DouYu International Holdings Limited

Good morning and good evening, ladies and gentlemen. Thank you and welcome to DOEU's International Holdings Limited's third quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. We will be hosting a question and answer session after management's prepared remarks. I will now turn the call over to the first speaker today, Lingling Kong, IO Director at DOEU. Please go ahead.

Thank you. Hello, everyone. Welcome to our third quarter 2021 earnings call. Joining us today are Mr. Shaojie Chen, Chairman and Executive Officer, Mr. Mingming Su, Chief Strategy Officer, and Mr. Hao Chao, Vice President of Finance. You can refer to our financial results on our IR website at ir.doi.com. You can also check a replay of this call when it becomes available in a few hours on our IR website. Before we start, please note that this call may contain forward-looking statements made pursuant to the Safe Harbor Provision for the Private Security Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks and certainties and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be materially different from the results, performance, or expectations implied by this forward-looking statement. All forward-looking statements are expressly quantified in their entirety by the cautionary statement, risk factors, and details of the company's filing with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selecting inventive circumstances after the date of this conference call. I will now speak on behalf of our Chairman and CEO, Mr. Xiaojie Chen. In the third quarter, we made solid progress in exploring new growth drivers for user traffic and revenue generation. while maintaining steady development of our COVID initiatives. Total net revenues were 2.35 billion RMB and quarterly average paying user count reached 7.2 million. Notably, our average of mobile MAUs for the quarter sustained the growth momentum from the previous quarter, reaching 61.9 million, representing a 3.9% year-over-year growth. Two key factors drove our continued user growth. First, as mentioned in our last earnings call, we continued to benefit from the broadcast of several large-scale esports tournaments, such as the LTL Summer Grand Final 2021. This broadcast not only attracted new esports users, but also galvanized inactive users to return. We deepen our collaboration with top tier game developers while also increasing our investments in new game content. In the third quarter, we partnered with a wide range of developers to bring more mid-tier and long-tail games to our platform, while strengthening our promotional and operational efforts on this new game. For example, in the quarter, we introduced two mobile games, including Battle of Golden Specter and Harry Potter Magic Awakens. Through a series of content and operation related activities, we collaborated with game developers in the launch and marketing phases for this game to increase user awareness. By recruiting top streamers to create quality content for this game, we effectively highlighted each game's features utilizing various game formats. Successful attracts many light and moderate gamers to our platform. Now, turning to our content updates. The solid foundation of our comprehensive content ecosystem underlies our user-based expansion. In the quarter, we continued to enrich our highly comprehensive content library with expanded game genres. generate personalized content for each game to cater a variety of user needs, refine our platform operations, and cultivate a vibrant, game-centric content community for our users. To elaborate, in the domain of large-scale esports tournaments, we retained our close partnerships with developers, continued to provide high-quality esports content, and fostered growing interaction between our top streamers and our esports content. Focusing on live forecasting as a core operation for large-scale esports tournaments, we provide multi-channel live sessions and in-house produce the PGC content to meet the wide viewing needs of our users. In the quarter, we forecasted over 60 large-scale esports tournaments and produced over 70 esports tournaments in-house. Notably, we broadcasted the LPL Summer 2021 tournament, which is the highest-level League of Legends professional tournament in China, with related content produced in-house. On the mobile front, we successfully attracted new mobile users through incentivized operational and marketing initiatives. Moreover, for the Peacekeeper Elite League 2021 Season 3 tournament, officially the highest tier professional Chinese league, we invited a number of influencers who are also our Peacekeeper Elite streamers to participate in the tournament coverage and analysis to boost the streamer user interaction and improve the overall viewing experience. Meanwhile, for the CFML Summer 2021 tournament, a professional league for crossfire mobile. We work with game developers to launch promotional programs featuring high-value in-game items to drive user growth, stimulate user engagement, and improve the viewing experience. Furthermore, we attracted and retained new users and galvanized the retention of old users through a number of marketing campaigns and related topic exposure our self-produced esports events, such as League of Legends China vs South Korea Duel. During this large-scale esports tournament, we also incorporated an on-demand playback function and produced a series of relevant video clips, graphics, and community discussions to further enhance user engagement in the non-live forecasting time frame. For non-esports games, We endeavored to cover more game genres, deepen cooperation with more game developers, and strengthen the operation of each game's full life cycle. Given that non-esports gaming content is better viewed in the graphic and video format, we upgraded our product features with content integration of live streaming, video, graphics, and community interactions. to attract more high-quality gamers and content producers to our platform. In addition, we continue to refine our operations, hold relevant events on hot topics, and guide interactive discussions among developers, streamers, content creators, and users. Through our high-quality content and optimized product features, we are able to meet various user needs for entertainment, learning, and interaction. and thus attracting more users to our platform. More importantly, we have made good progress in tailoring our offering strategy for each segment, including live streaming, video, graphic, and community, especially for our recent launch non-eSports game. For example, our flagship game launched in the last quarter, Naraka Blade Point, retained its growth trajectory in the third quarter, showcasing high user-sickness on our platform. For other new games, long-standing supporters, Battle of Golden Spatula and Harry Potter Magic Awakens also performed well, as a result of growing user engagement and increasing live streaming volume. These improvements are a result of our continued commitment to cultivating and supporting top-tier streamers, customizing content offerings, optimizing our segment operations, and upgrading our platform with more interactive product features. During the quarter, to augment our content production efficiency, we committed additional resources to our research and development capabilities. For example, in the fourth quarter, we launched a new content production tool and a one-click video production function in the live streaming room on our website. With this tool, users can easily edit the latest two minutes of a live streaming session and automatically upload the edited content to our video and community segments. We expect that this update will increase UGC content creators' enthusiasm and stimulate interactions within our community. Going forward, we will continue to execute our game-centric content ecosystem strategy. We will continue to enrich our offerings of game content to meet the diversified needs of our users and attract more users through our refined operations of new and existing popular games. Now, turning to monetization. In the third quarter, our quarterly paying users totaled 7.2 million, with an output of 307 . We were able to sustain the size of quarterly paying users as we continue to execute our proactive offering strategies to improve user engagement and paying user consumption. We also keep exploring new monetization methods while maintaining stable revenue contribution from the traditional virtual gift team model. Let me also touch briefly on our development in overseas markets. Meldum remained one of the top-ranking mainstream video game live streaming apps in Japan for the last two quarters, according to App Annie. Given that the user base is achieving scale, we enhanced Meldum commercialization during the quarter and made meaningful progress. In the future, we will further solidify our market position in Japan and strengthen the monetization capabilities of Meldum. while optimizing operation efficiency to maintain healthy growth. In summary, during the four quarters, we made firm headway in exploring new growth initiatives while maintaining the steady development of our core businesses. Building on our industry leadership in live streaming, we deepened our collaborations with game developers in multiple dimensions. and provided gamers and users with comprehensive game content offerings, combining live streaming, videos, graphics, and interactive communities. Leveraging our competitive strengths in paying user consumption and virtual gifting, we will continue to explore diversified monetization models and improve our financial performance through effective product development, streamer engagement, and content operations. With that, I will now turn the call over to our Vice President of Finance, Mr. Hao Chao, to go through the details of our financial performance in the quarter.

