Tencent Music Entertainment Group

Good evening and good morning and welcome to Tencent Music Entertainment's second quarter 2024 earnings conference call. I'm Nelson Tu, head of IR. We announced our quarterly financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and via PR Newswire services. During today's call, you will hear from Mr. Khushan Pang, our Executive Chairman, and Mr. Ross Liang, our CEO, who will share an overview of our company's strategies and business updates. 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 the Safe Harper Statement in our earnings release, which applies to this call as well made forelooking statements. Please note that we've discussed non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under IFRS in our earnest release and filings for the SEC. All participants are muted at this time. After management's remarks, there will be a Q&A session. And please be advised that today's call is being recorded. With that, I'm very pleased to turn the call over to Khuson, Executive Chairman of TME Khuson,

Thank you, Melissa. Hello, everyone, and thank you for joining our call today. We are excited to report another solid quarter, underpinned by a 28% year-over-year growth in online music services, as well as a 26% year-over-year growth increase in adjusted net profit. The outstanding lead addition of over 10 million music subscribers in the first half of 2024, coupled with a rise in ARPPU, once again demonstrated our strong ability to break new ground within China's streaming landscape. We remain optimistic about the music industry's long-term potential and are committed to our long-term goals. In the meantime, we are consistently adjusting ourselves to better adapt to changing external environments, evolving user mindsets, and our different business development stage to continuously innovate and achieve sustainable growth at a healthy pace and with the right balance. Let me now share some recent highlights on our expensive content ecosystem, which is getting increasingly rewarding. First of all, we continue to expand and reinforce partnerships with artists and record labels to enrich our music library and to bring the best content available to our users. Our longstanding and extensive win-win partnerships with music labels enable us to secure more content-centric privileges for users, including but not limited to early access to the latest hits, This quarter, we extended our collaborative licensing agreements with some well-known Chinese bands, such as Soda Green, Suda Lu, and a top Korean label, CJ E&M, which would sense the highly popular K-pop boy band, Zero Base One. All these contract renewals include a 30-day head start pre-fetch of their new songs. Overall, we are pleased to see that such privilege has effectively improved the membership's conversion and engagement. Second, we continue to explore more engaging ways for users to enjoy music. During the quarter, we combine the proprietary fans-artists interaction benefits, such as live video calls with digital album releases, and you can effectively increase the sales. The new digital album of a popular Chinese singer is a recent success. It features artist-themed in-app decorations and virtual souvenirs and exceeded 1 million copies in sales within three months of release, ranking as the top seller here today on our platform. We have also seen solid digital album sales results from other artists, such as Chinese singer Lei Zhang, Zhang Yixing, and the popular K-pop girl group aespa. Third, as the demand for offline live performances continues to surge, we stepped up our efforts to host concerts and music festivals with more value added services. In July, we host our upgraded flagship annual event, TMEA Tencent Music Entertainment Awards 2024 in Macau. We broadened our horizons this time, featuring A-list domestic singers and rising musicians, as well as international idols. Notably, over 60 household names, including Joseon Ah, and the K-pop girl group Babymonster performed at this year's event. TMDA 2024 sparked billions of social media buzz, showcasing our elevated industry influence. We are also bolstering our capabilities to organize large-scale concerts for top-notch singers. For instance, the host tier raised landmark concert tour and helped her all achieve a milestone of over 10,000 attending fans. We are happy to see a significant year over year growth in our revenues from offline performances in the second quarter. This quarter, as a new initiative, we customized the event-themed artist merchandise for Karen Mock, Mo Wen Hui, concerts with head-started sales on our platform. We also provided our subscribers with member-only access to the online premier concerts of a popular Chinese band, Teens in Time, Shi Lai Shao Lian Tuan, as remarkable benefits. Fourth, our self-produced content continue to win popularity and boost user conversion. We strategically leveraged our extensive resources, effort, advantage in TV, films, IPs, and artists to elevate production, promotion, and success of our self-produced content. For example, we invited popular artists Zhou Shen, Kenji Wu, Wu Kequn, and Mika to perform the original soundtracks for Tencent Video's blockbuster TV series. Joy of Life 2, Qing Yun and Dear Jin, and The Tale of Rose. This self-produced songs amassed over 200 million streams in total on our platform within three months of debuts, ranking top three on OSD charts each day. In addition, our self-produced pop songs, Heard of You, Ting Suo Ni, and Who Am I, He Wu, went viral on short video platforms soon after being featured on the national music variety show, The Treasured Voice Season 5, which significantly boosted streams on our platform. Our high quality original content, combined with unique fan artist interactions, fulfills diverse music tastes and entertainment needs, fostering an increasingly dynamic content ecosystem. We always try to inspire society and share our love for music. In the second quarter, we jointly launched another Little Red Flower Concert with Tencent Charity, partnering with volunteer artists and teachers to support the local education for children in rural areas through online and offline performances. We amplified its online reach and social influence this time by deeply collaborating with wasting video accounts to livestream the concerts. In summary, we record a solid second quarter performance, finishing the first half of the year on a strong note, both operationally and financially. We believe the power of our platform, the value of premium music content and expanding members' privileges will have a snowball effect, leading to a healthy and sustainable growth. Guided by our long-term view, our goal is to lay a strong, solid foundation for future progress and to promote the vibrant win-win development of the industry. Now, I would like to turn the call over to Ross for more details on our overall platform development. Ross, please go ahead. Thank you.

