Tencent Music Entertainment Group

Good

evening, good morning, and welcome to Tencent Music Entertainment Group's first quarter 2024 earnings conference call. I'm Alison Tu, head of IR. We announce our quarterly financial results today before the US market opens. And earnings release is now available on our IR website and via Newswire services. Today you will hear from Mr. Kushen Pang, our executive chairman, and Mr. Ross Liao, our CEO, who will share an overview of our company's strategies and business updates. And then Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I refer you to our safe harbor statement in our earnings release, which applies to this call as we made for looking statements. Please note that the company will discuss non IFRS measures today, which are more thoroughly explained and reconcile to the most comparable measures reported under IFRS in the company's earnings release and findings with the SEC. At this time, all participants are muted. After management's remarks, there will be a Q&A. And please be advised that today's call is being recorded. With that, I'm pleased to turn the call over to Kushen, executive chairman of TME Kushen.

Thank you, Alison. Hello, everyone, and thank you for joining our call today. 2024 is off to a great start. Strong execution of our dual engine content and platform strategy is yielding impressive results and pushing brutality industry wide. In the first quarter, the number of music paying users increased to 113.5 million, propelling 43% of the overall in online music revenues. Our high quality growth strategy also drove a robust net profit margin expansion. Subscriber growth in this quarter significantly exceeded our expectations, reaching a quarterly historic high of 6.8 million net ads. What's more, we maintain the ARPPU at a healthy level. Both achievements demonstrate our keen understanding of users' needs and our neck for anticipating and meeting their demands operationally. As you have seen in our earnings release, supported by our strong fundamentals, we are very pleased to announce an annual cash dividend policy and 210 million US dollars in cash dividends for the year of 2023. On top of our ongoing buyback program, this reflects our confidence in future growth and commitment to sharing our success with shareholders. Next, I would like to share an overview of this quarter's content development efforts. Through a balanced combination of copyright music and original content, we enable users to discover the latest and trendiest content and enjoy a superior experience on our platform. Let me go over a few highlights. First, we renewed and forced a partnership with Record Labels to broaden our music library's comprehensiveness and popularity. Our innovative value-added privileges, features, and promotion services extend far beyond mere licensing, further unlocking the value of music content industry-wide. We renewed our cooperation with Time Feng Jun Entertainment, featuring 30-day head start benefits on new songs and adding Dolby Atmos upgrades for popular groups like TF Boys and Teens in Times. We also expanded our agreement with HIM International Music, incorporating an industry-first component authorizing TME to use licensed AI features to promote HIM's iconic C-pop content. This will ensure the authentic and responsible use of AI, showcasing TME's commitment to protecting artists' rights and interests in the AI GC era. Artists benefit from TME's tech-powered promotions and copyright protection while users enjoy the interactive features, which is a win-win. Yoga Lynx, Lin Youzha, new album, Love Lord, Wang is one reason success. For its premiere on our platform, we connected our AI sing, song along feature, and TME live offline concerts, spurring fan interaction within new scenarios. We enriched our K-pop content and related offerings with various artist-fan activities. Digital albums and artist merchandise for new generation groups like I-Lit, Baby Monster, and .C.E. In the first quarter, K-pop user engagement and streams both grew year over year. Next, we expanded our original content, a key differentiator to attract users and enhance engagement. Based on our keen grasp of trends, we delivered an array of his catering to users' ever-changing taste this quarter. We produced original soundtracks for his TV dramas, The Legend of Sun Lee, Yu Fengxing, and in Bromson, Hua Jianlin, including 17 songs and 38 scores, featuring top tracks by TME strategic partner artists such as Jess Lee, Li Jiawei, and Wang Jingwen. These catchy OSTs create a massive social media buzz that boosts the streams and viewerships. Their outstanding performance showcases our ability to spot and set content trends while maximizing the value of content. Our OST for The Legend of Sun Lee, produced by Tencent Video, also highlighted the power of collaboration within the Tencent ecosystem. It smashed the records with over 150 million streams within 30 days of release, making it the number one OST debut for the fall this year. We also partnered with strategic artists and indie musicians on music production and promotion to build our platform's qualities music offering. Our self-produced song, River Flow, by T.L. Wei, Yuan Yawei, and what I anticipate is Nosh Snow, by Zhang Miaoge, became the top rated hits on social media this quarter. Moving on to our commitment to social responsibility, we cooperated with Tencent to create a charity for third consecutive year on our film program to drive autism awareness. If music has a shape, this year, Fiona Shih, Xue Kaiqi, performed the project's film song, Do You Understand What's Left of Me, 剩下的你聽懂我嗎? More than 60 other renowned artists and groups, including J. Chao, Zhou Jie Lun, Su Kezhen, Xue Jixian, and New Jeans, also shared songs in support of Children with Autism. We then host an art exhibition featuring artwork by Children with Autism inspired by these musical works, leveraging multimedia to amplify our caring message and boost music's social value. In conclusion, by expanding contents and introducing more tailored platform offers that resonate deeply with users, we continue strengthening our vibrancy to drive industry development. We are confident that our powerful content and platform dual engines and ever-deepening understanding of content will propel our sustainable growth in 2024 and beyond. Now, I would like to turn the call over to Ross for more color on our platform development. Ross, please go ahead. Thank you, Kaixin. Hello

