DouYu International Holdings Limited

Thank you and welcome to DOWU International Holdings Limited's first quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. We will be hosting the question and answer session after management's prepared remarks. Please note today's event is being recorded. I would now like to turn the call over to the first speaker today, Ms. Lingling Kong, IR Director at DOWU. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome to our fourth quarter 2022 earnings call. Joining us today are Mr. Xiaojie Chen, Chairman and Chief Executive Officer, Mr. Mingming Su, Chief Strategy Officer, and Mr. Hao Cao, Vice President of Finance. You can refer to our fourth quarter 2022 financial results on our IR website at ir.doe.com. You can also check a replay of this call when it became available in our field hours on our IR website. Before we start, please note that this call may contain forward-looking statements made pursuant to the public provision for the Private Security and Education Reform Act of 1995. These forward-looking statements are based on management, current expectations, and observations that involve known and unknown risks. uncertainties, 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 expressed and qualified in their entirety by the cautionary statement, risk factors, and details of the company's filings with SEC. The company undertakes no duty to revise or update any forward-looking statement for selected events or circumstances after the date of this conference call. I will now speak on behalf of our chairman and CEO, Mr. Xiaojie Chen. During the first quarter, we continued the study development of our OOB business while adjusting our business operations and executing on our selective copyright procurement strategy. Mobile admin use for the quarter was 55.1 million. Total net revenues were RMB 1.8 billion, and quarterly average paying user count reached 6.4 million. Work margins increased to 13.6%, demonstrating the effectiveness of our selective copyright procurement strategy. In addition, our successful implementation of a series of cost control measures has increased our operating efficiency, driving our adjusted net loss down to RMB 52.5 million. During the quarter, our average MAU decreased by 6.8% year-over-year to 55.1 million, a change that within our expectations. We believe that there are two factors at work. First, as we strive to improve operating efficiency by executing on our selective copyright procurement strategy, we have ceased acquiring overpriced copyrights for esports tournaments, which has negatively affected our MAU. However, the level of the decrease was, in fact, better than our expectation. and MAU has stabilized and stayed within a narrow band. Additionally, our data analysis shows that high-quality content from streamers and self-produced tournaments in different game segments successfully attracted new users regardless of the absence of content from selected esports tournaments. Second, the new games that were launched on our platform in 2021 enabled us to continuously increase our MAU, partially offsetting the impact of terminating content rights for selected esports tournaments. Despite the slow pace of the launch of new games last year, we were able to attract and retain new users by offering them high-quality gaming content, deepening our collaboration with game developers, and refining our customized operations for each game. Turning to our content updates. In the fourth quarter, we maintained our effective execution, our strategy of building a game-centric, comprehensive content platform. We further refined our content offerings, integrating live streaming, videos, graphics, and interactive communities for both esports and non-esports categories. while enhancing collaboration and investment in self-produced content. Furthermore, we extended our collaboration with game developers and distributors to secure our advantage in high-quality content and game operations by enhancing the customized and refined operations of different game segments. During the quarter, we increased investment in self-produced content and produced close to 160 esports tournaments. We consistently strive to enhance the value of our self-produced tournaments by developing a centralized production and management process and establishing a diversified tournament content system. By hosting LOL Team Fight Tactics, an official collaboration tournament with Tencent, we have discovered many new gaming talents who eventually became professional players. Among all the major new games launched last year, our self-produced tournament for Naraka Bladepoint was selected by Naive as one of its official tournaments. DOU's LOL Wild Rift Master Legend series was also incorporated into Tencent official professional tournament system. Meanwhile, our self-produced tournaments enabled us to support and cultivate our streamers by providing them with elevated levels of exposure and engagement. As we improved our recruitment and training system for streamers, we are able to not only offer our streamers greater career development opportunities on our platform, but also refer our high-potential streamers to professional esports teams. In addition to our advanced system for in-house tournaments, we enrich our content variety through producing customized entertainment tournaments and shows based on the features of individual game segments and streamers' playing style during holidays, major events, and new game version launches. For example, We self-produced an all-star tournament for LOL, inviting top streamers, and all-commerce recruitment tournaments in different game segments, which encouraged streamers and users to participate. Our differentiated offerings of professional tournaments and entertaining game content fulfills the diversified needs of both hardcore and hardcore gamers. Importantly, we also maintain and grow our production of engaging and novel video