Thank you, Kaishen. Hello, everyone. Our focus on user-centric innovation has effectively increased the music subscribers and enhanced retention during this quarter. This reflected our ongoing efforts to advance our products and services, especially the focus on the high-value subscription plan, the Super VIP membership. Our approach to continuously delight users keeps us at the forefront of the streaming industry. A few quarterly highlights to share. First, we further enhanced sound quality and effects as part of our premium offerings. For example, QQ Music upgraded its self-developed Audio 3D 2.0 and Kugoo Music launched Viper Ultra Sound while featuring ultra-clear sound quality. They also presented users with new ways to enjoy the music, including sound quality for certain high-end headphones and playlists with best in-class audio quality. These improvements have led to not only higher user adoption, but also increased music consumption. Second, to meet the user's personalized needs, We have launched a series of benefits, including customized printers and ringtones based on well-known IPs and artists. These features resonate with users' desire for self-expression and proved effective in user convention and retention. Third, our premium SVIP membership is gaining more traction, employing a holistic and seamless listening experience across various devices and multiple scenarios. SVIP integrates music with long-form audio and online karaoke services, always superior sound quality. It wins the hearts of our higher active members with comprehensive online and offline privileges, such as priority access to digital albums and the ticket booking for live music events, including our TMEA. We are pleased with the early progress of SVIP membership adoption and are looking forward to sharing more exciting news down the road. Next, our more personalized music discovery and optimized listening experiences. A few key projects to spotlight. We upgraded our recommendation mid-well across all our music apps, enabling users to discover songs by the card to their taste. During the quarter, nearly 40% of streams were generated from recommendations. Without involving large audio models, we continue to improve more efficient music distribution and the discovery of new and long-term content. We also animated our platform's overall experience with AIGC applications. For example, we introduced the data-saving AI-enhanced SQLite mode, Wusun Shengyou Moshi, while preserving superior sound quality, and the Google Music Virtual DJ filters and QQ Music 3D avatar offer users a sense of companionship. On the visual side, we refined our streaming UI design to offer a more inviting and effortless experience. For example, QQ Music launched an industry-first multi-device matching playback feature and a compact half-screen music player. Users can now enjoy seamless music streaming when switching across different devices and applications. Last but not least, we further expanded our rewards program to include more benefits, such as artist merchandise. Its growing popularity among users has effectively boosted music content consumption and increased user engagement. To sum up, all the above efforts contributed to a high stickiness on our platform, as reflected by both year-over-year and quarter-over-quarter increases in time spent per user in the second quarter. Moving forward, we are committed to offering more compelling services that better align with needs of diverse music lovers, ultimately expand our paying user base and increasing user loyalty. With that, I would like to 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 effective monetization of online milk services and operational efficiency management continued to drive strong financial results in the second quarter of 2024. RFS net profit increased by 33% year-over-year to RMB 1.8 billion, and non-RFIS net profit rose by 26% to RMB 2 billion. Our total revenues were RMB 7.2 billion, down by 2% year-over-year. Revenues from online mail service had strong growth, largely offsetting the decline in revenues from social entertainment and other services. In the second quarter of 2024, our online mail service revenues increased by 28% to RMB 5.4 billion on a year-over-year basis. This increase was driven by the strong expansion of our music subscription revenues, supplemented by growth in advertising revenues, as well as growth in revenues from offline performances. Music subscription revenues in the second quarter of 2024 reached RMB 3.7 billion, marking a 29% increase year-over-year and a 3% rise sequentially. Monthly ARPPU was 10.7, up from 9.7 in the same period last year. The number of online milk paying users was 117 million, representing