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spk06: Thank you for standing by and welcome to the IKE second quarter 2024 earnings conference call. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand you over to the conference to Ms. Cheng Yu, IR Director of the company. Please go ahead.
spk07: Thank you, Accord Raider. Hello, everyone, and thank you for joining ITE's second quarter 2024 earnings conference call. The company's results were released earlier today and are available on the company's investor relations website at ir.ite.com. On the call today are Mr. Yu Gong, our founder, director, and CEO, Mr. Jun Wang, our CFO, Mr. Xia Hui Wang, our CCO, chief content officer, Mr. Youqiao Duan, senior vice president of our membership business, and Mr. Xiang Baiyang, Senior Vice President of Movies and Overseas Business. Mr. Gong will give a brief overview of the company's business operations and highlights, followed by Jun, who will go through the financials. After the prepared remarks, the management team will participate in the Q&A session. Before we proceed, please note that the discussion today will contain forward-looking statements. made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. ITE does not undertake any obligation to update any forward-looking statement except as required under applicable law. I will now pass on to Mr. Gong. Please go ahead.
spk05: Hello, everyone. Thank you for joining us today. In the second corner, we saw intense competition for top content. While we held a series of diversified streaming content, certain titles did not met our high expectations, putting pressure on our financial results. After a good deal of hard work, we have overcome the short-term fluctuation in our content-led performance. As a matter of fact, we view the wide-ranged competition within the long-term video centers as constructive, which has enhanced its appeal over other entertainment formats and also private as a valuable opportunity to review and refine our tactics. It helps us gain a better understanding of user preference and improve our business for future growth. We firmly believe that, ultimately, success in the long-term video business depends on the stable supply of premium content. and the ability to achieve balance in both content quality and commercial benefits. With this in mind, our goal is to further improve the overall success rate of our content portfolio, and more importantly, the stability of content performance. In fact, as the summer season unfolds, Our premium content has gained strong momentum. The release of acclaimed titles such as Interlaced Sins and Strange Tales of Tang Dynasty Season Two has boosted our key operating metrics and brought us back to the leading spot in terms of market share in the key drama category in July. according to enlightened data. Notably, the second season of Strange Tales of Pond Dynasty becomes the 14th drama to break our popularity index score of 10,000 for IT, in addition to delivering high-quality content, providing great user experience, stands as another cornerstone of our business. As we remain committed in enhancing member benefits, we are also refining our content distribution algorithm to bring free user superior viewer experience while balancing commercial performance. Looking ahead, we are investing in multiple areas to drive the company's long-term sustainable growth. Firstly, we are intensively applying AI to improve content creation, operational efficiency, and user experience. Secondly, we will further enhance our domestic business while expanding our footprint in broader overseas markets. Thirdly, we are using IT content influence and its IP portfolio to explore revenue opportunities beyond membership and advertisement, such as IPs, diverse TVs, derivatives, and offline experiences. These initiatives align perfectly with our core values, which center on maximizing Our IP values in technical innovation and content creativity setting the stage for an exciting future. Now let's move on to the performance of our core business segments, starting with membership services. Our primary goal for membership services remains on driving sustainable long-term revenue growth. through top-notch content and superior user experience. In the second quarter, membership revenue was down 9% annually, primarily due to fluctuations in our content-based performance, causing the attrition of pre-titled Cleveland members, and the high-faith effect from last year's mega-hit, the NOHOT, on both deadly year-over-year. This was partially fueled by our disciplined pricing strategy as we scaled back on the overall promotions and discounts. Our enhanced member benefits also played a major role, effectively encouraging members to sign up for higher plans. Furthermore, we noticed Innovative, well-added services drove users' willingness to pay. Notably, we launched an express package for 10 drummers in the second quarter and garnered the highest number of cash purchases. Following the success in drummer categories, we plan to expand the express package to other content categories such as variety shows and animations. We remain confident in the long-term outlook of our membership business, which is supported by several key factors. Firstly, we have successfully built a solid foundation of lawyer safety members. Secondly, content remains a primary driver of our membership growth. and we are in the middle of introducing more diversified premium content to encourage broader user cohorts. Furthermore, we are committed to enhancing our operational strategy to improve membership acquisition and retention. Initiatives include reaching broader demographic growth by expanding our sales channel and utilizing wide-route social marketing. Two, improving conversation rates by launching marketing initiatives directly