everyone. Strong execution once again resulted in solid online music growth. Record high night subscriber eyes, steady ARPPU and healthy IMEOS all reflect this robust performance. Our efforts to attract and retain users were the driving force behind it. Utilizing our extensive industry experience and peerless insights into users and content, we are later focused on anticipating and meeting users' needs with enhanced experience and trend-based musical journeys. First, I want to talk about user retention. We have taken a multi-pronged approach to engaging users through constant innovation of trend-setting features. I will walk you through a few examples. Our new AIGC applications make music discovery more fun, engaging and convenient. In the first quarter, we launched a large audio model that increases promotion accuracy, helping users discover more high-quality music content. Initial results showed that streaming share of promoted songs increased notably following the model's release. We also tested an AI assistant that supports text and voice chatting for more customized search experiences, as well as an AI playlist assistant to curate playlists, a key personal music asset that strengthens users' techniques. Recently, we introduced an interactive rewards program. Users can exchange the points they earn for benefits such as trail subscription, digital albums and personalized privileges. While enhancing user experience, the program also opens new avenues for commercialization for the future. Ongoing platform upgrades continue to reinforce our products appeal. This quarter, we introduced a light listening mode, to facilitate a smooth listening experience in low bandwidth environments. Our enhancements allowing greater interface customization are increasing user adoption of our platform's players. Beyond the listening experience, we captivated users with a variety of interactive activities, including the song guess contests, subscriber budgets and more. These interactive features not only boosted song streaming volumes, but also boosted more artist follows and additions to favorites. As users' personal music assets on our platform grow, so does their loyalty to TME. Moving now to user acquisition, our focus here is on discovering and captivating users with long-term paying potential through refined marketing and operations. During Chinese New Year, riding on the favorable seasonality, we utilized our deep understanding of users across various demographics to roll out a series of effective promotion activities. Our targeted multi-channel promotions with e-commerce, telecom operators and long-form video platforms contributed to a stronger than expected subscriber growth in the first quarter. We also teamed up with all two companies to launch holiday themed playlists and common share promotions. This organically broadened our reach to new users and increased user activity, contributing positively to the sequential MAU recovery in our online music services. On partnerships, we recently fogged the pre-installation partnership with Xiaomi Sushi. We also enhanced our collaboration with ride share leader Cao Cao Chu Xing. Our new self-service, Riderside Music Selection filters offers ride share passengers an easy to navigate music consumption, further extending our reach. Our trendsetting a new QQ Music Dianfeng Awards, QQ Music Dianfeng Shengdian, for the first time included online merch, offline offerings, participation in interactive online filters, rewarded fans, missed tickets to artists meet and greet, artists merchandise and more. Thanks to a lineup of popular artists and inspired performance, this event reinforced our appeal among our core young user base. In short, our rich content and parallel product offerings continue to fill users' acquisition and engagement. With users' needs at the heart of everything we do, we remain committed to creating a music platform that serves the users' cherished. With that, I will turn the call over to Shirley, our CFO, for a deep dive into our financials.