an 18% increase year-over-year, with quarterly net ads of 3.5 million paying users. With a large scale of music subscribers, our focus is to manage music subscription revenue growth with the right balance and peace to achieve growth in both subscribers and monthly ARPPU. Our enriched content offerings and enhanced member privileges, such as QQ Music introducing Audio 3D 2 and Kugoo Music rolling out-wipe ultrasound, have made our products more attractive and improved user stickiness. And our SYP membership program is our strategic focus operationally and will lead to ARPPU improvement in the long run. Advertising revenues also had strong year-on-year growth, primarily due to the growth in AD-supported advertising. We provided more attractive interactive features to our users, which helped improving interest rate for our AD-supported advertising. Promotions for the 2018 Mid-Year Shopping Festival also contributed to increased advertising revenues. Moreover, our interactive rewards program opened new avenues for commercialization in advertising for our users. Additionally, we continued to innovate and diversify our product offerings and advertising formats, while deepening the integration of brand sponsorships with our offline performances. Social entertainment services and other revenues will be 1.7 billion down by 43% year-over-year. We will continually monitor market conditions, the competitive landscape, regulatory environment, and our product futures for social entertainment services. Our gross margin for Q2 reached 42%, marking an increase of 7.7 percentage points year over year due to the following factors. First, the expansion in paying user base and improved monthly ARPPU for online music, as well as increased advertising revenues, had a favorable impact on our gross margin. Second, we have been focused on ROC as a key metric to manage our costs. Third, the ramping up of our own content continues to help improve our gross margin. Lastly, we have enhanced monetization of WeThink membership and advertising within social entertainment, which positively impacts our gross margin. All above factors have collectively enabled us to move to a healthy margin. Moving on to operating expenses, in the second quarter of 2024, they amounted to 1.1 billion, representing 16% of our total revenues, compared with 17.2% in the same period of last year. Selling and marketing expenses were around 210 million. and remained relatively stable comparing with the same period of last year. We continue to maintain our eye-focused approach for promotion expenses and will continue to invest in areas such as online music with a long-term growth perspective as well as in content promotions. General and administrative expenses were RMB 938 million, down by 10% year-over-year, primarily driven by lower employee-related expenses. Our effective tax rate for Q2 was 19.4% compared to 12.2% in the same period of 2023. This increase was primarily attributable to the accrual of withholding tax of RMB 111 million related to the earnings to be remitted by our PRC subsidiaries to offshore entities. Additionally, changes in preferential tax rates for certain entities also impact our effective tax rate. For Q2 2024, our net profit and net profit attributable to equity holders of the company were RMB 1.8 billion and RMB 1.7 billion, respectively. Non-office net profit and non-office net profit attributable to equity holders of the company were RMB 2 billion and RMB 1.9 billion respectively. Our diluted earnings per ADS reached a record high this quarter at RMB 1.07, up 30% year-over-year. Now our first diluted earnings per ADS increased to RMB 1.19, up 23% year-over-year. These results underscored our robust financial performance, enhanced operating efficiencies, and the beneficial impact of our share repurchase program. As discussed during Q1 2024, earnings call, we declared a new cash dividend for the physical year 2023 in May and have made a payment of US dollar $212 million in June 2024. As of June 30, 2024, our combined balance of cash equivalents, term deposit and short-term investment were RMB 35 billion as compared with RMB 34.2 billion as of March 31, 2024. This combined balance was also affected by changes in the exchange rate of RMB to USD at different balance sheet dates. Looking forward, we will continue to focus on high-quality growth in our music business, such as expanding SVIP membership, as well as operating efficiency improvement. We will continue to invest in high-quality content, original content production, as well as innovative technologies to further improve user engagement and enhance user experience. This concludes our prepared remarks. We are now ready to take your questions.