Thank you, Lingling. Hello, everyone. Total net revenues in the first quarter of 2021 were RMB 2.35 billion. Live streaming revenues were RMB 2.21 billion, compared with RMB 2.35 billion in the same period of 2020. Our live streaming business remained relatively stable under our long-term sustainable operating strategy. The year-over-year decrease in live streaming revenue was due to several notable fund engagement events we launched in the summer of last year, led to the increases in paying user conversion, resulting in a higher revenue base in comparison. This decline was partially offset by organic growth revenues per paying user, driven by our implementation of more effective operational strategies. Advertising and other revenues were RMB 107.5 million, compared with RMB 197.8 million in the same period of 2020. The year-over-year decrease was primarily due to trial testing of our new commercialization model with a portion of our advertising traffic instead of monetizing all our traffic through traditional advertising channels. As a result, we forfeited some potential short-term revenue gains to improve sustainable long-term growth. Cost of revenues in the third quarter of 2021 decreased by 5% to RMB $2.07 billion. from RMB 2.18 billion in the same period of 2020. More specifically, revenue share fees and accounting costs decreased by 5.6 percent to RMB 1.84 billion from RMB 1.95 billion in the same period of 2020. The decrease is mainly in line with the decreased live streaming revenues. This decrease was partially offset by higher spending on esports tournament broadcasting rights and additional investments in proprietary content production as we continue to invest in high-quality gaming content. Finance costs in the third quarter of 2021 decreased by 3.4% to RMB 163.4 million from RMB 69.1 million in the same period of 2020. This decrease was mainly due to lower unit bandwidth costs, which benefited from our improved procurement efficiency with major suppliers, and partially due to lower bandwidth usage costs as a result of the continued technology upgrades in-house. Cross-profit in the third quarter of 2021 was RMB 278.5 million, compared with RMB 369.4 million in the same period of 2020. Price margin in the third quarter of 2021 was 11.9%, compared with 14.5% in the same period of 2020. This decrease was primarily due to the decline in revenues exceeding the decrement of revenue share fees and content cost. Sales and marketing expenses in the third quarter of 2021 were RMB 218.9 million, an increase of 36.6% from RMB 160.3 million in the same period of 2020. This increase was mainly attributable to the increased costs from utilizing additional promotional channels for user acquisition. Research and development expenses in the third quarter of 2021 were RMB 123.2 million, which represented an increase of 12.4% from RMB 109.6 million in the same period of 2020. This increase was primarily due to increased investment in technical personnel to continue our overseas expansion and technology infrastructure upgrades for enhancing our user experience. General and administrative expenses in the third quarter of 2021 were RMB 86.5 million, decreased by 8.1% from RMB 94.2 million in the same period of 2020. Adjusted loss from operations in the third quarter of 2021, which adds back share bid compensation expenses, was RMB 91 million, compared with an adjusted operating income of RMB 71.2 million in the same period of 2020. Net loss in the third quarter of 2021 was RMB 143.5 million, compared with a net income of RMB 39.6 million in the same period of 2020. Adjusted net loss in the third quarter of 2021, which excludes share-based compensation expenses, share of income in active method investments, and impairment loss of investments, was RMB 72.7 million, compared with the adjusted net income of RMB 98.7 million in the same period of 2020. For the third quarter of 2021, basic undiluted net loss per ADS were RMB 0.37 and RMB 0.37, respectively, while adjusted basic undiluted net loss per ADS were RMB 0.16 and RMB 0.16, respectively. As of September 30, 2021, the company had cash and cash equivalents, restricted cash, short-term and long-term bank deposits of RMB 7,078 million, compared with RMB 7,622 million as of December 31, 2020. We would also like to provide an update on execution of our share repurchase program announced on August 30, 2021, in which the company may repurchase up to US$100 million of its shares until August 2022. As of September 30, 2021, the company had repurchased an aggregate of US dollar 4.3 million worth of its ADNs under this program. Going forward, we will continue enhancing our monetization capability while further improving our monetization efficiency. Additionally, as we continue to grow, we will focus on further utilizing our operating leverage to support the sustainable development of our platform. This concludes our prepared remarks for the day. We are now ready to take questions.