Thank you, Ross, and greetings to everyone. I will now turn to our financial results. Our success in effective monetization for music services and operational efficiency management continued to need to surcharge financial results in the first quarter of 2024. AFS net profit increased by 28% -over-year for RMB 1.5 billion, and non-AFS net profit rose by 24% to RMB 1.8 billion. Our total revenues were RMB 6.8 billion, down by 3% -over-year. Our online music services achieved significant revenue growth which largely offset the decline in revenue from social entertainment and other services. In the first quarter of 2024, our online music revenues increased by 43% to RMB 5 billion on a -over-year basis. This surge was driven by the strong expansion of our music subscription and growth in advertising business, supplemented by an increase in revenues from offline performances. Music subscription revenues in the first quarter reached RMB 3.6 billion, marking a 39% increase -over-year and a 6% rise sequentially. Our refined operation and effective pricing strategy enabled us to achieve higher than expected growth in music subscribers, while maintaining a healthy monthly ARPPU. Monthly ARPPU was 10.6, up from 9.2 in the same period last year. Taking the difference in number of days into consideration, our monthly ARPPU would have remained relatively stable sequentially. The number of online music paying users were 113.5 million, 20% increase -over-year, and a record-breaking quarterly net ads of 6.8 million users. Our enriched content offerings and enhanced member privileges, such as Doobie or the most upgrades, have made our products more attractive and improved users' dignity. The advertising revenue also had a strong -over-year growth, primarily due to the growth in ad-supported advertising. We upgraded our incentive ads experience and provided more attractive interactive features to our users, which helped the improvement in the entry rate. We continued to innovate and diversify our product suite and advertising formats. Social entertainment services and ad revenues were on the 1.8 billion, down by 15% -over-year. This was mainly due to adjustments in search and live streaming inactive functions and more stringent compliance procedures as we implemented several service enhancement and risk control measures since the second quarter of 2023. As these adjustments and procedures are largely completed, we expect our social entertainment services to remain relatively stable. Our growth margin for Q1 reached 40.9%, marking an increase of 7.8 percentage points -over-year due to a few factors. First, growth of revenues in online music subscription and advertising has generated the benefits of economics of skill. Over the years, we have made significant efforts and investments in the music industry and have built win-win relationships with labels and artists. And now, these efforts and investments started bearing fruits. Additionally, the ramping up of our own content continued to impact our margin favorably. Lastly, we have optimized revenue sharing ratio for live streaming and also improved monetization in VC membership and advertising, which also benefit our growth margin. All of our factors have collectively enabled us to move to a healthy margin model. Moving on to operating expenses, in the first quarter of 2024, they amounted to RMB 1.1 billion, representing .8% of our total revenues compared with .5% in the same period last year. Selling and marketing expenses were RMB 187 million, down by 12% -over-year. We will continue to spend in areas such as online music with long-term growth perspective as well as content promotions. General and administrative expenses were RMB 949 million, down by 7% -over-year, primarily driven by lower employee-related expenses. Our effective tax rate for Q1 was .9% compared to .2% in the same period of 2023. This increase was primarily attributable to the accrual of withholding tax of RMB 107 million related to earnings to be remitted by our PRC sub-dress to offshore entities. Additionally, changes in preferential tax rates for certain entities also impacted our effective tax rate. For Q1 2024, our net profit and net profit attributable to equity holders of the company were RMB 1.5 billion and RMB 1.4 billion respectively. Non-RFSE net profit and net profit attributable to equity holders of the company were RMB 1.8 billion and RMB 1.7 billion respectively. Our diluted earnings for ADS reached a record high this quarter at RMB 0.91, up 25% -over-year. Non-RFSE diluted earnings for ADS increased to RMB 1.1, up 23% -over-year. These results underscored our robust financial performance, enhanced operating efficiency, and the beneficial impact of our offshore repurchase program. As of March 31, 2024, our combined balances of cash equivalents and term deposits were RMB 34.2 billion as compared with RMB 32.2 billion as of December 31, 2023. This combined balance was also affected by changes in the exchange rate of RMB to USD at different balance sheet dates. On the offshore repurchase program announced in March 2023, as of March 31, 2024, we had repurchased 32.2 million ADS from the urban market for total cash consideration of USD $235.5 million, of which approximately USD $1.6 million were repurchased in the first quarter. Looking forward, we will continue to invest in high-quality contents and original content productions, as well as new products and technologies such as AIGC. We remain confident in the prospects of music industry and our music production. This concludes our prepared remarks. We are now open to taking your questions.

Thank you, Shirley. If you are dialing in by phone, please press 5 to ask a question and then 6 to unmute yourself. If you are accessing from the Tencent meeting or Role-Meeting application, please click the reset button at the bottom left. For the benefit of all participants on today's call, please limit yourself to one question. If you have additional one, please re-enter. If you ask your questions in Chinese, please repeat in English. The first question comes from the line of Alicia Yap from Citigroup. Alicia, please.