at the bottom left. For the benefit of all participants on today's call, please limit yourself to one question and then if you have additional one, please re-enter the queue. If you ask questions in Chinese, please can we ask you to repeat in English. And the first question comes from the line of Citigroup Alicia. Alicia, please go ahead.

Hi, thank you so good good evening management thanks for taking my questions Congress on the solid results i'm going to ask in Chinese first and I translate myself. Why you don't watch our house is it is all the key one what the one he should see why he can and when I just should go and find out just to see how many and. How should we look at profit and online music? And then the follow-up question is, which will be the more important driving force, the NEX or the ARPPU? So can management share with us the second half this year, second half 24 outlook for the top line growth probability trend and also the online music growth rate. Will the NEDAC or the ARPPU to be the more important growth driver? Thank you.

Thank you so much, Alicia, for your questions. And our view and outlook for the year 2024 actually remains unchanged, which means that we are expecting to achieve a healthy and positive revenue and profit growth this year. For the online music businesses, as mentioned, we have over 10 million net subscriber ads in the first half of 2024, and also the ARPPU has reached 10.7 RMB, up from 9.7 RMB in the same quarter last year, which laid a very good foundation for us, and we are confident that our online music will continue to be solid, fueled by both of the net ads and also the ARPPU expansion. So over the past few quarters, our net S comes in much better than expected, primarily due to the accelerated increase of the pay content and also the effective marketing strategies. So as the pace of the net S will turn to a normal level and grow in a steadier pace, we will be more focusing on growing the ARPPU, which is expected to have a faster growth than the net S. One of the good news that we are pleased to seeing that our enriched privileges and holistic service offerings have started to gain more popularity among our existing users. So our SVIP plan has very good momentum and which gives us confidence on the ARPBU growth in the future. So as a result, in the near term, I think that the net S in the second half of 2024 will be smaller compared to the first half, but the ARPPU will expand at a more noticeable pace moving into 2025, which help to further improve our margin as well. In terms of the advertising revenue, I think it's expected to have a good performance in the coming quarters due to the growth in the ad support, the advertisement and also the sponsorships of the offline event, et cetera. For the social entertainment side, we expect to have a continuous challenges from the competition, macro and other factors, but with this contribution to our total revenue becomes much smaller, impact will be larger offset by the solid growth from online music business. So in terms of the profitability, our strategy is to focus on the high quality growth in providing effective and proven to be effective. And we are now expecting a slightly better full year net profit than the previous forecast.

Thank you. And the next question comes from Lincoln Kong from Goldman Sachs. Lincoln, please.

Hi, thank you management for taking my question and congrats on the assorted quarter. I just want to follow up in terms of the up when the net ends. In the IRPPU, I think you mentioned we will have a more meaningful increase into the second half. So could management just elaborate a bit more on price hike, you know, promotion reduction, or can we elaborate a bit more in terms of the super VIP progress or at the high value added service here? What kind of magnitude of the increase we expect in AIP and would that result in any a lot of higher treatment of their members because of this increase. I mean, there's an overall weak background. Thank you.

Thank you very much, Manager Ceng. I have a question. Just now, Carson mentioned in his speech that in the second half of this year, we will see a more meaningful growth on the A2 PPU. I would like to ask, what are the main driving forces behind this growth? What is its main growth method? Is it in terms of price adjustment or member rights adjustment? Thank you. As Karen just said, the growth of our app

I think the most important factor is the plan of the subsequent SVIPs. We hope that in the SVIP system, in addition to maintaining the basic content privilege, we can also give users a higher value in the other privilege modes.

Thank you very much. Thank you for your question. And yes, indeed, I think the key driver of the future Arab growth in H2O of this year truly rests with the SVIP plan we are going to launch. In the SVIP plan, besides providing the content privilege, we also hope that we're going to offer other privilege, providing higher value to our members.

Currently, there are three main aspects to the core drive of SYP. The first aspect is that we currently have the right to listen to SYP's digital albums first-hand. For those high-value users, if they want to listen to the songs first-hand, they have a good contribution to this.

We're talking about the key drivers of SVIP business. There are three points. The first point is that our existing digital album business allows SVIP to enjoy the start-to-head listening privilege. This can allow us to engage the high value customers. If our SVIP customer, they'd like to hear certain music head of the start, that would be a great contribution to the value of the members.