tied to popular content of the season, such as IP-based member packages. Express package. and countries see a current program. Number three, providing value for many services to long-term and high tier plan subscribers. That has inclusive offline events. In the second quarter, we organized 17 offline events and received positive member feedback. building on the strong user reception from last year. Our annual offline flagship event, the 2024 ITU Screen Night is set for its comeback on December 7th this year in Macao. The perceived value of our members was even further amplified by our very first July 17th IT Member Festival. Through this event, we offered appealing membership discounts and hosted a 7-hour live broadcasting to promote over 530 titles in our content pipeline. More than 40 celebrities anticipated the live streaming event and generated over 30 million views. In the future, in July, the 17th ITE Membership Festival is set to be an annual event exclusive to our members. It is an event to discover attractive deals and enjoy exciting activities. This festival will not only underscore the substantial value we provide to our members, but will also serve as a key opportunity to boost our brand's influence. Moving on to content. We have overcome the short-term fluctuation in the content set's late performance in Q2 and learned a lot from this short-term setback. Through the in-depth analysis of the overall project, we have gained valuable insights that are set to guide our content creation and operation in the future. Firstly, with respect to content creation, we will craft more and higher quality content that meets the appetite of mainstream audiences. In particular, we plan to broaden our portfolio with offerings that especially appeal to our female audience to maintain of age in the constantly evolving field of content creation. We aim to further enhance our ability to tap into popular social trends, thereby producing content that establishes a deeper connection with our audiences. We will embrace a more innovative a step in our casting and script selection process aiming to transcend the limits of traditional storage powering. Secondly, regarding content scaling, we will closely monitor our user trends and adopt a dynamic scaling strategy that is guided by user engagement and retention. This approach ensure that our content rollout is optimally timed to align with our audiences' preferences and view habits. Thirdly, in terms of managing our in-house studios, we are committed to enhancing the efficiency and effectiveness of our operation nodes at each key stage of the creative process. Our aim is to cultivate a more proactive cultural amount of talent, ensure they have ample freedom to fully unleash their artistic skills, and foster an environment where creativity can thrive. Moving on to the detailed content performance in the second corner. For drummers, our leadership in The reality and suspense genres remain unchallenged. Our original drama, To the Bounder, was a la carte, perfectly demonstrated our success in blending artistic merits and commercial benefits, generating exceptional performance across all metrics. crisis shows remarkable long-term effect with its influence extended well beyond the online domain as it boosts tourism to its filming location in Xinjiang to effectively extend the vitality of the IP, we worked with creative teams to host an open-field concert in Xinjiang in July, which was widely acclaimed by users, sponsors, and the local culture and tourism bureaus. In addition, we further solidified our position as the go-to platform for the suspense genre by launching drummers Tian Zouwan and Lost in the Shadows under all light and shelter brands. With movies, we continued to outperform our peers according to patent viewership data. In the second quarter, we launched a total of 15 key titles in our movie channel, including multiple box office. a hit set such as Article 20 , and Pegasus 2 . In our cloud cinema, we launched 21 titles covering the latest and most popular self-article releases, such as a false opus of a grouse in yellow . For original movies, we released Various genres such as disaster comedy are promising future Qian Lu Hai Yang and suspense crime suspect Chao Yi Shen Tan. For variety shows, our two flagship shows returned with the new season, namely the detective adventure season four, Meng Tan, and the wrap of China, of which continued to be well-recognized by advertisers. The Rep of China 2024 also generated considerable membership revenues. For animations, we continued to invest in original Chinese animation and began to see encouraging initial results with enhanced in-house production capabilities. How dare you serve as a perfect example? As it hit multiple records for IT original animations, it is our first original animation to break our popularity index of 5,000. its revenue and new user acquisition also reached new highs. As we enter the summer vacation season, which is a critical broadcasting window for online video platforms, we are excited that our premium content has helped us regain market leadership. We roll out premium content in both ancient and modern genres. to appear to a wide audience with a particular focus on young viewers who have more free time to enjoy our offering during their holiday. So far, Strange Tales of Tang Dynasty Season Two and A Lonely Harem Journey, who go well received by audiences. Additionally, In the suspense genre, the drama interlaced scenes for the young one, Jiuhu de Qiancaiguan, how both showcased a strong user engagement. Notably, strange tales of Tom Dennis returned for its second season, showcasing remarkable quality that has led it to break IT's popularity index score of 10,000. The acclaimed serials have demonstrated a pronounced long-tail effect. The second season is substantially amplified by the user timestamp and the membership value generated by the first season, increasing them by about 6-fold and 10-fold respectively. This drama also serves as an excellent example of our serialized approach to IP development. Encouraged by the success of the first two seasons, production for the third season is set to begin shortly. Additionally, the IP starts to generate the worst revenue streams as its influence now spreads into offline domains. including entertainment, tourism, and consumer foods. In a strategic move to capitalize on this success, we have launched an IP-based VR software in key cities such as Beijing, Shenzhen, and Xi'an. This initiative aims to broaden the impact and the presence of our original content extending beyond traditional screens. Beyond dramas, creativity is expanding into new categories. 