Hi, thank you, Madison. Good evening, management. Thanks for taking my questions. Congratulations on solid results. I'm going to ask in Chinese first, then I will translate myself. My question is about the overall growth outlook in 2024. After we achieved strong results in the first quarter, especially with the music members competing to create a new history, what are our expectations for the second quarter and the following quarter's music members competing to create a new history? My question is for the 2024 outlook. After achieving strong set of results, especially with record high quarterly net add, what should we be expecting for the net add trend for the second quarter and also the ARPPU trend for the second quarter and also the rest of the year? Any comment on the overall growth rate expectation for the total online music revenue? Thank you.

Thank you so much, Alicia, for your questions. For the full year of 2024, our online music and subscription revenue are well on track and the profitability is also expected to be slightly better than the previously anticipated. For the subscription side, I think that we are pleased to see that the Q1, the net S is really quickly existing our expectation. It really gives us a really strong start for this year and therefore, we are confident that the projections are indicating to be a total greater than the year of 2022 and yet slightly slower than last year, which is 2023. But on the other hand, we remain really committed in the healthy, long-term growth of our business. On a full year ARPPU side, we expect it to continue to expand year over year, although at the moment, I think a more modest growth rate compared to 2023. And to recap, I think the last year's rapid year over year growth was primarily due to the scale back of the discount. So based on the last year, healthy ARPPU level and benefits of some of the operational optimization to be introduced throughout this year, we expect a slightly ARPPU growth in the second half of this year when compared to the first half. However, we remain unchanged and confident in long-term ARPPU expansion potential, supported by our experience in uses education and also a variety of operational strategies. A couple of points that I would like to add should be we have a better than expected Q1, the S, which is primarily due to a couple of reasons. First of all, I think Q1 is typically the peak season for the entire year, especially due to the Chinese New Year. So as users are more willing to pay for the entertainment. And secondly, we are also expanding the effective promotional activities which attract more high potential users. So we've food our multi-channel promotions across different areas and we significantly drive the good growth of our user base. But I think that as we communicate and seen in the 2023 pattern, I think rolling off the strong seasonality, the net S should return to more normalized and sustainable levels over the next few quarters. So besides the subscription business, I think that for the non-subscription business, we will also have a strong start in Q1 this year. And we expect growth to be solid in the remaining of this year as we continue to innovate the advertising products and expand the merchandise sales with labels and artists as well.

Thank you. The next question comes from the line of Alex Boon from Morgan Stanley.

Congratulations, management on a very strong quarter. My question is related to growth margin. In Q1, while we have negative seasonality for both advertising and social entertainment, we still expanded growth margin significantly sequentially from 38 to almost 41%. Can management share how the revenue and cost structure has changed on sequential basis and how should we think about growth margin in rest of 2024? Thank you very much.

The

year over year, an increase of 2.6 quarter over quarter. There are several reasons as follows. The first, music subscription revenues and advertising revenues have significant growth. Second, we have made significant efforts and investments in the music industry and have built many relationships with labels and artists. Additionally, we focused on RLC to manager content costs more efficiently. Our online music revenue growth ratio was higher than the net growth ratio of content cost. And the third, we gradually ramp up our self-owned content, which is a positive impact on our growth margin. And the fourth, even the live streaming revenue decrease, we optimized the live streaming revenue sharing strategy. The live streaming revenue ratio decrease and the VIP revenue and advertisement revenue on WeSIM platform increased. All of our benefit our growth margin. Our growth margin has improved for eight consecutive quarters. Looking forward to Q2, we expect subscription revenue and advertisement revenue will continue to be health growth. On the cost side, we expect our in-house made content will have positive impact on growth margin continually. And we will continue to increase our operational emphasis and monitor each cost items for our C model. We expect our growth margin will be increased in Q2 continually. And look forward in the second half of 2024, we expect our growth margin will also increase.

Thank you. And then this question comes from Goldman Sachs, Lincoln, please.

Thank you, management, for taking my question. So congrats on the first quarter. My question is about the online music services, specifically advertising. So could management comment on what we have seen in terms of advertising in the first quarter and into the second quarter and by the different formats. So what are the new advertising format companies are thinking to implement and any of the trends of those sponsorship ads or premium member ads if Megabit has shared? Thank you.