In the second part, we also found that for high-quality users, their demand for sound quality and sound effect is very high. Including in our actual operating data, we can see that their usage is also very high. So we will continue to upgrade our sound quality and sound effect in the future.

Well, my second point is that for those high value customers who ask for IPs, they also pursue higher and better sound quality and sound effect. And we can also see that from our actual operational data, they also have a very high adoption rate for the high quality sound and high quality sound effect. This is also what we're going to do in the near future, continue to upgrade the sound quality and sound effect.

From a practical point of view, the Doobie Scenic Sound we launched in the first half of the year, as well as our own genuine Scenic Sound 2.0, and the DTS we just launched in July, all of these have a very good contribution to the SIP in terms of practical operation effects.

Well, from the application perspective, in H1 of this year, we launched Adobe Audence, and we also launched Audio 3D 2.0, and in July, we just launched DTS. All those very primary sound quality will help to further contribute the value to our SVIP members.

The third part is for the content part. For SYP, we have further integrated the original audio and video content into SYP to provide services. At the same time, we can also provide them with a multi-device listening privilege. In other words, for SIP, on the entire TME platform, for the content, the music content, and the audio content, the audio content, and the multi-device content, we can build a basic, comprehensive listening ability.

But at the same time, regarding the content creation for SVIP, we make sure they can enjoy the long-form audio content in their existing privilege. We provide them the primary service. In other words, they can enjoy the seamless listening experience from device to device. In other words, for SVIP on TME platform, they can enjoy the muted content, the long-form video, and also enjoy the seamless listening experience from device to device. We can say that for SVIP, the membership fees is around RMB 40 per month, and which is actually allow us to have more room to provide better benefits and more experience to the SAP compared with normal subscribers.

另外就是说我们对于基础会员这部分, 因为它仍然是我们最大规模的一个群体, 那我们也会持续的去做更精细化的内容驱动跟运营, 能够让我们在基础会员这边的app能够保持一个比较稳健的增长。

But at the same time, for our paying users, they are still the majority of our user base. We're going to continue to refine the content and the operation and making sure they're going to have a steady growth within ARAP.

We're going to continue to refine the content and the operation

I believe in next quarter's earnings call, we're going to share with you more data and more strategies within SVIP.

Thank you. And the next question comes from Alex Poon, Morgan Stanley. Alex, please.

Thank you for accepting my question. Congratulations on your good performance. My question is about SVIP. I'm happy to hear that it will start to improve our R pool in the second half of the year. How should we think about the penetration rate of SVIP? In 2019, we had 8 yuan, 12 yuan, My question is related to Super VIP. How should we think about the penetration as a percentage of total paying user, the trajectory in the coming few years? Thank you very much.

Yes, we should say this year is equivalent to this year's trial. Because there is a three-part drive in addition to sound quality and industry, we are currently maintaining a relatively rapid growth. We are equivalent to this two should be from the last year from zero to a relatively relatively optimistic increase. But we may want to disclose this in the next episode. We can only tell you that the increase is still more than expected. In the long term, as you just said, most of us are already members of the foundation, including Google's Huawei and QAO. The eight yuan of the negative music bag is relatively less. This is the current area. You said that in the next ten years, it may become our long term. Of course, we will think that SYP will be a more like the previous green diamond mode to operate a rhythm like this.

Thank you very much. Thanks for the question. And I have to say that for SVIP, and because as I mentioned in the previous answer, because they ever upgrade the sound quality, the sound effect, along with other drivers, we will be able to maintain a relatively fast growth of the SVIP members. Where at the same time, I have to say, we start SVIP almost from zero. So till now, we see the growth is pretty satisfactory, but I think we still need to give some time till we disclose further information to you. What I can share with you is that SVIP, the growth is still in line with our expectation. We're looking into the future. As you just mentioned, those used to be eight RMB per month user has already been converted into Google user and QQ music paying user. And they are now majority of our user base. This is what we see now. We're looking forward to the next 10 years or in the very long term. I think maybe SVIP will going to be our future driver of the growth trajectory.

We hope that we can still maintain a steady and solid growth of SVIP, but we're going to disclose the corresponding data in due time. Thank you. Okay, the next question comes from Zhang Lei from Bank of America Mail, which, Lei, please.