content. For example, we produced an innovative variety show called All About Games that evaluates new games during their promotional period. The show's content includes fresh coverage of new games, discussion of training topics, game reviews, and other exclusive features. In addition, we also invited famous streamers and other gaming industry-related guests to participate in the show. Production of this type of content enhanced the community experience as we developed high-quality content to enrich our game segment and boost user engagement. Moreover, we found that game developers were willing to cover some of the production costs of these shows as a new channel of promotion. As a result, we not only built a brand new collaboration model with game developers, but also optimized ROI for those game segments. Turning to our cooperation with game developers and distributors, we continued to deepen our cooperation on monetization front with game developers and distributors. For instance, we launched a variety of promotional activities with both Tencent and NetEase to bolster user activity and encourage users to make in-game purchase by offering task-based rewards of in-game items. Moreover, we are consistently devising and exploring new methods of cooperation with game developers, using Dota 2 as an example. we cooperated with game developers to share partial gaming data, and then employed this data to develop a number of practical functions. These functions include real-time display of streamers' performance, gaming data analysis, and multi-screen broadcasting to allow two streamers' performance in the same game to be viewed simultaneously. Enhancing the display function for analyzing streamers' game strategies allowed us to provide an optimized user experience. Looking ahead, we will further improve our operating efficiency by launching attractive distribution algorithms, which directs appropriate levels of exposure to individual streamers based on historical data. As a game-centric platform, we deliver value to our users through consistent production of high-quality content and our exceptional operational capabilities. Building on our advantage in high-quality content and refined operations, we increase ROI by reducing production costs and operating expenses through self-produced content, utilization of partners' resources, joint operations, and more. Going forward, we will continue to evaluate and execute on potential monetization optimizations while improving our platform's overall operating efficiency by enhancing each game's ROI. Now, turning to monetization. Our total number of paying users in the fourth quarter was 6.4 million, with an average quarterly output of RMB 270. the year-over-year decrease in both the number of paying users and quarterly output, one result of our in-advanced operational adjustment and future updates in anticipation of a tightening regulatory environment. As we continue to develop the paying behavior of our co-users and enhance engagement with more casual and new core gamers through sustainable operating strategies and promotional campaigns, that are customized based on the preference of different groups of paying users, we are able to sustain a stable paying user base and a healthy range for our output. Meanwhile, we persisted in our exploration and development of new revenue streams. For example, following our in-depth analysis of the engagement between streamers and users, we upgraded our membership system called Diamond Fans, offering members with more customized privileges and additional functionalities to interact with streamers. Utilizing our self-produced content with such promotional campaigns, we are able to improve the subscription rate of our membership services in certain game segments. Going forward, We will continue to cultivate and expand our membership program as we leverage games' unique features and our individual streamers' distinctive characteristics. In terms of products and technology, we are continuously developing our game-centric community on the product front to meet our users' growing demand for game tips, guides, and walkthroughs we recently launched an innovative function called Streamers QA and Demonstration. For this function, we carried out big data analysis to gather hot topics from our bullet chat and discussion forum, MISA, and packaged the topic as a series of demonstration tasks for streamers. Streamers then take the task and record themselves answering the questions and demonstrating the game tactics as they stream. Finally, this recorded content can be added into show reviews that are available for users to view on demand. By leveraging natural language processing technology, we are able to understand and extract relevant content from BullyChat. This then allows us to push related show videos to users who are asking similar questions. This streamer-produced show videos further utilize the streamer-generated content and enhance the engagement between streamers and users. To summarize, we have executed a robust and sustainable operating strategy while maintaining our leading position in the traditional live streaming industry. Leveraging our outstanding content management team, comprehensive live streaming resources, and our extensive game operation experience, we are able to consistently upgrade our content offerings and optimize our operational innovations. At the same time, we have deepened our collaboration with game developers in multiple dimensions to provide users with content that seamlessly integrates live streaming, video, graphics, and interactive communities. In addition, we continue to augment our user engagement and consumption capabilities while exploring diversified monetization models and improving our financial performance. 