Thank you very much. Thanks for your question. Indeed, for the advertisement service, in Q1, we have a very strong growth. And I think in Q2, we're going to maintain such a strong growth.

Because we have a very strong growth, we have to maintain a strong growth. So with the growth of the number of members, the main challenge here is to use the flow of non-members.

You know that we are not extending our subscriber base, but I think the key challenge for the advertisement is how we are going to leverage the traffic of the non-subscribers. So you can see that we see the traffic from the non-subscribers continue to go down because we are now having more subscribers. That is the reason for us, we need to continue to optimize the solution we provided to the advertisers and making sure we can also provide a very attractive interest package to continue to optimize the traffic operation.

You can say

that, start from the year of 2023, we already registered a very good performance regarding the advertisement business. Well, regarding what we're going to do for this year, I think for this year, we're also going to maintain a very stable growth for the advertisement business. At least from what I can see from Q1 of this year, we have a very strong growth. Especially we have the key revenue contributor coming from the e-commerce, the gaming industry, the content information and the faster consumption industry. And especially due to the e-commerce, they are launching the large-scale promotional activities during the new Chinese year. So we're going to say that in Q1 of this year, we also have a very good growth coming from the e-commerce channel regarding the advertisement business. We're talking about the Q2 of 2024. I think the key event we're going to have in Q2 would be the 680 shopping festival online. In that way, we're going to leverage this great occasion to serve our e-commerce and the e-commerce community. We're also going to have a very good growth compared with last year. And we also prepared many of the good solutions in order to continue to serve the e-commerce advertisers. You know that besides that, we are also leveraging the very enriched and diversified music ecosystem of QIME to continue to roll out more diversified formats of advertising and advertising business models. For example, for the investment advertising, it could also be well combined with our earth-life performance and concepts.

As I mentioned,

in Q1 of this year, we also launched an incentive-based advertisement format that is based upon the coin. By launching this new model, we hope that we will be able to continue to improve the user retention while at the same time to start a new stream of the revenue for the advertising business.

So basically, we can, under the three modes of pricing, contract, and recruitment, because we have a very rich and diversified advertising product, we believe that this will be able to support the health and growth

of our advertising business. The product to continue to grow our advertising business in housing and sustainable approach.

Thank you. And the next question from Zhang Lei, Bank of America, Maryland.

The sales and marketing aspect is also a significant improvement in the balance of money. But the overall balance of money for MAU is relatively stable. So I would like to ask the driver behind this question, how do you see the future trends in terms of the overall exchange rate and the overall exchange rate? Thank you, Mr. Manager. I will translate it myself. So how should we look at the driver and the overall sales and marketing and the margin trend in the following quarters? Thank you.

Thank you very much. Thanks for your question. Just now, in our previous answer, we also mentioned about the GP margin. Actually, for our GP margin, we registered a significant growth, no matter on YLY or MOM basis. That should be a very solid baseline for our performance. I do believe in the near future, we're going to look at the general market, the general market, and the market extension. It was ever going down on YLY and MOM basis. We're talking about the seasonality of the marketing expenses. In Q1 of each year, traditionally, we consider it as a low season of the marketing events. Because the majority of the brand promotions and promotion activities are being conducted in Q4 of each year. So in other words, in Q1, we launch less marketing events. But you can say that our platform, or should I say the monetization of our music platform, continues to be improved. And also with the well-established ROI management in place, we do expect we're going to spend the more marketing expenses in order to regain the traffic. We're also going to reduce the marketing expenses in the channel of live streaming.

Another aspect is that the content, especially the self-produced content, is an important aspect So we will actively invest in the content promotion and promotion.

My second point is regarding the content, especially the self-commissioned or self-devised content. This is going to serve as a key driver for our future business. So we're going to make good investment for the content promotion.

So we expect Q2 marketing expenses will rise.

But overall, the overall marketing expenses will be controlled at the same level as last year. And

then we come to our GNA expenses. The main thing is the costs of our employees' investment. In the past year, we've done a lot of work to reduce the cost of the cost. In fact, the number of people has also been reduced.

On

the other hand, we will continue to invest in new technology and new products.

We will continue to invest in AIGC.

So overall, we think that our GNA expenses will be balanced with the 2024 GNA. So overall, we expect that our profit will increase in the second half of the year.