10 days, a brand new original IT virtual IP has gathered users' praise for its innovative format and recorded a peak IT popularity index score of over Additionally, the king of stand-up comedy, Xi Juzhuang's Zhang Kouji, marked iQIYI's first exploration into stand-up comedy. The show has received encouraging initial feedback, standing out among the comedy variety offerings this summer. Moving on to our content timeline for dramas, we expect the as the ability of proving content supply to be meaningfully enhanced. Meanwhile, we are fast tracking the productions of Asian custom idol dramas and modern idol dramas, both targeting female audiences. Some of the much anticipated works in this genre include Go East, Sufangguan, A Moment But Forever, 年无霜, Love Song in Winter, 冬至, Snowy Night, Timeless Love, 七夜雪, Founts of Fortune, 大梦归零, 暮 in Breezer, 白月繁星, and the Love of a Divided Tree. 仙台有数, in the rural estate, and the suspense category, audiences can anticipate it as a diversified content offering, including Born to Be the One, Farin Ge, Northworld, Baichang, The Fairness Season 2, Wu Suowei Qu Art, Justifiable Defense, Zhengdao Huang Wei, For movies, we will release more diversified self-article hits on our platform. Additionally, self-produced IT alternative fields are expected to be released in Delta, including GIMP, Pinot, and a frozen drink, Yi Xue Qian Chi. For our variety shows lineup, we plan to release a greater number of titles in the second half of the year compared to the first. Building on the momentum of 10 days and the theme of the Center of Common Days, we are preparing to launch more innovative shows, including The Moon is Shining, Yangshuo the Yue, which is set to release later this month. Moving on to animation, we expect to see a surge in titles during the second half of the year, with increased diversification in general. We plan to launch eight to 14 additional seasons of key original works compared to the first half. Alongside How Dare You with Cheng Li Tong, We have also launched the final deco, The Legend of Kai's Lord, Shenwu Tianzun, and A Moment But Forever, which shares its IP with an upcoming genre series of the same name. The action package, anime, super cute, extraordinary chapter, Chao Deng Li Feng, Chao Fan Pian, is also set to release soon. On a separate note, IT has become one of the key content sources for traditional TV media, covering outlets such as CCTV, satellite TV, and regional TV stations, thanks to our enhanced offerings of original content. In just the first half of 2021 alone, we have distributed about 50 drama serials reinforcing the long-tail effect of streaming content. The value of our IP has been even further unleashed by exploring diversified monetization streams. For example, franchising revenue from the dramas, false spirit matchmakers, random packs, Wu Yao, Xiao Hong, Yang Yu, Hong Pian, reached a new high for IT original programmers. We have also worked with established TWI brands for IP licensing, drawing product, customization, and marketing. Moving on to the advertising business. In the second quarter, total revenue was RMB 1.5 billion, down 2% year-over-year. Performance has remained as a highlight of the quarter, growing at a healthy rate year-over-year. Key sectors such as e-commerce and internet services demonstrated solid performance, with e-commerce revenue from the June 18th Shopping Festival growing 80% annually, and revenue from Internet services growing 30% annually. The solid result in performance is also a fair reflection of our technical advancement. Some upgraded ad placement mechanisms and reinforced smart bidding algorithms we have further enhanced the monetization efficiency of traffic and the ROI for our clients. Additionally, our AI tools now cover broader industries, enabling more efficient ad production and driving AI power at revenue by 150% sequentially. For brand ads, revenue was down annually, mainly due to fewer variety shows launched. Despite that, our premium content continued to attract brand advertisers, with 59% of the revenue stemming from content-targeted ads. In particular, Our major drummers achieved notably double-digit annual growth in revenue. The performance of the June 18th Shopping Festival was also in line with our expectations. Moving on to technology and the products, we remain committed in advancing technology innovation. As is crucial in improving content production, user experience and operational efficiency. For example, all virtual production technologies used to be limited to fantasy genres. This quarter marked an exciting brief soon as we successfully extended its application into new territory, deploying it within the reality-themed drama for the first time. We have also made meaningful progress with our in-house pre-virtualization technology. This tool allows for rapid design and virtualization of scenes and shots before actual filming begins. We have applied this across multiple flagship