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. During the first quarter, we have been focusing on improving our operating efficiency through ROI enhancement and cost controls and achieved encouraging results. The company's gross margin improved and adjusted net loss narrowed significantly on year-over-year basis. Total net revenues in the first quarter of 2022 decreased by 16.6% year-over-year to RMB 1.8 billion. Left streaming revenues were RMB 1.73 billion, a decrease of 13.6% from RMB 2 billion in same period of 2021. The decrease was due to the implementation of prudent operating strategies, such as adjustments to certain interactive features and the related operational efforts. Considering the tightening regulatory environment, we have been making operational adjustments and the feature updates in advance to comply with regulatory requirements for the long-term development of our platform. As a result of these adjustments, virtual gifting interactions were partially impelled, which caused decreases in both the number of paying users with lower app and quarterly app. Our quarterly app was RMB 270, a 5.5% decrease from RMB 286 in the same period last year. Based on analysis, the size of our core paying users largely remained stable and we continue to stabilize the paying habit of our core users and cultivate the paying willingness of mid to long-tail paying users. Advertising and other revenues were RMB 68.4 million compared with RMB 154.1 million in the same period of 2021. The year-over-year decrease was primarily attributable to the continued exploration of new commercialization models by using a portion of advertising traffic that could have been directly monetized as well as the soft demand for advertising caused by macro challenges and regulations aimed at gaming industry. Cost of revenues in the first quarter of 2022 was RMB 1.55 billion, a decrease of 18% compared with RMB 1.89 billion in the same period of 2021. Revenue share fees and the content costs decreased 19.2% to RMB 1.34 billion from RMB 1.66 billion in the same period of 2021. The decrease was mainly due to the decrease in revenue share fees, which is in line with the decreased live streaming revenues and the significant decrease in the cost of broadcasting rights as we seized acquiring overpriced content rights for esports tournaments and our selective copyright procurement strategy. Other content costs also show a year-over-year decline as we continue to optimize in-house content production efficiency. Bandwidth costs in the first quarter of 2022 decreased by 11.8% to RMB 151.9 million from RMB 172.1 million in the same period of 2021. The decrease was mainly due to the year-over-year reduction in peak bandwidth usage in absence of purchased eSports tournament copyright, given our bandwidth costs are generally built based on peak bandwidth usage. Meanwhile, the lower per unit bandwidth costs which benefited from our improved procurement efficiency with major suppliers also contributed to the decrease in bandwidth costs. Cost profit in the first quarter of 2022 was RMB 243.8 million, compared with RMB 260.2 million in the same period of 2021. Gross margin in the first quarter of 2022 improved to 13.6% from 12.1% in the same period of 2021. This margin improvement was primarily due to the significant decrease in the cost of forecasting rights as a percentage of revenues as we ceased acquiring overpriced content rights for eSports tournaments. Sales and marketing expenses in the first quarter of 2022 were RMB 186.4 million, a decrease of 11.2% from RMB 209.9 million in the same period of 2021, which was mainly attributable to the decreased personnel related expenses and branding expenses. Research and development expenses in the first quarter of 2022 were RMB 116.3 million, representing an increase of 4.5% from RMB 111.3 million in the same period of 2021. The increase was primarily attributable to additional investment in technical personnel as the company continues to invest in product upgrades to support its game-centric content strategy. General and administrative expenses in the first quarter of 2022 were RMB 90.1 million, increasing by 2.3% from RMB 88.1 million in the same period of 2021. Adjusted operating loss in the first quarter of 2022 which aspect share based compensation expenses was RMB 68 million compared with RMB 91.8 million in the same period of 2021. Net loss in the first quarter of 2022 was RMB 86.9 million compared with RMB 101.8 million in the same period of 2021. Adjusting net loss in the first quarter of 2022, which excludes share based compensation expenses, share for loss in equity method investments and impairment loss of investments was RMB 52.5 million compared with RMB 70.7 million in the same period of 2021. For the first quarter of 2022, basic undiluted net loss per ADS were RMB 0.27 and RMB 0.27, respectively, while adjusted basic undiluted net loss per ADS were RMB 0.16 and RMB 0.16, respectively. As of March 31, 2022, the company had cash and cash equivalents, restricted cash, short-term and long-term bank deposits of RMB 6,315 million, compared with RMB 6,643 million as of December 31, 2021. We would also like to provide an update on execution of our share repurchase program announced on August 30th, 2021, in which the company may repurchase up to US dollar 100 million of its shares until August 2022. As of March 31st, 2022, the company had repurchased an aggregate of US dollar 33.9 million worth of each ADS under this program. Going forward, we will continue to increase operating efficiency as our top priority in order to reach non-gap-break-even binary losses through cost optimization and improvement of monetization efficiency. Along with the continued improvement of our overall ROIs. We will continue enhancing our monetization capabilities to explore sustainable development of our platform. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you. We will now conduct a question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press 1000-2. Today's first question comes from Lei Zhang with Bank of America Merrill Lynch. Please go ahead.

