On February 29th, NetEase Cloud Music disclosed its 2023 performance announcement. According to the financial report, NetEase Cloud Music's net revenue in 2023 was 7.87 billion yuan, a year-on-year decrease of 12.5%; The net profit was 734 million yuan, compared to a loss of about 220 million yuan last year, achieving a turnaround from losses to profits; The gross profit increased from 1.29 billion yuan in 2022 to 2.1 billion yuan in 2023. NetEase CEO Ding Lei mentioned in a conference call after the financial report that NetEase Cloud Music is well prepared to embrace this wave of AI development, and will also actively explore the diversity of expenses.
The payment ability of users in the social entertainment service sector has declined
The revenue from online music services increased by 17.6% from 3.6988 billion yuan in 2022 to 4.3509 billion yuan in 2023. Among them, the sales revenue from member subscriptions increased from 3.0371 billion yuan in 2022 to 3.6492 billion yuan in 2023.
According to the financial report, due to the platform's continued commitment to optimizing user experience, innovating interactive features, and enriching their content, the monthly active users of online music services increased from 189.4 million in 2022 to 205.9 million in 2023. The monthly paid users of online music services increased from 38.27 million in 2022 to 44.12 million in 2023, and due to optimized promotional methods, the monthly revenue per paid user of online music services also increased from 6.6 yuan in 2022 to 6.9 yuan in 2023.
Social entertainment services and other revenue decreased by 33.6% from 5.2934 billion yuan in 2022 to 3.5161 billion yuan in 2023. This decrease is mainly due to the platform's more cautious business strategy, such as reducing the exposure of certain functions on the site and lowering the revenue sharing ratio. The monthly paid users of social entertainment services increased from 1.3323 million in 2022 to 1.6029 million in 2023, while the monthly income per paid user of social entertainment services was 326.0 yuan and 178.6 yuan respectively in 2022 and 2023. It can be seen that compared to the slight increase in monthly revenue per paying user of online music services, the decrease in monthly revenue per paying user of social entertainment services is more significant.
However, the decrease in revenue from social entertainment services has led to a decrease in operating costs. The financial report shows that operating costs decreased by 25.1% from 7.6991 billion yuan in 2022 to 5.7643 billion yuan in 2023, mainly due to the decrease in content service costs from 6.7116 billion yuan in 2022 to 4.5987 billion yuan in 2023. The decrease in content service costs is mainly due to the decrease in revenue sharing fees as social entertainment service revenue and revenue sharing ratio decrease. In addition, the company has taken measures to improve the management and control of content authorization fees.
Ding Lei pays attention to Sora and explores paid diversity as a long-term goal
In addition, the growth in gross profit is impressive. The gross profit increased by 62.6% from 1.2931 billion yuan in 2022 to 2.1027 billion yuan in 2023, due to the increase in member subscription sales revenue and continuous optimization of cost control measures. The gross profit margin has increased from 14.4% in 2022 to 26.7% in 2023.
In terms of copyright, in 2023, NetEase Cloud Music has established deep cooperation with several well-known brand companies and top artists, including top Chinese language brands such as Believe Music, Yuding Yi, Bai Mi Fan, and Tianyu Media, DREAMUS represented by Myth, and well-known Korean brands such as JTBC, which has a huge OST music library. Popular music variety show copyrights include "The Sound of the Treasure Island Season", "Chinese Rap Summit 2023", "The Voice of Heaven Season Four", "The Song of the Drama", and "The Band's Summer 3".
However, during a conference call after the financial report, the management mentioned the redesign of NetEase Cloud Music: "In the future, the music library will not become the most core competitive factor among various platforms, and personalized recommendation ability is one of the most important barriers for NetEase Cloud Music."
In addition, the financial report disclosed that in 2023, NetEase Cloud Music algorithm recommendation deeply applied self-developed Large Multimodal Model (LMM), multi scenario recommendation ranking model, etc., further optimizing personalized music recommendation ability and experience. In 2023, the proportion of music playback recommended by the platform continued to increase significantly, and the leading advantage of platform algorithm recommendation further expanded.
NetEase CEO Ding Lei stated during a conference call that NetEase attaches great importance to the application of AIGC in various aspects and has accumulated years of technical expertise. Recently, Sora's achievements have attracted attention, and I believe that the application of AI in music can also generate more high-quality content. In the past year, NetEase Cloud Music has launched innovative AI music achievements such as Tianyin platform, X Studio, and AI DJ, committed to improving content production quality and user experience. "AI can greatly improve the median quality of music creation content, and we will be prepared to embrace this wave of AI development."
During the conference call, the management team of NetEase Cloud Music also answered the long-term goals for the development of online music. Ding Lei stated that NetEase Cloud Music will actively explore paid diversity, and in the future, it will make good use of music content and music community scenes, provide more value-added services, and comprehensively improve the music and community experience.