projects, and it has led to a large increase in production efficiency. Our in-house development platform continues to demonstrate its power. Our in-house IT content management system has been in operation for over two years. Data-driven system provides substantial support to management team and producers in project managing effectively, elevates content quality and success rate. Now this management system has covered all our projects in drama, movie, and animation. Another high efficient system is our intelligent production management system which is widely used by production crews for diverse on-site tasks, equipping them with frontline production tools and production management capabilities. In the second quarter alone, 21 drummers adopted the system. Today, to date, This system has been used in 67 IT dramas and gained widespread recognition for its effectiveness. In addition, we have expanded the use of AI across various aspects, covering project assessments, creativity, marketing, and distribution. This broad application has meaningfully enhanced the content production and operational efficiencies. For example, AI has supported revenue forecasting and decision-making during initial phase of product development. AI also drives our advertising innovation for focus spirit market maker revenue pack. we integrated virtual characters and scenes into ad materials, substantially increasing ad custom outcomes. This new ad format was welcomed by advertisers and opened up a whole possibility. For content marketing, we have employed AI among model models to analyze and plot information and generate key marketing points to improve marketing efficiency. Finally, for our business outperforms in regions outside of mainland China. Over the second quarter, sustained solid performance in our overseas business, with both total revenues and membership revenues continuing to grow annually and sequentially. The influence from C-Drama and IT's original content continues to strengthen, evidenced by the 30% annual increased in membership revenue from Top Thief drummers during the quarter. All localization attempts have also started to build up. The accumulated number of views of our original Thai drummers might stand in. ranked first in a number of markets, including the U.S., Canada, and the U.K. We have also made solid progress in admissions. How Dare You has attained remarkable viewership and revenue on our overseas site, reached a historical high among all IT or traditional Chinese admissions, and even outperformed top Japanese animation in several countries. Leveraging our premium content, we have expanded local partnership to boost global penetration and monetization. Our efforts include depending collaboration with telecom operators in overseas markets to enrich Punggol products and strengthen promotional activities. For example, we have partnered with IT Satellite, one of the largest telecom companies in the Middle Eastern and North African markets, to stream ITS content on their OTT platform. This partnership will further enhance the influence of C-Drama VR beyond the Asian market. In the future, we will continue to enhance the influence of the IT brand overseas with premium CPOP content in key markets, accelerate production of local content, explore diversified IP monetization opportunities. In summary, looking ahead, we are dedicated to pursuing our long-term growth with a sustainable approach. We will grow out more diversified premium content, apply innovative technologies more extensively, and continue to enhance our teams creativity, and exact rotation capabilities. With that, we believe the flywheel effect of IT content ecosystem will drive our long-term growth. Now, let me pass on to Jun to go through our financial performance. Thanks, Mr. Gong, and hello, everyone. Let me walk you through the key numbers. In the second quarter, the total revenues were RMB $7.4 billion, down 5% annually. The membership services revenue reached RMB $4.5 billion, down 9% annually, primarily due to fluctuations in accountancy performance as previously discussed. For online advertising, revenues decreased by 2% year-over-year to RMB $1.5 billion, This was primarily due to the decrease in brand ad businesses, which, again, is due to the decrease of the variety shows we had during the quarter. But the results were partially offset by the healthy growth of the performance ad businesses. Content distribution revenue reached RMB 698 million and grew 2% annually. Other revenues increased by 16% annually to RMB $784 million, partially driven by the increase of revenue derived from the payment agency services and the third-party cooperation. Moving on to costs and expenses. Counting costs was RMB $4.1 billion, down 2% annually. Total operating expenses were RMB 1.4 billion flat annually. This was in line with our discipline marketing spending strategy. Turning to profits and cash flow, The non-GAAP operating income was RMB 501 million and its corresponding margin was 7%. The operating cash flow totaled RMB 411 million and remained positive for nine consecutive quarters. As of the end of the second quarter, we had cash, cash equivalents, short-term investments, and long-term restricted cash included in prepayments and other assets, totaling RMB 8.6 billion. We have provenly managed our financial resources, striving to improve the overall health of our business and to optimize the financial leverage of our balance sheet. In August, we have completed the repurchase rights offer for our convertible notes through 2026. An aggregate principal amount of US$395 million was validly surrendered and repurchased, and only 157,000 aggregate principal amounts of the notes remain outstanding. For detailed financial data, please refer to our press release on our IR website. I will now open the floor for Q&A.