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star and then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then two. Our first question is from Lei Zhang of Bank of America. Please go ahead.

um um Thank you for taking my question. Two questions here. First on regulations. Do you see an impact from the suspension of game approval process recently, and how should we look at the regulatory change going forward? Secondly, meaning on the cooperation with host and the agencies, do we see the increased competition in the live streaming host set, and any impact from the increase of revenue sharing ratio across your major tiers, and how should we look at our revenue sharing ratio going forward? Thank you.

Let me answer the previous question. First of all, in terms of supervision, we think that in the process of slowdown of the game, the main impact is that the government has been restricting the quality of the game to make it more sophisticated. Because there were a lot of, although it looks like a lot, but the quality is relatively not guaranteed. Next, if we look at the latest online games such as Star Wars, League of Legends, and other advanced games, I don't think this change will have a huge impact on the regulation. The other thing is that in terms of regulation, there are more live broadcasts for non-title games. And then just say that maybe we will make some adjustments. That may need to be in China. First of all, you have to have a password or you have to find out about this situation and then do the live broadcast. This is the main one. This is some of the impacts of the surveillance. The other one is that for now, if you look at the cost of this anchor and this division, we can also see that in the competition of the entire real-time anchor resources, as an anchor in the contract period, it will not be affected by anything. And then on the market, there is currently a very limited amount of free and high-quality anchor resources. Okay, first for your first question regarding the suspension of new games, the launch of new games. The short answer to that is we have not seen