Hi, good evening. Thank you for accepting my question. And then my question is mainly about the recent monitoring environment. We also saw some policies in March. It's some of the so-called news about the reward limit for this live broadcast. And then there were some restrictions like this PK and list. And so I would like to ask the management to share. It is a policy view of the entire monitoring department on the live broadcast and live broadcast environment. Thank you for taking my question. My question is mainly regarding recent regulatory changes. We saw some news regarding the tipping cap and the regulator also launched the restrictions in ranking and the PTA activities. So could you please share with us your view on overall regulatory environment in China and how should we look at the impact to our business? Thank you.

Let me answer your question. There is ongoing development of regulatory guidelines for the live screening industry. encouraging industrial players to properly implement mirrors and refine operations to comply with regulatory requirements. As of today, there is no specific tipping limit mentioned in the recently announced regulatory notice. Despite that, we have been making operational adjustments and feature updates. This year, we are adopting a more prudent operational standard and stricter internal review policies to improve our platform's community building and to promote the long-term development of our platform. In addition, in late April and early May, we implemented a series of measures on our platform to promote rational consumption of our users. These measures include setting up a keeping limit for a signal transaction on virtual gifts and pop-ups requesting a second confirmation for each transaction. We have projected the financial impact of such adjustments in our 2022 forecast. Policies regarding the live streaming industry announced in March were a restatement of previous policies. The policies are related to unlicensed games, gaming content, rules that streamers need to follow, and protection of minors. We have been adjusting our operations accordingly on these four fronts. Take unlicensed games, for example. We have been gradually redirecting traffic and streamers to license games of similar genres since the third quarter of 2021 to ensure proper traffic allocation between different game segments and to maintain streamer income levels and their willingness to stream. The impact of this adjustment was reflected in our past quarter's performance. Regarding appropriate creator content and minor protection, we have a container review system, streamer management system, and a teenager mode that are continuously evolving as the industry develops. We are carefully monitoring any regulatory changes and maintain close communications with regulatory departments. we will be able to react properly in the event of any changes. Thank you.

Yeah, thank you. Very helpful.

Thank you. Our next question today comes from Thomas Chong at Jefferies. Please go ahead.

Good evening. Thank you for introducing my question. My question is about our copyright acquisition. After we make the strategic adjustment, will it affect the operation of our platform and our competitive advantage? My second question is also about copyright. If it is the source of our platform's anchor, will it affect the stability? Thank you very much.

This is a very important point. In terms of content, we used to use live streaming as the main form. Now, we are expanding the video and community forms on live streaming to meet the needs of the users. Although we have now given up the purchase of high-end copyrighted games, we are still considering the purchase of games with higher cost-effectiveness. For the market that has already purchased the copyrights, we have also surrounded the market with a variety of interactions such as live broadcasts, video content, and discussion on social media. This increases the overall activity of the market and attracts some new users. Then we use the KPL market as an example. We have also surrounded the KPL with the creation of a variety of private programs to explore more and more positive commercial cooperation with the market to improve the investment return rate of the market copyrights. At the same time, we have also increased our investment in our own content. For traditional video games, we are also actively creating competitive games and content for some amateur players, ensuring that the content of our platform can continue to have content like this. It also promotes some feedback from game users. For some new games, we continue to recruit and train a large number of new owners to ensure the content of the game. We are also supplementing and enriching other content related to PTC and UEC. so that the live broadcast and video content can be linked to the community, and can attract more users through diversified content. On the other hand, we also emphasize the deep cooperation between developers and developers. In other words, our cooperation is not only in terms of content creation, but also involves some game promotion strategies determined by game developers, and helps game manufacturers to make game reservations, and to develop some new modes, such as game props for sale, Thank you. Thank you. I will first.

I will first translate Thomas' question. Sorry, can you hear me?

Yes, we can hear you.