spk06: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. Please limit your questions to one at a time. If you wish to have follow-up questions, please rejoin the queue. Your first question comes from Zhuqing Zhang with CICC.
spk01: 我们有注意到上半年 其他长视频平台 也有一些爆款剧的出现 然后我们今年一直领先的市占率 也出现了波动 想请教管理层如何看待 长视频当下的一个竞争格局 然后我们的策略是什么 谢谢 Thanks management for taking my question My question is about competition landscape We noticed that other platforms have some blockbusters here, and our market share, which has been leading recent years, has also fluctuated. How does management view the current competition landscape for long videos, and what's your strategy? Thank you.
spk05: I will invite our CCO, Xiao Hui, to answer this question.
spk07: Hello, everyone. I will answer this question.
spk05: In fact, there has always been a series of competition in the industry. In fact, this kind of competition helps to improve the quality and richness of the content of the entire industry. It also helps to strengthen the competitiveness of the long video industry compared to other entertainment methods, such as the short video industry that we often mention. At the same time, this also encourages us to continue to improve the quality of content in the future. We have always emphasized that the final competition of long video is the continuity of high-quality, diversified content supply and the win-win of content quality and commercial revenue. This is the goal we are constantly pursuing.
spk07: The intense competition within the industry has always been present, and this competition actually helps us to improve the overall quality and the richness of the industry's content, enhancing the competitiveness of the long-form video sector compared to other forms of entertainment, such as we often mentioned short-form video. At the same time, it also motivates us to continually improve content quality in the future, We've always emphasized that the ultimate goal in the long-form video competition is to sustain a high-quality, diverse content supply and achieve a win-win situation between the content quality and the commercial benefits.
spk05: From our long-term market performance, IT is still at the forefront of the market for a long time in the core drama and film categories. Looking at our long-term market share performance, ITE has actually maintained a leading position in the core categories of drama and film for a long period of time.
spk07: Although we experienced some fluctuation in our drama market share in Q2, but after a thorough review and a targeted optimization, we've overcome the short-term difficulties and returned to the number one position in drama category market share.
spk05: At the same time, on the balance of content quality and business feedback, iQIYI's performance is still in the lead. My second D of Alatai, Tanghao Ghost Road, is a typical case performance. I believe this advantage will be
spk07: In balancing the content quality and commercial returns, ITE's performance continues to lead. The drama series To the Wonder and The Strange Tales of Tang Dynasty Season 2 are great examples, and we believe this advantage will further enhance in the future. 未来我们将持续致力于高品质内容的创作以满足主流,
spk05: Going forward, we will remain dedicated to creating high-quality content tailored for mainstream and female audiences, enhancing our social insights and innovation, optimizing content scheduling strategies,
spk07: and strengthening the management in every facet of our in-house studios. And we believe these initiatives are all aimed at improving the stability of our high-quality, diverse content supply.
spk05: Currently, we have plenty of equipment that covers the needs of mainstream users, especially for the three key categories of women's clothing, suspense, and realism.
spk07: Our current drama reserve accommodates the viewing demands of the mainstream audience. We have a relatively ample reserve specifically for the core genre of ancient costume dramas aimed at female audiences, as well as for the mystery suspense and reality-themed genres.
spk05: We will continue to strengthen the ability of IP series development. For example, the second season of Q2, which is the first season of Q2, is the second season of Q2, We will also continue to strengthen our capabilities for IP serialization development.
spk07: The Strange Tale of Tang Dynasty Season 2, which launched in Q2, is a successful case of serialized content development. And the third season will soon be in production. In the future, the well-loved series such as The Fearless and Under the Skin will also launch their second season. And the ingenious one, Season 2, is also in preparation. Thank you.
spk06: Your next question comes from Lincoln Kong with Goldman Sachs.