any significant impact on our existing users. In terms of regulation, one is the suspension we've seen in the launch of new games currently, and the other one is actually content moderation. For the first, the suspension of new game launches, it actually can have a slower impact on the new user acquisition. For us, we are seeing the approval of new games is not on hold, rather than the suspension is actually caught by stricter standards for approval of new games, which we believe there will be more kind of high-quality games launched to the market, which will be beneficial for us and for the whole gaming industry in the long run. Recently, the quality of the new games launched on our platform actually is very high, such as Battle of Golden Spatula. We have seen quite encouraging operations over there. The other is the content moderation, content management, especially regarding the kind of games we don't have the approvals to distribute domestically. For that, we will gradually adjust our content offered on the platform to ensure that, on one hand, to ensure the quality of the game. On the other hand, we will make sure that those contents are fully compliant with current regulations. Regarding to your second question on the competitive landscape on the stream of resources. Actually, currently the streamers under contact with us will not be affected by other competitors in the industry raising their revenue sharing percentage. Of course, we have seen that the number of streamers available in the industry is quite limited. So it is very hard for new entrants to establish a streamer kind of ecosystem that can be competitive with existing platforms. And the other thing is that since the streamers are far from moving between platforms under common contract, So we are seeing that the current competitive landscape for streamer resources remain quite stable. So in the light of all the factors above, other platforms will not be able to attract high-quality streamers merely by increasing their revenue sharing fees. And especially in terms of promoting new games, We actually collaborate with game talent agencies to recruit a large number of streamers to ensure we have the quality and quantity of new game content offerings for each game segment. So we have lots of operational know-how and big data analysis to devote resources to those new streamers and help them to become the top streamers for our new game segment. In terms of revenue sharing percentage, actually we offer certain incentives to streamers during some promotional periods. So therefore, the overall revenue sharing ratio may fluctuate from quarter to quarter. However, we believe that our current revenue sharing ratio is reasonable. and we will adjust it according to the industry dynamics going forward. Thank you.

Our questions are very helpful.

Great, thank you.

Thank you. The next question is from Thomas Chong of Jefferies. Please go ahead.

Good evening. Thank you, Manager Chong, for introducing my question. I have two questions. The first one is about Thank you. Maybe I translate the question that we are seeing the online video platform, platform video, also investing in the live streaming business. So just want to see how we should think about the competitive landscape and also how we can... the market going forward? And my second question is, with regard to the newly launched games in the market, which one are we seeing are doing better, and any data can be shared? Thank you. .

um um to do this kind of thing. And we believe that after the medium-to-short video platforms continue to add games to the live stream, there will be more new power in the live stream of games, and it will bring more diversified groups to pay attention to this area of game optimization. In addition, we are also gradually upgrading our video and community version content, and we want to build a more complete content system with more game videos. Our goal is to develop a content platform with games as the core. In fact, we are currently working on the game on the live broadcast, and we are doing a more comprehensive content expansion around the game, which is to develop new content in video and social media. In addition, we will expand the scope of the game with manufacturers. From traditional video games to all kinds of games, we will make some changes to video games. Thank you, Thomas. And the fourth question is that we have since the third quarter of this year, we do not

see significant changes in terms of the competitive landscape in the game live streaming industry. Ever since the streamers are prohibited moving between platforms under contract period, the competition in the industry has remained quite kind of stable, stabilized. So we have seen that short video platforms have been expanding into the game live streaming sector, which has generated more traffic for the sector. We believe this will attract a more diverse user group to eSports, and it will enlarge the potential market size for the entire game live streaming industry. So on top of this, we upgraded our content our content ecosystem, including video and communities, and establish a quite comprehensive content library covering a wide range of game genres. Our advanced strategy is to establish a game-centric content ecosystem, so leveraging our in-depth understanding of the game industry and the rich experience accumulated over the past few years, we will continue to enrich our game content offering, cultivate a vibrant game-centric content community, and then attract more users to our platform. So we will continue to deepen our cooperation with game developers to cover more game genres. expanding our content coverage beyond esports tournament to cover non-esports games. And we aim to build a integrated content channel for each game we operate. We believe that by enhancing the interactions between users and content creators on our platform, and by offering more high-quality content, we will enforce our leadership position in the game-centric integrated content platform in China.