Hi, good evening, Manager Chen. Thank you for accepting my question. Congratulations on your very strong performance. I would like to follow up on the number of members. As you mentioned, in the second half of the year, there has been an increase in the number of files. I would like to ask, I don't know if we have talked about this before, but is it possible to maintain the number of 3 million members in each quarter? Another question is, Manager Chen, in the long term, Thank you, Matt, for taking my question and congrats on the solid quarter. Want to follow up on membership net ad trend is 3 million per quarter. Do you hold? Things will enter the steady growth stage and how to look at our long-term paying user penetration. Thank you.

Yes, just like Karen mentioned, we expect that in the future, the growth of our app will be more optimistic than the growth of NetEase. Because in the first half of the year, after a holiday, we hope to maintain a more stable growth in the second half of the year. So, in terms of our operating strategy, we basically guarantee that UP has a relatively good growth, and then NICE will also increase. At the same time, of course, the main goal is still our income and profits. If our income and our profits are done according to our communication with this year's expected growth, then what we are more pursuing is what kind of result will NICE get after the growth of our UP's high-end users. This is the current operating rhythm. In the second half of the year, it should be clear that we still hope to use a more stable user size. In addition to the new opening, there is also a problem of user storage, because only this kind of high-end growth can allow us to have a very strong maintenance and even a small growth in the rest of the month.

Thank you very much. Thanks for your question. And I think the cousin has already shared in his remarks. And when we look into the crop, we hope that in the near future, the growth would be much better than what we have on that age. But to be sure, in H1 of this year, after a few holidays, can we see the crop and the net age all grow? But in H2 of this year, we're still going to maintain a very solid growth. And from the operational strategy perspective, we still would like to maintain a good growth of the ROP. We'll naturally grow the net aids. But the most important thing we have to keep in mind is always the revenue and the profit. We do hope that the revenue and the profit, as we discussed with all of you, would hit our full year target. If we will be able to do so, then we will be able to continue to grow our subscriber base in a quality approach. Then you can expect what the result might be. Well, from the operational strategy perspective, I think we have already made it very clear. We would like to maintain the steady growth of our user base. Besides paying attention to the net aids, we should also pay attention to the user retention, because only by having the high-quality growth of the subscriber, we will be able to maintain a very strong retention of our high-quality subscribers. That will help us to further grow our business substantially.

In the next half of the year, apart from maintaining our current growth scale, we will continue to promote sales and promotion to a certain extent. In this promotion strategy, we can also pay more attention to the growth of the number of users who are interested in Bao Yue. So, in summary, we still maintain the target of the number of users who are interested in Bao Yue and the long-term Bao Yue penetration.

Well, regarding the subscriber penetration rate, we still would like to maintain what we used to promise to the market. And we also have every confidence that we're going to hit our mid and long-term subscriber number. Regarding H2 of this year, what we're trying to do is that besides growing our subscriber base, we will also continue to intensify the sales and the promotion strategy, making sure we will be able to engage new customers and then to grow our subscriber base even higher. And this is also what I mentioned. In the long term, we are still very confident to hit our subscriber number and hope we will be able to honor our commitment to the market.

Thank you. The next question comes from Wei Xiong from UBS. Xiong, please.

Thank you, Manager Ceng, for accepting my question. Good evening, Manager Ceng. My question is about profit. I can see that the company is continuing to grow healthily in terms of net profit and net profit. I would like to ask how we should think about the speed and space for net profit to continue to increase in the second half of the year and next year. What do you think is the net profit level that we can achieve in the mid-term? My question is about our profitability and margin trend. Just wondering, could management share how should we think about the pace of gross margin expansion in the second half this year and next year? And what's the level of the gross margin level that we might be achieving in the medium term? For the net margin, how should we think about Any further room for cost optimization, as well as the net margin trend going forward? Thank you.

The company's net margin and net profit have continued to grow in the past nine seasons. We are very confident that our net margin and net profit will have a better performance.

You can see the gross margin and the net margin of the company continue to grow for the past nine quarters consecutively. So, overall speaking, we're still very confident we're going to have a good performance on the GP margin and the net margin.

The growth of our gross profit is on the income side. Our overall packaging business and advertising business have a rapid growth. Especially in the future, if our SVIP is more effective, it will be a better contribution to our gross profit.

Regarding the growth of the GP margin, on one side, from the revenue perspective, you continue to see the subscription business and the advertising business, the revenue continue to grow. But at the same time, in the near future, if our SVIP program could be well executed, it's also going to be another positive contribution to our GP margin.