spk02: So thank you, management, for taking my questions. My question is about the membership business. How should we think about the prospects of membership growth in the future, especially on subscribers as well as the output growth?
spk07: Thank you. We'll invite our Senior VP of Membership Business to answer this question.
spk05: Hello, everyone. Let me answer this question. First of all, from the structure of the membership, uh... i don't want to get on that you don't want to use it for you and you don't want to do it and you don't want to do it and you don't want to do it and you don't want to do it and you don't want to do it and you don't want to do it and you don't want to do it and you don't want to do it and you don't want to do it and you don't want to do it and you don't want to do it and you don't want
spk07: Fluctuations actually mainly come from the members who are attracted by new and popular content. As the summer season arrives, our content offerings have positively influenced the return of these kid-driven users and retention of long-standing members.
spk05: In Q2, our arm, which is the average revenue per member, maintained a solid year-over-year growth.
spk07: The current level of ARM provides us with flexibilities in terms of operational tactics. In the near future, our focus will be on expanding the scale of our membership, but the ultimate goal remains to maximize membership revenue.
spk05: In the future, we plan to optimize the share of members and to push forward more positive measures to improve the long-term health development of member businesses.
spk07: In the future, we'll also plan to implement more proactive measures to optimize account sharing and compact piracy, thereby supporting the long-term healthy growth of our membership business. We'll share the specific plans with everyone after progress is made. Thank you.
spk06: Your next question comes from Maggie Yeh with CLSA.
spk00: Good evening, Mr. Wang. Thank you for the opportunity to ask this question. My question is about overseas business. In the past few months, we have seen that overseas business has gained a lot of rewards. In addition to its own Chinese content, there are also very eye-catching local dramas. It has been more than five years since it was launched in 2019. Can you share with us the latest strategies and plans for the overseas market? Good evening, and thanks for the chance to ask questions. Regarding our overseas business, we've seen very decent revenue growth in past quarters by high-quality local production in addition to distribution of our premium Mandarin content. SIT International has celebrated its five-year anniversary. Can management share your latest thoughts on business strategy and plan for our overseas business? Thank you.
spk07: We'll invite our senior VP, Yang Xiaohua, who's responsible for the overseas business, to answer this question.
spk04: Good evening, everyone. We started our overseas business in 2019. After a few years of hard work, our overseas business has been successful. Last year, in 2023, we achieved a full-fledged profit-loss balance. Our goal for 2024 is to increase our profit-loss balance
spk07: We started expanding into the overseas market in 2019 and have achieved initial success. In 2023, our overseas operations actually reached what we are operating with EBIT. Our goal for 2024 is to boost revenue growth while continuing to increase profits. And for Q2 this year, the total revenues for overseas and also membership revenue both maintain a healthy year-over-year and also quarter-over-quarter growth.
spk04: In terms of content, we have also explored a content combination that is most suitable for the overseas market and diversified the content supply of overseas platforms. In terms of Chinese content, we have increased the popularity of overseas platforms, In some way, one of our items will be able to go home. That's what you're saying. I see. I see. I see. I see. I see. I see. I see. I see. I see.
spk07: In terms of content, we have discovered an optimal content mix suitable for our overseas market, and we aim to further increase content offerings through different measures. For example, the popularity for Chinese language content overseas has significantly increased becoming a major source of our top content for our overseas platform. In fact, over the past three years, half of the 20 most popular shows on ITE overseas were Chinese dramas, most of which were ITE originals. This demonstrates the influence of Chinese language content and the strength of our original offerings. And in the future, we'll continue to use Chinese dramas as the foundation of our overseas content offerings and actively opportunities to increase production of local original content. And also, from the technology perspective, we will utilize AI technology to empower different aspects of the long-form video industry, enhancing the production efficiency of IT's localized original content overseas.
spk04: In terms of local cooperation,
spk07: Regarding our local partnerships, we have already established deep connection and cooperation with local telecom operators in certain regions. And going forward, we aim to expand our partnerships to telecom operators in additional countries and to increase our collaboration with local partners. And we believe these will enhance our brand awareness and content influence overseas. And for our long-term objectives is to make IT's overseas platform the home of beloved Asian content, expanding the influence of Chinese language content while also increasing the coverage of local content, and continue to explore diversified IT monetization models.