Let me answer your second question. We have observed a strong momentum for a number of games launched this year, including Naruka Black Point, launched in July, Battle of the Golden Sparrow, launched in August, and Harry Potter Magic Awakened, launched in September. In the month following their launches, overall live streaming volume and user engagement increased by more than 100% month-over-month. These games continued to perform well and are steadily gaining popularity and improving in rank among all games on our platform. Especially, Naraka Bladepoint became a top 10 platform game in terms of total user time spent in live streaming. during the third quarter. In addition, we are at the forefront of our industry in terms of the number of top streamers, live streaming volume, and user engagement for these new games. We enhanced the operations of each game segment and enriched our content offerings by integrating live streaming, video clips, and visual graphics rendering guides to meet various user needs. We leverage our top streamers to foster anticipation and excitement among target consumers prior to the launch of these new games and recruit new streamers to ensure the quantity and quality of content offering. And at the same time, we fully leverage each game's features to increase user engagement For example, we promoted the Harry Potter IP related merchandise in order to attract more IP fans. Regarding the broadcasting of self-produced tournaments, we continued to offer higher quality PGC game content to our users by cooperating with professional event operators. Our premium PGC content offerings have not only enabled us to improve viewing experience, but also gained recognition and support from game developers. In general, our operations for the full lifecycle of our game have generated remarkable results and attracted many new users to our platform. These results fortify our commitment to our operational strategy of cultivating diversified game-centric contender community. Thank you.

I'll play your next question, please.

Thank you. The next question is from Yiwen Zhang of China Resistance of Renaissance. Please go ahead.

Hey, thank you. Good evening, Mr. Guan. I have two questions to ask. The first question is about the LL mobile game. We saw that the mobile game was launched in early October. Thanks for taking my question. I have two questions, certainly regarding the mobile. The title was launched in early October. How was its performance on our platform? And we think this year, what other large titles do we expect that will be released? And then, secondly, on the LOL World Championship or S tournament, how do you see its performance this year in terms of the operation metrics or revenue contribution? Thank you.

Let me answer your question. For the first question about LOL Mobile, We have accumulated rich results and experience from our operations on LOL's PC version over the past three years. On top of this, we believe our integrated operation approach for LOL will be beneficial to our overall operations for LOL Mobile. Users of LOL's PC version are the first batch of users for its mobile version. Throughout our operations of LL over the past several years, we have maintained conversion rates from LL PC players to our users at a high level. This is a clear reflection that LL is highly suitable for live streaming. The launch of LL Mobile will further galvanize the return of older players to watch related game content on our platform. Given the easier-to-play features of LL Mobile, we expect more viewers of LL-related game content on our platform as the number of its players continues to increase. And second, we have a large pool of high-quality LL streamers. On one hand, our top streamers from LL's PC-second live streaming LL Mobile games will generate traffic for the mobile version. On the other hand, our deep streamers pool allows us to quickly cultivate streamers internally for LL Mobile and generate a premium game content more efficiently. In addition, our long-term collaboration with Tencent allows us to effectively integrate our promotional efforts with LL official content and activities. thus enjoying an advantage in the promotion and operation of IOL Mobile. Based on our advantages mentioned above, we started cooperating with game developers, streamers, and video creators during the testing stage of IOL Mobile in order to foster anticipation and excitement among target consumers. Additionally, we coordinated premium streamers and video creators to generate PC content and game-related hot topics to sustain our leading position in the operations of new games. The popularity of IOI Mobile has continued to increase since it launched in October. Thanks to our cultivation and support of top streamers, the integrated operations of our live streaming, video, and graphic content paralleled promotion in association with the X11 LL World Championship and a series of self-produced content such as the LLW Master Tournament. We achieved strong growth momentum for LL Mobile since its launch. in terms of all live streaming volume and duration, as well as the user engagement. I have mentioned S11, and the second question is about S11. S11, the IOL World Championship is the largest IOL official annual tournament and has always attracted a large number of viewers. LIO has always been a strong segment of ours, and we have in-depth resources of well-known streamers and a multi-faceted streamer and content ecosystem for this segment. For S11 this year, we fully leveraged our rich content resources to provide live streaming content in various formats and related programs. Based on the co-broadcasting of the tournament and official promotional events, we incorporated an on-demand playback function and produced a series of relevant video clips, graphics, and community discussions. In addition, we provided more viewing formats, including horizontal viewing positions for the communities of mobile users. Our promotional initiatives have improved user engagement for the tournament, optimized viewing experience, and attracted more brilliant users to our platform. We also achieved significant progress on creating signals between tournaments and ILL games through forecasting and operations of S11, leverage on those high-quality stream resources as well. as the platform's gravity of larger user base and high level of user engagement. We successfully encourage game platform users to play IOL again and galvanize inactive IOL gamers to retain. The total viewing time for S11 tournament reached one billion. The viewing time for our enhanced project through programs with over 170 million. More importantly, total interactions on our S11 community surpassed 100 million times, demonstrating that our various content becomes more appealing to our users. Thank you. Next question.