I will first translate Thomas' question. Thomas' question is regarding the changes in our corporate procurement strategy. What will happen after the change of procurement strategy in the absence of large-scale export tournaments? How the company will adjust its operations to ensure the advantages in content as well as in operations? The second question is regarding And will the shift in the copyright procurement strategy put an impact on the sustainability of our platform's streamers' resources? I will first address the first question from Mr. Chen. First, we adjusted our strategy to selectively purchase copyrights not only because Some of the content is overpriced, but also as an operational adjustment in reaction to the changes in the game live streaming industry. Our industry has already transitioned from competition in game live streaming to gaming content. While users face more and more varying options, we believe differentiated content and refined operations are the key to our platform's healthy and sustainable growth. On the content front, we extended our offerings from live streaming to videos and communities, integrating various content to meet our users' diverse needs. Although we decide not to obtain selected overpriced content rights, we continue to purchase cost-effective content rights for certain tournaments. For the purchased content, we are integrating official tournaments with our live streaming, videos, graphics, operating activities, and community discussion to increase user engagement and attract users. For example, we have launched multiple self-produced shows for the purchased KPL tournament. And we are actively exploring more collaborations with game developers, to enhance the ROI for this copyright. Meanwhile, we increased our investment in self-produced content. For traditional eSports games, we have been hosting tournaments for professionals and amateurs and are able to ensure a consistent supply of high-quality content while remaining the stability of our platform traffic and increasing users' retention rate. For new games, On one hand, we recruit and cultivate large quantities of new streamers to ensure content supply. On the other hand, we enrich our content offerings by producing more diverse PGC and UGC content. Leveraging our integration of live streaming video content and community interactions, we are able to attract more users with our diverse content offerings. On the operation front, we are deepening our cooperation with game developers and distributors beyond content production. Our cooperation includes assisting game distributors to find appropriate marketing strategies, discovering professional game players for both game developers and distributors, developing new sales models for in-game items, leveraging data sharing between games and our platform, to improve our user live streaming experience and more. For example, for the upcoming game LOL Esports Manager developed by ROID Games, we actually partnered with a game developer to promote the game pre-registration and lead to a high number of pre-registrations before the game is officially released. Thank you. That's a first question.

As to the second question about the validation of the streamer resources, we have further stabilized and enhanced our streamer resources by signing long-term and exclusive collaboration agreements with our premium streamers, followed by the support from game developers and distributors. These agreements bind top streamers to our platform and prevent them from switching between different platforms. helping us to build and maintain a competitive edge. Second, the MAUs impacted by our copyright strategy adjustments was generated by users who mainly view official tournaments other than streamers' live streaming content. Therefore, traffic generated by streamers was not significantly impacted by our selective copyright procurement strategy. I'd like to emphasize that Our relationship with streamers is not limited to cooperation agreements We also deepened our collaboration with streamers and enhanced operations in the following ways First of all, in terms of our overall operating strategies for streamers we continued to offer high quality content and opportunities for users to interact with streamers while maintaining or improving both the level of engagement and streamers' willingness to stream. For example, we collaborated with Tencent Video to hold the League of Legends gala. We invited top-tier streamers to watch the gala and interact with users in our self-produced shows, thus creating a second layer of promotion on the platform. As a result, The level of engagement in the LOL game segment was boosted significantly as evidenced by the increases in the viewing hours of top streamers' live streaming sessions and interactions on related topics in our community channel Meanwhile, we further explored streamer commercialization opportunities For example, we recently upgraded our membership system, Buy My Phones offering users with more customized privilege and additional functionalities to interact with streamers as a result interactions between streamers and the users increased and streamers gained more diverse source of income further deepening their bound to the platform second we leverage big data analysis to refine and enhance our operations For example, we motivated mid-tier and long-tail streamers to remain active by directing appropriate traffic to them and increase their involvement and exposure on our platform by engaging them in our self-produced tournaments. Therefore, our mid-tier and long-tail streamers are able to earn a competitive income. We believe Those streamers are highly speaking to our platform and expect to attract more talented and high potential streamers to livestream our platform. All in all, our platform streamers are the foundation of our high quality content. We have a comprehensive streamer resources management system, which includes recruitment, training, management, and collaborations. Our system increases streamers' willingness to stream and ensures that they receive a reasonable income. Meanwhile, as we have continued to refine our operations, we have deepened our relationships with our streamers. Thank you.

