent dominates this high-growth market with the top four music apps

13、in China, followed by NetEase Music.Please refer to page 41 for important disclosures and analyst certification, or on our website .Fig 24 Most music-centric live streaming users are in lower tier citiesFig 25 Majority of users will consider purchasing digital albums released by live streaming perfo

14、rmersSource: iResearch, Macquarie Research, December 2018Will not purchase 18%Source: iResearch, Macquarie Research, December 20183) Online Music Copyright OperationsThe content creation and copyright ownership landscape is more fragmented in China compared to those in developed countries. According

15、 to iResearch, in terms of the volume of tracks streamed, the top five labels in China had a combined market share of less than 30% in 2017, whereas the top five labels globally had a combined market share of nearly 85%.In China, online music copyright operation is another growth driver for Chinas o

16、nline music industry going forward. The segment involves original copyright licensing, sublicensing, licensing of music-related content generated from talent shows and live performances produced by online platforms, and the adaptation of online music content in creating derivative entertainment prod

17、ucts including musicals and movies.In 2017, the overall market size of Chinas online music copyright operations reached Rmb2.2bn in revenue, and will register 36% CAGR over 2017-23 to Rmb13.7bn, according to iResearch.Fig 26 Online music copyright operations market sizeSource: Company data, Macquari

18、e Research, February 2019Market consolidation post copyright regulations and content warSimilar to the US music market and Chinas streaming industry, content library is a crucial component of Chinas online music platforms. It is one of the must-haves to attract users and not surprisingly, a chunky p

19、art of the cost component. Our US analyst Amy Yong noted that content cost accounted for 75% of Spotifys revenue in 2017 as this US music streaming platform shares 80-85% of its revenue with labels. We also noted that content costs accounted for 73% of Chinese video streaming platform iQiyis revenue

20、 and 64% of Chinese game streaming platform Huyas revenue in 2017.In 2013, China Music Corp (previously 海洋音乐)obtained copyright for 20m songs and signed exclusive long-term agreements with over 40 music agencies and record labels. In the same period, Tencent had 15m songs copyrighted, at considerabl

21、e expensev The bidding war on music content has pushed music copyright pricing higher by 10x, so no individual player in the market can afford it any more.The government stepped in, requiring all the players to share content. The National Copyright Administration of the Peoples Republic of China (NC

22、AC) issued “The Notice Regarding Termination of Disseminating Unauthorized Digitized Music”关于责令网络音乐服务商停止未经授 权传播音乐的通知,on 8 July 2015, which urged online music services providers to take all unauthorized music products offline before 31 July 2015. On Sep 1213, 2017, the NCAC interviewed Internet music

23、 services providers and record companies, and stressed that music companies should avoid granting or purchasing exclusive copyrights. Thereafter, many music companies have formed copyright agreements for content sharing. NetEase and Tencent Copyright agreement. NetEase Cloud Music and Tencent Music

24、reached a Deep Copyright Agreement in Feb 2018. The amount of songs to be co-authorized to both platforms accounts for 99 percent of all exclusive songs. Both platforms have agreed to long-term music copyright sharing, and will actively authorize songs to other music platforms, (link)NetEase and Ali

25、baba Copyright agreement. Alibaba Group-owned Ali Music Group and NetEase Music have agreed to share parts of their libraries so that users of each platform will have an expanded catalogue of artists and songs for streaming online. Users of Ali Musics music streaming app Xiami can now access music f

26、rom NetEases major music publishing companies EE-Media, Avex, Forward Music and HIM International Music-including Japanese pop star Hamasaki Ayumi and Taiwanese singer A-mei. In return, Ali Music w川 give NetEases users access to the library of Taiwan5s Rock Records, Koreas S.M. and Germanys Bertelsm

27、ann Music Group, offering highly coveted titles from Mandopop greats such as Jonathan Lee to popular Korean boy band EXO (link).Fig 27 Tencent wins over richer music copyright resourcesTMEAli MusicBaidu MusicNetease Cloud MusicGreater ChinaJVR Music International (Jay Chou) Linfair Records (Angela Z

28、hang, HarlemYu, Christine Fan);Yuehua Entertainment; (Geng Han, Anson Hu, A-do);Emperor Entertainment Group (EEG);Huayi Brothers;EE-Media;Taihe Rye Music;China Record;Peacock Records;Other famous artists: Leehom Wang, Sodagreen, TF Boys, Bibi Chou, Chris LeeRock Records & Tapes (non-exclusive);HIM I

29、nternational Music (non-exclusive);Media Asia MusicRock Records & Tapes (non- ,exclusive);Ocean Butterflies MusicHIM International Music (nonexclusive);CS Music House;Rhymoi MusicWesternUniversal Music Group (UMG);Warner Bros Entertainment (WMG); Sony Music (SME)BMGThe OrchardJapan and South KoreaYG

30、;JVR;JYP (non-exclusive)SMSMJYP (non-exclusive);AvexSoundtrack from variety shows The Voice of China (中国好声音)”;I Am a Singer (我是歌手)”;Chinese Idol (中国梦之声)”;“Sing! China (中国新歌声)”； Duets (最美和声)”；Crossover Singers (跨界歌王广 ,Mask Singer (蒙面唱将猜猜猜广“Produce 101”(创造 101)The Coming One”(明日之子)I Am a Singer (我是歌手)