Thank you. Next question is from . of JP Morgan. Please go ahead.

Hi, good evening. Thank you for accepting my question. I have two questions for Daniel. The first question is that the company mentioned using some traditional advertising resources to explore the new wire mode. Can you introduce in detail the situation of exploring the new wire mode and the development period? Then my second question is about the development of the 100 million dollar stock purchase plan. I'll translate myself. Thank you, management, for taking the questions. I'll ask two questions on behalf of Daniel. First, you mentioned that the company is seeking additional ways to diversify monetization by leveraging some traditional advertising resources. Can you give us some more color on the current progress and your expectations on that? The second question, can you brief us on the progress of the $100 million share repurchase program? Thank you.

The first question, We generated advertising revenue by offering game and brand advertising to advertisers. Our brand advertising revenue has remained relatively stable, driven by stable user traffic on our platform. We have explored implementing new monetization models on certain game advertisement resources. On the traffic side, we sacrificed a portion of our advertising revenue to reallocate some of our advertising banners and commercial live streaming resources for our new monetization model. On the advertiser side, we selected some premium advertisers and cooperated with them to support new monetization opportunities. Regarding the new monetization model, we established a smart distribution system for new games by connecting game developers with live streamers. Game developers able to release promotional campaigns on platforms, while live streamers can choose their preferred promotional method. By implementing this smart distribution system, we hope to boost advertising effectiveness in game downloads and activations. And we have rolled out a number of initiatives to support this goal. First, we have developed a variety of handy plug-in extensions within the system to support our live streamers. as they encourage users to download and activate games. Second, we have motivated our streamers by implementing incentive plans directly connected to promotion effectiveness. Third, we have attracted more live streamers to join us by promoting their studies and offering systematic training. Fourth, we have leveraged our algorithms capability facilitate batching, pricing, and distribution between game resources and live streamers traffic. So, if this model develops well, we believe it will enable us to better leverage user traffic on platform and showcase streamer individuality, better capturing the traffic attached to them. Development of this model will enable us to generate more value for game developers and diversify income sources. for live streamers. Eventually, the smart game distribution system will allow us to unlock higher monetization potential. With respect to the repurchase, on August 30th, we announced a US dollar 100 million share repurchase program for a period of up to 12 months. As of September 30th, 2021, we had repurchased US dollar 4.3 million worth of ADS on the open market. We started the shell repurchase immediately after the announcement and have been actively executing the program. As required by regulation, we have also appointed professional institutions to execute our shell repurchase schedule, subject to current market conditions. We will continue to provide updates on an honest pause in the coming quarters. Thank you.

Thank you, operator. Next question, please.

Thank you. The next question is from Alex Poon of Moving Stanley. Please go ahead.

Hi, thank you for introducing my question. I have two questions. The first question is about our cloud game business. I want to ask about the recent development and future expectations. My first question is regarding our cloud gaming business. Can we get some update and our future expectation for the business? And second question is regarding our overseas business. How's the performance in third quarter and what do we expect going forward? Thank you.

Let me answer your first question about the Cloud Games. After more than a year of collaboration with our partners, web-based product features of our Cloud Games are now largely complete. In the third quarter, we have also continued to update the product features of Cloud Games for the Android mobile platform. We believe that cloud gaming is a new development opportunity for the gaming industry. However, it is at a non-scientific stage limited by a number of issues such as copyright, culture, and game capability. As a game-centric content platform, Douyu is well positioned to capture the opportunities of the development of the cloud gaming industry.