And our next question today comes from Yiwen Zeng with China Renaissance. Please go ahead.

Good evening, Mr. Guo. Thank you for your question. I have two questions here. First, as we mentioned in the Preparation Remarks, in 2021, there will be a very successful user, and then there will be users left behind. Can you give us a detailed introduction to the operating results? At the same time, do you want to restore the impact on the company? This is the first question. The second question is about the possibility of a more commercialized exploration. Thank you for taking my question. So I have two questions. you mentioned that 2021 newly released title have successfully attracted and retained new users. Can you elaborate more on the operation of and also meanwhile, I want to check the license approval assumption, what's the impact on our operation? And secondly, you mentioned we are exploring a more diversified monetization model. Can you discuss more about the direction we're exploring? What's the progress and our expectation for the future? Thank you.

Let me answer your two questions. For your first question about new games, it's well known that new games were released at a slow pace last year, even with fewer blockbuster games such as On Our Kings and Peacekeeper, leading to a limited new user growth on our platform. Against this backdrop, we created a rich content system that integrates live streaming, video content, and graphics, which underpins our diversified game segment operations. We have also achieved promising results by implementing a sophisticated operating strategy and successfully building and developing new game segments. Let me share some of the achievements of the new games launched in 2021. For Narco Black Point launched in July, our users engagement remained robust as a result of our efforts in recruiting and training new streamers and producing related tournaments and shows. Total viewing time for Naraka Black Point was ranked within the top 10 games on our platform for three consecutive quarters, and its traffic ranking also steadily moved up on our platform. For LOL Mobile launched in November, the upgraded membership system Diamond 5 targeting our core user base was well received and contributed to a healthy quarter-over-quarter revenue increase in this game segment. Looking into 2022, we will focus on bettering operating efficiency for each game segment as part of our KPI and evaluate the ROI on a real-time basis, especially for those new game segments to ensure the effectiveness of ROI improvement. At the same time, we were very pleased to see that approvals for new games resumed. We consider this to be a signal that it's not the quantity of games released that is important, it is the quantity. This also shows that the gaming industry is changing in the direction of severing diversity and quantity. We believe that this is beneficial for the gaming industry in the long run, and of course for us as well. As a game thinker, integrated content platform. High-quality games and their users are the most important resources for our content generation and user growth. Based on ongoing changes in the gaming industry, we upgraded our strategy to build a game-centric content platform and refined our operations. We also expanded our coverage of game generals to serve more varied user cohorts. At the same time, by leveraging our experience of new games operations, we expect to generate more traffic for our platform for more upcoming new game releases. And for your second question about commercialization, we are always exploring new commercialization models Let's take a look at some examples. In terms of advertising models, our previously mentioned smart distribution system is our innovation on traditional direct response advertising and display advertising. Our smart distribution system platform enables game developers to release promotional tasks while connecting streamers to choose their preferred method for promoting games. Our primary aim is to improve the effectiveness of advertising by increasing the number of downloads and activations through this system. Due to the delay in new game approvals, this project is proceeding relatively slowly. However, we expect that our smart distribution system will augment our advertising efforts once the release of licenses for new games resumes. Turning to virtual gifting, the traditional TP model generates revenue from interactions between streamers and users. As part of our development of new commercialization channels, we are currently optimizing our membership system to increase shipping revenue. For this purpose, we have enhanced our membership system and encouraged our users to subscribe to become Streamer Diamond fans. Under this new system, Users can receive more value-added service and gain more opportunities to interact with streamers on the Dive World gaming scenarios. Streamers will provide exclusive in-game advice, service, and rewards for Diamond fans users. In LL, Order of Kings, Crossfire, Peacekeeper, and other game segments, our Diamond fans membership service has already achieved promising results. By the end of March, the number of membership subscriptions in these game segments increased by more than 50% from the end of December last year. The revenue we generated from the new membership services also increased significantly quarter over quarter. Thank you.

Thank you. Our next question today comes from Alex Poon and Morgan Stanley. Please go ahead.

Good evening. Thank you for accepting my question. My question is also about the adjustment of the copyright. I see that the number of users in the first quarter has decreased. Can you introduce the adjustment of the copyright for users and their behavior? My question is related to content, our strategy change. Can management explain the change, the impact on user skill and their behavior, their engagement so far, and then what should we expect for future? Thank you.