On the other hand, in terms of cost, we have invested a lot in the music industry for many years, and we have established a good relationship with the copyright parties. We will gradually see the results of these large investments, and we have also managed the copyright and increased the efficiency of copyright.

Another point is that from the cost perspective, we continue to be committed in the music industry and we made a heavy investment in the industry. We also maintain very close cooperation with the copyright holder. But I can say that those substantial investments were yielded with very fruitful results. And we also did the ROC management over the copyright and IP continue to improve the utilization rate and efficacy.

The third point is that the increase in the ratio of our own content will also play a better role in our revenue.

I said pointing that the contribution from our self-produced content continues to grow, which will also positively benefit our GP margin.

But the fourth point is that even though our social income is decreasing, the growth of our K-drama ads and members will also lead to a growth in our overall revenue.

At first point, even if we see a slight decrease on the social business, but still our wasting advertisement as well as the membership number continue to grow, which will also benefit the overall GP margin. We're specifically talking about the operational cost. If we take a look at the sales expense, you can see that for the past few quarters, we will be quite self-disciplined and well-managed in sales expenses, which also show very good result.

At the same time, we foresee for the market expenses for the year, and the total contribution from the market expenses to the revenue would maintain the same as what we saw last year. Specifically, if we take a look at the G&A expenses, if you take a look at the H1 performance of this year, you can see still we registered a small decline compared with last year.

We will continue to improve our operational efficiency and the expenses management efficiency. In other words, for this year, we believe the G&A expenses ratio to the total revenue would be lower than what was the last year.

So overall speaking, we believe no matter for the GDP margin or the net margin, we're going to have a good improvement compared with what we saw last year.

But at the same time, the net profit and the net profit margin, the growth would be better than the GDP margin.

In the long run, as our online music business continues to grow steadily and positively, we also have every confidence to the future growth of the GP margin and the network.

Thank you. And the last question comes from Thomas Chung from Jefferies. Thomas, please.

Hi, good evening. Thanks, management, for taking my question. My question is about macro headwinds. Given that we have been seeing macro uncertainties these days, how should we think about the impact to our different business segments, subscription, advertising, and social entertainment. And my second question is about competition. Are we actually seeing any changes in the competitive landscape? Thank you. Thank you for your question. My first question is about the situation of Hong Kong. I would like to ask about the uncertainty of Hong Kong's influence on different parts of China. My second question is about the real pattern of online music. Can you share with us the future trend? Thank you.

Okay, I take the first questions regarding the macro environment. Thank you for speaking. The downturn in the macro environment definitely will bring some challenges to different aspects of the business. But I think that for the TME's online music business, frankly speaking, is a really value for the money. So which is, frankly speaking, is a really relatively low cost entertainment that is very affordable to all users. So you can see that all the subscription business for us, the online music, do not have very much impact by the macro environment. In terms of the advertising, we are also doing a great job in the quarters. Even though some of the advertisers may have some impact in spending on the advertising dollars, but we are seeing that we are still doing a good job especially in some of the sectors that is related to, for example, tourists and also related to some of our offline concerts sponsorships. So I think that the advertising, besides the sponsorships, we're also doing some of the new formats of advertising as well, so which can help us to further grow our advertising business in a very good momentum. So I think that the overall medical environment do not have such a big impact to TME, and still we have a very confidence for the long-term health people of our business.

So from the competitive situation of the online music industry, we should all be clear that it is basically the long-term players.

Respond to your second question regarding the online music, especially the competition landscape. I think everyone's been clear. We still have the players or those players we usually say in this market.

We are still focusing on doing our best. We are a platform that will continue to stick to the platform's two-way strategy.

Well, regarding the competition, you can see that for this year, it marks our eighth anniversary of starting the business. So our focus is still to do our right business, to do the business right. We are still going to follow our strategy of having the content and the platform at the same time. So we firmly believe as long as we continue to improve our content and improve our competition capacity, we're at the same time to further refine and optimize the user experience. We're still going to keep our position in this market.

okay um since there are no further questions on the queue i would like to wrap up the call thank you everyone for joining us today and if you have any further questions please feel free to reach our ir team and this concludes today's call and thank you very much again and look forward to speaking to you next quarter thank you and goodbye thank you goodbye