China Internet Sector: online music

Compared with other subsectors in China internet, we see unique attractiveness for online music for investors, as low sensitivity to the macroeconomy and benign competition could provide sustainable and visible growth. We forecast a 2025-29 subscription revenue CAGR of 13%, higher than other subsectors (e-commerce, games, etc.). Despite strong sector performance YTD, the sustainability of average revenue per paying user (ARPPU) growth remains a key debate. Leveraging extensive analyses of global comparisons, competition dynamics, and company strategy, we are positive on continued ARPPU growth in online music, aided by stable competition, improving paying user habits, and diverse monetisation opportunities.

While we still see room for user base expansion and an increasing paying user ratio, we expect ARPPU to become an increasingly important long-term growth driver, with 3 key drivers: c10% potential upside from narrowing subscription discounts, c20% potential upside from a possible round of direct price hikes, and longer-term monetisation from enriched content and services such as the fan economy & long-form audio, which could facilitate conversion to premium memberships and generate non-subscription revenue.

While the total music user base growth in China may slow to low-single-digit, we still see room for the paying user ratio to rise, considering the notable gap with global peers, favourable shift in user demographics, and diverse initiatives to drive paying user conversion. This, along with continued ARPPU improvement, should lead to solid industry growth of 13% in 2025–29E. We also expect music industry competition to remain stable, with the top 2 platforms taking 80%+ of MAU and even higher share in subscribers. We think the risk of market disruption is likely low, given entry barriers from high upfront content cost, a consolidated market structure, and incumbents pursuing differentiated strategies.