The second question is answered by me. In the current development situation overseas, our strategy is to increase the flow of electricity first, and then to increase the power generation process. In the past few seasons, our domestic business has continued to profit. Our main investment is overseas, especially in the Japanese market. At present, this investment has achieved certain results. Then we are now looking at the live platform of Japanese users, which is in the front row of the mainstream live platform in Japan. Then the overall business is also experiencing this growth and development process. After we take advantage of the traffic in the central countries overseas, we will develop some large-scale telecommunications exploration overseas to enhance the efficiency of this programming. Under the influence of this strategy, the cost of overseas operations in the third quarter is decreasing, and the efficiency of operation is increasing rapidly.

Mr. Chen will address the questions regarding the development of overseas markets. For the overseas market, it's actually our strategy is to acquire the traffic before monetization. Over the past few years, our domestic business in China has been profitable, which means the majority of our investment has been made overseas, especially in Japan. According to App Annie, Meldum has remained the top video game live streaming app in Japan for the last two quarters. And the user size has been developing and sustainable at a very healthy level. Since actually May this year, actually, once we gained the most user size in Japan, we actually prioritized our strategy from user accumulation to traffic monetization. Going forward, we will further enhance monetization capabilities and gradually narrowing our losses. So as such, in the third quarter, we have continued improving our operational efficiency and successfully reduced our losses in the overseas market. Thank you.

Thank you. The next question is from Richie Sun of HSBC. Please go ahead.

什么时候能够对我们看到的MAU 产生一个增量的贡献? Let me translate the question myself. First of all, can you update us on the video and community features? What's the update? And also when does it contribute more in terms of MAU? The second question is, can you comment on the content cost trend in this quarter and how will it trend go into the future? Thank you.

The first question is answered by me. Firstly, regarding the development of video and community business, we are doing a diversified operation of the game based on the advantages of live broadcast business. The most innovative feature of e-sports games is that they have a good content display and a sustainable production demand. The demand for e-sports is very strong, but for non-e-sports games, live streaming is not a very friendly way because it is difficult to continue to produce content. And these non-e-sports games are more suitable for, for example, video, drawing, community activities, doing some industrial education, watching videos, participating in some games. So now we are on the basis of traditional e-sports games, such as video and graphics, and then the community is focusing more on e-sports games and non-commercial e-sports games. And because the live video graphics community is not such a separate relationship, but a mutual existence, we will continue to establish a separate game zone on Douyu for each new game. And the developers will carry out a variety of projects and content from live video and graphics. Mr. Mildred, the first question. As regarding the video content development and community building actually are part of our content diversification strategy. Derived from our competitive strength in

traditional live streaming businesses. The competitive nature of eSports games makes live streaming the ideal distribution channel to present the excitement of the content and ensure the continuous content offering in order to satisfy the viewing needs of eSports users. However, for non-eSports games, live streaming is not the best delivery channel for our users Instead, videographic content and communities are multiple forms of media to provide content such as game guides, tutorials, premium videos, and participation in game-related activities. Therefore, we have and will devote additional resources to videographic content and communities for non-esports games while maintaining our advantages in the traditional esports segment. As you know, live streaming, videography, content, and community are all interconnected as part of our content ecosystem. We aim to create a separate segment for each game on our platform. We will also cooperate with game developers to develop more comprehensive campaigns and quality content in all content formats. We're committed to offering more diversified content to satisfy the various needs of our users, and in turn, to attract and sustain more users to our platform.

About your second question, in Q3 2021, content costs increased on a year-over-year basis, mainly driven by the interspending of casting rights for tournaments. especially LOL. Additionally, we made further investments in PGC content production as we continue to execute our game-centric content strategy. So looking ahead, given that pricing for the rights of major LPL tournaments had already been determined and that we have managed to control the cost of our self-produced programs, we expect costs associated with esports tournaments for passing rights and our self-produced content to remain ready to stay in for the foreseeable future.

Thank you. On behalf of the management, thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you.

Thank you. That concludes the call today. Thank you everyone for attending.