In fact, the copyright issue that I just mentioned has an impact on the overall MAU. When we implemented the option to purchase the copyright of the competition, we gave up on the high-priced competition rights. But before we made this decision, there was a certain expectation that the MAU of the platform would have some effects. So we did a lot of work on stable traffic, such as adding some self-made content to the competition. The final data changes are better than what we expected. After we gave up the purchase of some versions, we continued to track and analyze the data. Then we found that most of the MAU platforms that were lost were mainly used to watch the matches. But the users who mainly watched the live broadcast content had higher storage, longer viewing times, and more users. The content of the high-quality live broadcast is very sticky. At present, our live broadcast structure is relatively stable. Then we also looked at their viewing, our users' viewing market and interaction data. The ratio seems to be stable, with the most obvious, for example, the Eagle Alliance branch as an example, in the case of no LPL copyright, the overall viewing market of the main country content and the overall viewing market of the main country content is still growing, and there is an improvement. Another one is that we also emphasize that we give up buying some copyrights that are too high, but it does not mean that we will reduce the content investment of the platform. Thank you, Alex.

As we mentioned previously, we executed our selective corporate procurement strategy and ceased acquiring overpriced content rights for certain esports tournaments. We anticipate the decrease in MAU under this strategy and devised a series of measures in advance, such as increasing investment in self-produced content in order to stabilize our traffic. The results were positive and reflected the effectiveness of our operations. NAU were, in fact, better than our projections. Also, we kept tracking data and analyzed the impact of our strategy of seizing acquisition of those overpriced companies. Our data showed that most of the traffic we lost are those who primarily viewed tournaments on our platform. On the other hand, most of our weekend traffic was contributed by users who watched our live streaming content in a long-term, continuous, and stable fashion. This large quantity of high-quality users are characterized by their high retention rates, longer viewing hours, and stickiness to high-quality live streaming content. Having a steady stream of resources has allowed us to stabilize user viewing time and interactions on our platform on a quarter-over-quarter basis. Using our LOL segment as an example, despite the absence of LPL copyright, MEU generated by streamer-generated content and its total viewing hours still increased on a quarter-over-quarter basis. As we emphasized earlier, terminating our acquisition of overpriced copyright does not imply that we will decrease our investment in content. We actually self-produced close to 160 tournaments during the quarter. For those game segments where we did not purchase copyright of official tournaments, we continue to deliver high-quality self-produced and streamer content. Thank you.

Thank you. And our next question today comes from Richie Sun at HSBC. Please go ahead.

Good evening, Mr. Wang. Thank you for accepting my question. My question is mainly about cost. I see that the cost of your business is actually different. For example, distribution ratio, cost of labor, and labor cost, R&D, etc. are all famous. So can management talk about the cost declined? across the lines by revenue sharing, content costs, sales and marketing, these type of lines, and can you better explain what will attribute to those declines and how much of the decline comes from license content savings, and how should we assess the full year trend in terms of these costs? Thank you.

The decrease in cost of revenues is mainly attributable to a 19.2% year-over-year decrease in revenue share fees and content costs. Revenue share fees decreased in line with the decrease in live streaming revenues. Our overall revenue share ratio remained stable. The decrease in content costs mainly resulted from lower copyright fees. optimization of streamer payroll and a reduction in self-produced content cost. Reduction in copyright costs was mainly the result of us seizing acquisition of selected large-scale tournament content rights such as LPL. In terms of streamer payroll, we have optimized our streamer resources in certain game segments leading to a significant year-over-year decrease in the first quarter. On the self-produced content front, we have utilized a variety of methods to reduce our costs, such as utilization of partners' resources and joint operations. As a result, we were able to launch more self-produced tournaments while lowering production costs on a year-over-year basis. Looking ahead, we will prudently evaluate our procurement decisions for large-scale tournaments, optimize our streamer payroll structure, and increase our investment in self-produced tournaments and PGC content, for which we will control the related production costs. We expect a degree of decrease in our content costs this year. Overall, we expect our gross margin will improve at a modest pace for the year 2022. Thank you. Thank you.

That's all the time we have for questions. I will now turn the call back over to management for closing remarks.

Thank you for joining our call today. We look forward to speaking with everyone next quarter.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.