spk05: Sorry, I'm Wang Junyuan. I'd like to add one more thing. As Xianghua mentioned, in the past two or three years, we've also achieved the operating profit of the whole year. And our CFO Wang Ping just added to this, and he mentioned that in 2023, our overseas
spk07: business actually reached four-year operating rate even. This is based on the fact that from the management accounting perspective.
spk05: Yeah, this is based on the PUC management account.
spk07: Correct. Correct. And then this is a very healthy trend that has developed over the past year.
spk06: Thank you.
spk07: Thank you.
spk06: Your next question comes from Thomas Chong with Jefferies.
spk03: Hi, good evening. Thanks management for taking my question. As ITE has a lot of good IP, can management share your strategy of unlocking the IP potential in different areas other than membership and advertising? Thank you. Thank you.
spk05: I'm Gong Yu. Let me answer this question. Content IT is the core asset of IT companies. Therefore, promoting content IT in various forms, including the currencyization of offline business, is an important work of the company for the long term. It is also the key to improving the company's long-term value and competitiveness. We will use our business model
spk07: Our CEO is answering this question. He mentioned that content IP is the core asset of our company. Promoting the monetization of content IP in various forms, including offline business, is an important and sustained effort that is key to enhancing our long-term value and competitiveness. We actually described this IP-based business model with a metaphor called eating a fish in multiple ways. which actually emphasize our ability to transform each piece of our content IP into numerous prospects for revenue. Thereby, we believe this will maximize its value across different markets and platforms.
spk05: With many years of self-knowledge, the company's IP assets have also accumulated more and more value. For example, two years ago, With our many years of focus on producing original content,
spk07: Actually, the value of our company's IP assets has grown significantly. For instance, two years ago in Q2 2022, our original dramas have accounted for over half of our quarterly new release key dramas. And this proportion now has stabilized at around 70%. And also, these leading high-quality original dramas have not only found success during their initial broadcasting period, but also have demonstrated a sustainable long-tail effect, which maintain a popularity over an extended period of time.
spk05: So, on the one hand, we hope that the offline experience business will become our future growth curve. We also observed some changes in the domestic offline business and consumer behavior habits. That is, high-quality content plays a more and more important role in the negative energy of the scene. And Hanyang's high-quality film and television IP is our core advantage. For example, we extend the IP of Tang Chao Gui Shi Lu from the top to the bottom. In many cities, Beijing and Xi'an, Tang Chao Gui Shi Lu VR has fallen into the spotlight. At the same time, there are also some card-type products. Then at the bottom of the line,
spk07: we actually hope that the offline experience business will become our second growth curve in the future and we also notice the shift in consumer behavior change in domestic offline commerce and cultural tourism sectors where the premium content IP actually plays an increasingly important role in creating engaging experiences For example, our vast library of high-quality video content IPs actually serve as our core strength in this area. For example, we leverage the IP from the recent hit drama title called The Strange Tale of Tang Dynasty Beyond Its Online Presence, successfully introducing an immersive VR experience. In cities like Beijing and Xi'an, these are key cities in China, In addition, we've developed new derivative products, such as card games, designed to appeal to the taste of a younger demographic, further extending the IP's reach and impact.
spk05: Our cooperation operating model adopts the model of green assets. This way, with limited investment, we can generate better revenue.
spk07: And this operating for the operational model actually favors a light asset approach, which has a promising prospect for incremental revenue under limited cost.
spk05: Actually, based on our experiences, this approach has actually been validated in terms of
spk07: offline experiences. And this model is now being able to be replicated and scaling.
spk05: In addition to this, we also made two attempts. One is to sell a few small batches of IT products. This is to sell a few small batches of IT products. We also sell one for children's offline children's playgrounds. In addition to what I just mentioned, the VR theater experiences that I mentioned earlier, we're also exploring further initiatives
spk07: centered around our IPs. For example, our Qi Xiaobai, which is the IP merchandise stores, and also Qi Bubble Park, which is a theme park designed for children. And these initiatives are actually developing in collaboration with our partners, similar to what I just mentioned, the light asset approach. The aim is to provide users with a very comprehensive and engaging entertainment experience. Thank you. Thank you.
spk06: There are no further questions at this time. I'll now hand back to management for closing remarks.
spk07: Thank you, everyone, for participating in the call. And if you have further questions, please don't hesitate to contact us. Thank you. Thank you. Bye-bye.
spk06: That does conclude our conference for today. Thank you for participating. You may now disconnect.
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