So overall, we expect that our GNA expenses will be balanced with the 2024 GNA. So overall, we expect that our profit will increase in the second half of the year. Yes,

I would like to add that our effective tax rate is 19.9%. We are coming next. Please allow me to talk about the effective tax rate.

Regarding the effective tax rate, in Q1 this year, it has been risen to 19.9%. The key reason is because the dividend payout needs to be made from the onshore company to the offshore company. So we're going to pay for the oath with holding tax. So that's the reason in Q2024, the effective tax rate has been raised to 19.9%. But generally speaking, the sum is quite small, and it's not going to impact the net profit and the net profit rate that much. So overall speaking, I do foresee for net profit and the net profit in 2024, it's going to keep arriving on that.

So overall, we expect that our GNA expenses will be balanced with the 2024 GNA. Thank you. And the next question from Macquarie, Alex Zhang.

Thank you so much, management, for taking my question and congrats on the great results. It's been very great to see the improvements in our music paying conversion. So if you compare the existing users versus the newly acquired users, I just wondering if management can shed some light on the average pricing gaps between these two cohorts. Also, during the opening remark, management shared some very exciting AI-empowered initiatives that have been driving better user engagement. Just wondering anything you can share on the recent trends for the next month retention and whether there could be more operating leverage for higher customer kind of lifetime value down the road. Thank you.

Thank you. Thank you. Thank you very much. Thanks for the question. Regarding the existing customer, yes indeed, for the existing customer or the user, we do have a very high retention rate. And because many of them are our long-term user, and if we're going to convert them, that means they just continue to renew our service. So originally speaking, the conversion rate of our existing user would be very high. Well, for the newly acquired users, as we mentioned just now, in order to engage those users, we provide some discount and some of the promotional activities, even if we're already scouting back a discount. But actually, the conversion rate of the new users will go in line with our promotional activities and sometimes is subject to the change of the promotional activity timeline.

Regarding the growth of AI, the large model, and the user retention, we must first make it clear that all the recommended systems of music platforms are now related to the model of the neural network. Currently, we are also... it is actually different from the large language model. But we say that we currently, based on the current model of the neural network, and at the same time, we will introduce more parameters, which will be very helpful for our current recommendation and search capabilities. This is what we can see from the actual data. So for our user retention, because these technical applications, our overall retention is relatively good.

The second part of the question is regarding how AI can empower the user retention. I have to say that the AI large model indeed helps to grow the retention. But let's be clear first, all the music platform, the recommendation system was based upon the neural network model. And it is different from the large language model we're talking about today. But generally speaking, I do believe that as we're having those great models, and by introducing a large set of the parameters into our existing platform, we will be able to continue to improve the recommendation capacity and search capacity. And you can see from our actual operational system that can help us to continue to grow and optimize the user retention. So indeed, by leveraging those Cartinage technologies, our overall retention rate is being improved. Actually, we talked about large language model and the generative technology. In Q1 of this year, we also launched the open source, our self-developed Minikam video model drive, which has already received very positive feedback from the open community. And something that we're truly proud of is that we also newly introduced a large model we call it audio model. This audio model can help to distinguish the correlations between two notes and the sounds based on the characteristics of the audio. And this is also a very good result that is harvested from the Cartinage technology.

In terms of content creation, we have already obtained a good result in terms of AI voice creation. Whether it is from the size of the user or the income of the user, it is developing as we expected. Through this AI voice creation, we can discover more interesting new music and content.

We have already received a very good result from artificial intelligence generated vocals. No matter from the user scale or from the revenue of the users, we are all seeing very good progress being made. In that way, it can actually facilitate the users to identify new lyrics and new songs and new content. Another milestone I'd like to mention in Q1 of this year was we are working with Tencent AI Lab and introduced the first music generation model for the folk music. And it is through this model we are working with Shanghai National Orchestra to organize the ever first AI voice creation model. And we are also keeping an eye on the 3D models in the industry. One is Sonar and another one is UBIO. And we are exploring those new models to see how they can fit into our platform.

Thank you. And the next question comes from the audience. This one comes from Fanwei from Mizuho. Fanwei, please. Are you with us, Fanwei? Can you hear me now?

Hello?

Yes, Fanwei, we can hear you. Go ahead, please. Okay, thank

you. Sorry about that. Yeah, thank you for taking the question. So I want to double click on the offline concerts, right? So we see pretty good coming back last year and so far this year. Just wondering if management can help remind us your position and your strategy for this segment. And also, what's the business models there other than sponsored advertising? Thank you.

