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 fourth quarter and full year earnings conference call. Today you will hear discussions from 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, operator. 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. And any release is now available on our IR website at ir.tentamusic.com, as well as via Newswire services. Today, you will hear from Mr. Kashin Pang, our CEO, who will start the call with an overview of our recent achievements. to be followed by Mr. Tony Yip, our CFO, who will offer more details on our operations and business development. Lastly, Ms. Shirley Hu, our CFO, will address our financial results before we open the call for questions. Please note that this call might contain follow-up statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These follow-up statements are based on management care expectations and observations that involve known and unknown risks, uncertainty, and other factors not under the company's control, which may cause actual results, performance, or achievement of the company to be materially different from the results, performance, or expectations implied by these following statements. All following statements are expressedly qualified in their entirety by the cautionary statement, risk factors, and details the company's filing to the SEC. The company does not assume any obligation to revise or update any policy statements as a result of any new information, future events, changes in market conditions, or otherwise, except as 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 reporting under the International Financial Reporting Standards in a company's earnings release and filing for 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 not uniformly defined by all companies, including those in the same industry. Now with that, I'm very pleased to turn over the call to questions.

Thank you, Melissa. Hello, everyone, and thank you for joining our call today. 2020 was an extraordinary year with the pandemic impacting all walks of life and the macroeconomy. Yet, it also brought opportunities, expediting internet penetration, causing a paradigm shift in online content consumption, and presenting potentials for online concerts. The past year, we demonstrated strong resilience and agility, a commitment to investment in content, technologies, and people, as well as innovation in new products and services, solidifying our position as China's leading music entertainment platform and allowing us to build a strong foundation for our music content ecosystem. We close 2020 on a very strong note and excited about our next phase of growth along our journey to evolve into an all-in-one online music and audio entertainment destination in China. First and foremost, in the fourth quarter of 2020, both our financial and operational performance were solid. In particular, our online music services maintained its momentum, registering 29% year-over-year growth in revenues, up from 26% in the third quarter. Specifically, subscription revenues increased by 42% year-over-year. This outstanding performance was driven by 40% year-over-year growth of paying users, fueled by our effective payroll strategy, diversified bundle membership offering, as well as continuous rising user retention rate. With 56 million online music paying users, a paying ratio of 9%, up from 6.2% a year ago, we finished 2020 ahead of the curve and are confident that this success will continue in 2021 and years to follow. For non-substitution revenues in the fourth quarter, we are pleased to report that We recorded triple-digit year-over-year growth from advertising for two consecutive quarters. This impressive growth was driven by increasing ad inventory and improving eCPM across our music application portfolio. In the form of splash screen ads and banner ads, we plan to continue developing our overall brand awareness to engage a broader array of advertisers. by initiating more creative advertising products such as immersive video ads, reward ads, and audio ads. Looking into 2021, as we continue to leverage our in-house and Tencent's renowned advertising strength and capabilities, we expect another year of strong growth from advertising. Moving next to content, our continued investment in procuring and developing content has provided our users with a rich, diverse, and endless choice of entertainment, which has been a key driving force behind our success. Apart from comprehensive coverage through category expansion and deepening penetration to further captivate the young demographic, we continue promoting and pursuing trend-setting genres from trend predictive models to content procurement and promotion. We have significantly increased our copyright coverage in new content, which has contributed to the increasing engagement of our users. In the fourth quarter, our partnership with leading rap music labels, such as Ghost and 404 Rapper, resulted in more rap music streamed by younger users as compared to the beginning of 2020. We also made notable breakthroughs in Chinese ancient-style music, total streams for which reached over $100 billion on our platform in 2020. We also made significant progress in cultivating and promoting original music, Let me provide just a few examples. First, the scale of our Tencent Musician platform expanded rapidly. In the fourth quarter, the number of participating indie musicians on the platform grew over 100% year over year, an outstanding rate in the industry. In particular, the number of exclusive indie musicians was 14 times of that in the same period a year ago. showcasing the recognition by indie musicians of our capabilities in promotion, platform support, and well-designed incentive programs. Second, the number of original songs uploaded reached over one million on Tencent Music musicians' platform by the end of 2020, doubling the number compared with a year ago. Numerous original blockbuster songs was incubated on the Tencent Musician platform, such as Story of the Wanderer by Ruby Hua , with over