Tencent Music Entertainment Group

Ladies and gentlemen, good evening and good morning, and thank you for standing by. Welcome to the Tencent Music Entertainment Group 2020 Third Quarter Earnings Conference Call. Today you will hear discussions from the management team of Tencent Music Entertainment Group, followed by a question and answer session. Please be advised that this conference is being recorded today. Now I will turn the conference over to your speaker host today, Ms. Millicent T. Please go ahead, ma'am.

Thank you, Matt. Hello, everyone, and thank you all for joining us on today's call. Tencent Music announced its quarterly financial results today after the market closed. An earnings release is now available on our IR website at ir.tencentmusic.com, as well as via newswire services. Today, you'll hear from Mr. Kachem Pang, our CEO, who will start the call with an overview of our recent achievements. He'll be followed by Mr. Tony Yip, our CISO, who will offer more details on operations and business development. Lastly, Ms. Shelley Hu, our CFO, will address our financial results before we open the call for questions. Please note that this call may contain forelooking statements made pursuant to the safe harbor provisions of the Private Security Litigation Reform Act of 1995. These forelooking statements are based on management's current expectations 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 these forelooking statements. All forelooking statements are expressly qualified in that entirety by the cautionary statement, risk factors, and details of the company's filings with the SEC. The company does not assume any obligation to revise or update any forelooking statement as a result of new information, future events, changes in market conditions, or otherwise, if that was required by law. Please also note that the company will discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the International Financial Reporting Standards in the company's earnings release and filings with the SEC. You are reminded that such non-IFRS measures should not be viewed in isolation or as an alternative to the equivalent IFRS measure, and other non-IFRS measures are uniformly designed by all companies, including those in the same industry. With that, I'm now pleased to turn over the call to questions.

Thank you, Madison. Hello, everyone, and thank you for joining our call today. In the third quarter, we continue our healthy trajectory of unlocking opportunities in China's online music entertainment services through various monetization models. Our online music services recorded well-rounded outstanding performance, while social entertainment services moved further along its path of recovery. First and foremost, our online music services recorded well-rounded performance outstanding performance. To begin with, subscription revenues maintained a robust growth, increasing by 55% year-over-year. This will attributable to the strong growth in paying users of 4.6 million. A new record of quarterly net increase, which took our number of online music paying users to 51.7 million. Paying ratio reached 8.0%, up by 2.6% points year-over-year, and 0.8% points quarter-over-quarter. While we recorded 46% year-over-year growth in online music paying users, ARPPU expanded by 5.6% year-over-year, demonstrating our philosophy of quality growth. Amongst subsequent revenues, We record outstanding performance from advertising, delivering a revenue growth rate of triple digits year over year. Surely we provide more color later on. Additionally, we maintain the top one position and a leading market share in digital album releases. Thanks to our increasing promotional capability and ability to monetize the idle fan-based economy, Our digital album release and fan idol operation services help not only superstars, but also emerging artists. For example, sales of Sun Yiyang, Yang Yunqing's first solo album, How's the Weather Today, Tian Qiqin, and Smile by Katy Perry on our platform, ranked number one in digital sales nationwide. No Turning Back, Jiao Huan Yu Sheng, The title song of the 14th album of JJ Lin, Lin Junjie, not only ranked the first in digital sales among all online platforms, but also quickly took the number one spot on eight of QQ Music's top charts on the second day of its release. Furthermore, online music services had positive impact on overall margin again in the third quarter. benefiting from strong subscription and advertising revenue growth, and demonstrating the scalability of our businesses and our commitment to win-win cooperation. Second, we also continue to strengthen our music content leadership through forming more partnerships with additional domestic and international music labels in various genres, covering different regions, We formed in-depth strategic cooperation with renowned indie music partners, including Peer Music and Merlin Network. Moreover, we direct more resources to support indie musicians and promote original music. Our Tencent Musician platform has become an essential driving force to enrich our music and entertainment content ecosystem. provide support to artists at all stages of their careers, and drive the growth of the industry. We continue to see triple-digit year-over-year growth in both the number of participating indie musicians on the platform and the number of original songs uploaded to it. We saw the number of indie musicians exclusive to us increase by more than 20 times compared with a year ago, boosted by a series of financial incentives and technology-based support services. Third, we are both pleased and humbled to say that more and more younger users are embracing our platform, trusting our services, and contributing to our increasingly interactive environment. In return, we continue to add more trend-setting content, including more music-centric variety shows that are popular among the younger demographic, which successfully attracted younger users on our platform. Fulltone Community, the innovative features we introduced in QQ Music version 10.0 in July, has also received a tremendous endorsement, particularly from younger users. We are pleased to see that user penetration continues to improve, community engagement is increasing, and the number of video views per user is also on the rise. It not only has helped us foster the cultural cohesiveness of our user communities through facilitating reviews and updates on music and industry trends, but has also become a new promotion channel for labels and artists. Within a few months of its release, Putong Community has become home to more than 100 artists and artist groups, and that number is still growing. In October, QQ Music Putong Community has chosen by the famous K-pop female band, Blackpink, for their new album debut. Last but not least, our new initiatives have been tracking well and served as an important foundation for long-term sustainable growth. We continue to win shares in the growing long-form audio market in China. During the third quarter, we have further enriched our content offering, quadrupling the number of licensed titles year over year. The enhanced content library has resulted in increasing MAU penetration, reaching 11.7% in the third quarter, compared to 9.4% in the second quarter and 4.7% for the same quarter of last year. Additionally, the robust expansion of both licensed and UGC content has continued to enhance average user time span in the third quarter. We also started to make headway in growing long-form audio paying users through effective subscription plans ranging from a high-value standalone one to our cross-sales packages that leverage great synergies between our music and long-form audio businesses. Our online concert, TME Live, is growing from strength to strength. This innovative performance venue continues to attract more high-profile domestic and international artists such as Andy Lau, Liu Dehua, Ethan Chen, Chen Yishun, Charlie Zhou, Joe Sun, Jesse Jay, among others. Since its launch in March this year, we have hosted more than 30 live online concerts of domestic and international iconic artists of different genres and styles, representing four to five live events on average per month. We also made further progress in exploring monetization opportunities, including attracting sponsorships from well-recognized domestic and international brands across different industries. Separately, the growth paying user base via TME Live underpins significant scalability and monetization potentials, which was evidenced by the recent online concert of Richard Chen, Ren Yanqi. This concludes my prepared remarks. And now, Tony will discuss other highlights and important areas of focus for our businesses. Tony, please go ahead.