Okay, thank you so much for your questions.

And basically, I

think 2023 is a big year for the live performance businesses. And we are also seeing that you continue to trend in this year. But definitely it's going to be normalized and we will not have such a big growth when coming to the live performance business. And compared to last year's performances, I think from TME point of view, we have different pillars of strategy in order to support our overall strategies. First of all, we are committed to build our own IP. For example, like the TMEA music festivals and also the awards ceremony. This year is going to be the fifth year of us and we have already received a lot of very good results. And from our partnerships as well. And we are focusing on not just bringing the local artists, but also the international artists to our stage as well. Besides our own IP music festival and awards, we also team up and also help to organize and produce top tier artists live tour as well. We are also working on the TMEA event in China and also in Southeast Asia that we have successfully launched out in year 2000 and 2023. And we are continuing to doing that. And the last one, which is we will continue besides the top tier artists, we will be focusing on building some of the smaller stages. For example, like the live house events for the Tencent musicians, which will help us to incubate a lot of younger generation of musicians in order to continue to improve through the live performance events. Besides the strategies that we are, the different types of concerts that we are organizing, we will have different business model as well. First of all, we have the ticketing. We can also have the advertising sponsorship model. And as what we have mentioned before, we are also working on the fan space economy, like the merchandise and all these kind of things that we are working on. We will also continue to collaborate our live event, not just offline, but together with online with different privileges with our super VIP plan as well. So we have an exciting journey that we are looking forward and we will continue to pull in more resources in order to grow the live performance business in TME.

Okay, in the interest of time, we'll take the last question from Thomas Chiu. Jeffery, please. Thomas.

Hi, good evening. Thanks management for taking my question. My question is about our new initiative, such as Long Form Audio, IoT. Can management comments about our thoughts about the outlook in these areas? And my second question is about our long term target. Given we have talked about our 2024 outlook on the top line and the bottom line, can management comments how we should envision TME in a three to five years time down the road? Thank you.

I'll answer the first question first. The second question is about the long term target. In terms of strategy, it's always been a supplement to our music content. It's mainly about meeting the needs of different age groups' diversity of users. So we are currently also continuing to introduce new content in the market, especially in the market of the new generation.

Thank you very much. Thanks for your question. Regarding the long form target, from the business strategy perspective, it's going to complement to our existing online music service. It will help us meet the needs of the diversified customer base, especially including the user from different age groups. So that's the reason we are now continuing to introduce the top content and the new content in the market. Especially we do see some very good performance in the children-related music market.

The second point

that I will make is that we are going to keep a very close collaboration with Tencent Group, especially with music. And I do think that as a result of this collaboration, I do believe in Q2 of this year, the key event we're going to see is the robot for release of Teen Music in the second phase. If that would be successfully rolled out, I do believe it's also going to help us to continue to improve the user retention for the long-form audience.

Chang, do you want to say something?

He hasn't seen the 3-5 years.

I think for the overall strategy of an entire company, I think that we are right now on a really good pace in driving the online music services in a really good form. So we will do it going to be one by one, for example, to continue to improve our overall subscribers and also our ARPPU as well. But at the same time, this is the core, the most of our company, I think is very important is we have to continue to build our content ecosystem, which ensuring that we will have a good coverage of all of the music libraries that we should have. And also we will continue to pull in more resources in doing content co-productions. And besides that, we also extend our footprint, not just locally, but we also can do some of the international development, for example, according to not just the business side, the platform side, but also the content side as well. So I think that is definitely going to be a lot of interesting and exciting projects ahead. I think from our company point of view, I think we definitely is not just doing a 100 meter sprint. We are doing a marathon. So I think that we should strike the balance. At the same time, we continue to have a quarter by quarter growth. But at the end of the day, we will be focusing on a long term sustainable development of the entire group. And we are ensuring that we are going to have to ensure to drive a good investors returns to all of our investors as well. So we would like to share our success, not just doing the business well, but also ensuring that we have a good dividend policy and also some of continue to have our share buyback program at the right moment. Okay, I think that's it for today.

Thank you. Thank you, everyone, for joining us today. If you have any further questions, please feel free to contact our IR team. And this concludes today's call. And thank you so much again and look forward to speaking to you next quarter.

Okay, thank you very much. Thank you. Thank you.