one billion streams within three months of its launch. Our industry influence was significantly amplified by Wang Qi, was enlisted by CCTV's Spring Festival Gala. One of the world's most watched TV programs with more than 1 billion viewers for years. Performing his signature song, The Shepherd of Cock-a-doodle-doo, which has already gathered phenomenal popularity on our platform. These are great examples of what we can do. Losing our prestigious industry know-how, as well as in-depth insights and data mining abilities to foster and grow original music. Third, we are proud to share that during the past year, we have dedicated even more financially to this side of the business, which enabled over 60% of musicians to more than double their income. Such support will continue in 2021, contributing to a win-win situation for everyone. Finally, on our Tencent Musician platform, I'm very proud to say that we deeply care about diversity and we are doing our part to promote gender equality. Our support of female artists and musicians, traditionally a minority in the music industry, has led to female musicians accounting for nearly 40% of total artists on Tencent Musician platform as of the end of 2020. This is significantly higher than the industry average of around 20%, according to the 2020 China Musician Report. Our music content leadership has been further cemented by strengthening partnerships with leading music labels and artists. For example, recently and ahead of the schedule, we extended a multi-year strategic licensing agreement with Warner Music. and expanded our in-depth cooperation through forming a joint venture record label in China in future. We have confidence to continue to showcase new generation artists to music lovers, unlock intrinsic value of music in China, and keep contributing to the prosperity and development of the music industry. The next topic that I would like to discuss is the strategic importance of our long-form audio and our initial achievement during the first year of investment. Before going into details, I would like to outline the exciting opportunities the audio services market presents us with and how we can harness them to compete effectively and scale quickly. Firstly, this market has exceeded in China for a decade with no clear significant leader yet. Market penetration remains extremely low. Second, this fast-growing market has various potential natural synergies with online music entertainment, giving us a tremendous advantage over vertical players. According to third-party research data, The audio market in China is projected to reach a massive user base similar to that of online music streaming over the next few years. With our massive user base and the complementary nature of music and audio genres, we are able to seamlessly convert our music users to audio users, positioning us to emerge as a significant player while ultimately accelerating the penetration of online audio in China. Thirdly, our strategic alliances with prominent content partners such as the China Literature and other content collaboration within Tencent Online Entertainment ecosystem will continue to empower us to offer a wide range of content quickly. During the fourth quarter, the number of licensed titles was up by 370% year-over-year, covering a broad spectrum of audio categories, such as audio drama, Chinese comedy, parenting, and history, apart from the well-loved literature. Fourth, our two-pronged approach to integrating with our Muse applications as well as launching a standalone application is unique and allow us to effectively acquire users at low cost and scale up quickly. For example, we significantly increased our long-form audio MAUs penetration in the fourth quarter of 2020 to 14.8% from 5.5% in the same period of 2019. Such a hybrid model differentiates us from other players at home and abroad. Fifth, our recent acquisition of LACI Audio, which is expected to be consolidated in the first quarter of 2021, will become another driver that will help us forge ahead in the pursuit of growth in the years to come. Our view on long-form audio is strategic and long-term. We believe that investment in content whether licensed audio books or podcasting, PGC or UGC, we improve user time spent, user loyalty, and eventually revenue per user. This is evidenced by the 20% sequential increase in average daily user time spent in the fourth quarter. The DAU reached nearly 10 million at year end of 2020 and is on track to double by 2021. Over the past few quarters, we had a good start in monetizing our long-form audio business through effective bundled offerings with our existing music streaming services and attract pricing for standalone audio memberships. With increasingly enriched content and growing users, we will tap into the audio ads to unlock commercial value, which will boost our revenue. We consistently ask ourselves, What else we can do better to improve user engagement? In 2020, we further expanded our coverage of a broader set of music usage scenarios, integrating with smart speakers, in-car audio systems, TV, and making new roles in the profit performance market. Although not yet included in our reported online music MAUs, during the fourth quarter of 2020, smart devices enjoyed a solid year-over-year growth in user scale, providing additional channels for users to consume more content and interact with us. In summary, we achieved a solid progress across our full business spectrum in 2020 in terms of scale, industry leadership, content diversification, monetization, and innovation. In particular, our online music services with improving economies of scale and diversified revenue streams, achieved a high quality revenue growth and margin expansion throughout the year. In 2021, we expect the strong momentum of our businesses to continue and anticipate a faster revenue growth across the board compared to 2020. With that, now I would like to turn the call over to Tony who will discuss other highlights and important areas of focus for our business. Tony, please go ahead.