31、;Crossover Singers (跨界歌王)”； nCome Sing with Me (我想和你唱)”； Super Boy (快乐男声)”Source: Wallstreetcn, Macquarie Research, February 2019Companies mentioned:TME (TME US, US$14.70, Outperform, TP: $19.50)NetEase (NTES US, US$239.88, Outperform, TP: $305.00)Tencent (700 HK, HK$352.00, Outperform, TP: $513.00)

32、Alibaba (BABA US, US$167.36, Outperform, TP: $224.00)Spotify (SPOT US, US$134.71, Outperform, TP: $170.00)12 February 2019United StatesO MACQUARIEEQUITIES(Rmb m) Robust revenue growth across all80,00070,00060,00050,00040,00030,00020,00010,0002017 2018E 2019E 2020E 2021E 2022E Sublicensing and ad Sub

33、scription servicesSocial entertainment servicesTME USPrice (at CLOSE#, 12 Feb 2019)Outperform US$15.03ValuationUS$19.35-DCF (WACC 13.8%, beta 1.2, ERP 10.0%, RFR 3.0%, TGR 9.6%)12-month targetUS$19.5012-month TSR%+29.7GIGS sectorMedia & EntertainmentMarket capUS$m24,57430-day avg turnoverUS$m80.9Num

34、ber shares on issuem1,635Investment fundamentalsI Year end 31 Dec2017A2018E2019E2020e|Revenuem 110,98119,03827,79338,428EBITm1,9614,3235,5978,448Reported profitm1,3193,4914,5606,659Adjusted profitm1,9044,1815,2747,646Gross cashflowm2,2834,4415,5968,049CFPSRmb1.732.793.294.64CFPS growth%nmf61.517.841

35、.0PGCFPSX58.936.531.022.0EPS adjRmb1.442.643.104.41EPS adj growth%nmf82.817.542.1PER adjX70.638.632.923.1Total DPSRmb0.000.000.000.00Total div yield%0.00.00.00.0ROA%6.611.210.913.6ROE%7.312.511.914.5EV/EBITDAX66.439.330.120.4Net debt/equity%19.8-44.3-51.758.4P/BVX5.14.23.63.1Source: FactSet, Macquar

36、ie Research, February 2019 (all figures in Rmb unless noted, TP in USD)Source: Company, Macquarie Research, Feb 2019AnalystsMacquarie Capital LimitedWendy Huang, CFA +852 3922 3378 Ellie Jiang +852 3922 4110Frank Chen +852 3922 1433John Wang +852 3922 357812 February 2019Tencent Music Entertainment

37、(TME US) Prelude to a great symphonyKey points Initiating TME as our favourite content play with OP and 30% upside. Sticky and massive user base, wealth of music IP are the barriers. TME = Spotify + Facebook + YouTube.A monopoly in Chinas burgeoning music marketChinas music market had been under-dev

38、eloped and fragmented due to deficiencies in copyright protection until 2016. In the past three years, TME has been the most aggressive buyer of music copyright and will continue to invest heavily in content and R&D for the next two years. As of September 2018, TME had the largest music content libr

39、ary with over 20m tracks from over 200 music labels. On 1 Oct 2018, TME had further strengthened its ties with global labels by selling a 2% stake in TME to Warner Music and Sony Music for US$200m. As of September 2018, TME operated the top four music apps in China with combined unique MAU of 800m v

40、s 121m for No.2 NetEase Music, per Quest Mobile data.Capitalize music with social networkingMusic is a universal language, consumed by both eastern and western audiences. But the method of consumption differs. In Asia, music is for more than just listening. Over 45% of Chinese music users share thei

41、r singing, short videos and live streaming of music performances and music-related articles with their QQ or Wechat friends. This has led to a major difference between TMEs and Spotifys revenues and margins today - social entertainment. We estimate social entertainment revenue to grow 72% yoy to Rmb

42、13.5bn in 2018, contributing 71 % of TMEs total revenue. We expect TMEs paying ratio to rise from the current 4% to 10%, still well below that of Spotify and other Chinese content platforms.A vertical integrator in the makingOn the upstream, TME has partnered with labels for premium content and leve

43、raged Tencenfs network and its live streaming platforms to identify long-tail content and talent. It also enjoys unique opportunities to co-produce musical talent shows with Tencent Video and owns all copyright of music-related content. On the downstream, through the acquisition of Ultimate Music, T

44、ME has started providing music services to smart device and auto makers to cover the full spectrum of music consumption scenarios. TME also participated in various forms of offline music events such as singing competitions, music festivals, artist tours and fan events. An integrated model not only o

45、ffers a comprehensive entertainment experience to users but also enables TME to acquire and engage users in a cost-effective manner and source creative and quality music.Initiating with OP at TP US$19,50We value TME at 1x PEG or 44x 2019 PE on the back of strong earnings growth riding on Chinas burg

46、eoning music market. We expect revenue to expand from Rmb19bn in 2018E to Rmb71bn in 2022E, driven by paying ratio expansion and ARPU expansion. We believe TME deserves a premium to Chinese content peers (China Literature, iQiyi) and global counterparts (Spotify and Netflix) for its higher market sh

47、are, optimal cost structure and stronger ecosystem.Risks: License renewal with major music labels, difficulty of increasing paying conversion, rising cost of attracting independent artists, regulations on social entertainment.T4InsideCompany profileExecutive summary16Valuation21A music-centric ecosystem25Financial Analysis32Risks36Appendices37TME revenue breakdown (3Q18)Tencent launched QQ Music