Tencent Music Entertainment Group

Good evening and good morning and welcome to Tencent Music Entertainment Group's third quarter 2025 earnings conference call. I'm Nielsen 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 newswire services. During today's call, you'll hear from Mr. Kushan Pang, our executive chairman, and Mr. Ross Liao, 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 harbor statement in our earnings release, which applies to this call as we made following statements. Please note that we're discussing non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under IFRS and the earnings release and filings with 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 Kashen, Executive Chairman of TME. Kashen, please.

Thank you, Madison. Hello, everyone, and thank you for joining our call today. In the third quarter, we delivered another set of strong financial results. underpinned by the well-rounded performance of our online music business. Our ongoing innovations across content, services, and live experience continue to feel steady growth in our subscription business, while pushing momentum in non-subscription revenue, particularly in concerts and artist merchandise. Backed by our strong financial position and operational excellence, we are posted to further broaden our music service, unlock new growth opportunities, and create greater value for artists, partners, and users across the entire music industry. Now, let me share some highlights from this quarter. First, we further enriched our content coverage to include more offerings in different music genres and languages. For example, in pop music, we renewed the contract with DRAMAS, a leading Korean label, and partnerships with Jam Studio, Deng Jiqi, Jason Zhang Jie, and Lei Zhang's Zhang Yixing Studio, strengthening our collection of top hits. To better serve users' passions for game-related music, we partnered with Tencent Games to co-produce Agnes of Tomorrow , the 10th anniversary theme song performed by JJ Lin , for Honor of Kings . Performed as the final at the Honor of Kings 10th anniversary co-creation night, the song quickly garnered over 600 million social media mentions within two weeks of its release, engaged 280 cultural and tourism authorities nationwide. Standing out as one of the year's most impactful game soundtracks, We also collaborated with Blizzard Entertainment for the first time and introduced the 50 original soundtracks from iconic game titles, including World of Warcraft, and Hearthstone . To further enrich anime and K-pop music categories, we established strategic partnerships with renowned Japanese ACG label, King Records, and Korean label, Serial, offering popular anime songs and OSTs from hit dramas such as Boys Over Flowers, Hwayang Lanzi. Second, during the quarter, we successfully staged several large-scale international concerts and events, extending our reach beyond borders to tap into the international market opportunities. A prime example is the concert tour that we hosted for leading Korean artist G-Dragon. G-Dragon 2025 World Tour Wubbamash building on our success in the second quarter. This time we put on 14 additional show-off shows for him across six cities. including Sydney, Melbourne, and Kuala Lumpur, drawing over 150,000 attendees. The popularity of the tool lead to acceleration of live concert revenue growth, demonstrating our strength in delivering world-class entertainment experiences. Our annual flagship, TMEA Concerts, was another success and a highlight for the quarter. The event featured 35 different artists and groups and drew more than 10,000 attendees, underscoring its strategic importance as a well-anticipated premiere gathering within the music industry. Building on the momentum from TME8, this year we broke new ground and introduced another flagship concert's IP, TME Live International Music Awards, TMA. To celebrate the achievements of international artists and showcase their talents, The inaugural team featured 22 global renowned artists and groups from China and a number of Asian countries, including famous acolytes, Belgin, PPG, ASPA, and SMTR25. The two-day event immersed over 20,000 attendees in a vibrant atmosphere. We also organized and delivered several major concert tours for well-known artists like Fiona Seed, Xue Kaiqi, Tia Wei, Yuan Yawei, Angela Zhang, Zhang Shaohan, and Guy Zhouyan. The success of these shows illustrates TME's strength and impact in bordering artist fan bases, especially through interactions with younger audience. For instance, in Guy's most recent shows in Chongqing, through integrated online and offline promotional resources, we helped him attract more than 40,000 attendees, up from 10,000 in a single event in the third quarter. This marked a successful upgrade in concert scale, moving from arena level to stadium level. Together, these remarkable events have laid a solid foundation for TME to continue to grow at scale. As we further build out our performance pipeline, we are confident that there will be more exciting opportunities home and abroad to deliver large-scale and immersive live music experiences for users. Third, we continue to break new ground with artist partnerships, providing them with holistic support and leveraging our increasing promotional capability to enrich artist-centric offerings. For instance, during the quarter, we partnered with Tencent's hit title, Crossfire, 穿越火线, to produce Yuqi's Song Yuqi new song, COPDD. By seamlessly integrating this song into the game ecosystem and allowing users to earn in-game items through listening cards, we amplified its impact. The track sold to number two on the QQ Music new song chart within two days of its release. As another example, in this quarter, we premiered Lay Zhang's new digital album, Rock the Heavenly Palace, Laotian Gong, together with collectible card packages. This innovative approach not only boosted participation, but also lead the album to rank among the top of the 2025 bestseller charts. The production and release of Bailu's first physical album, My Odyssey, featuring two distinct version designs, marked another success. The album earned strong acclaim from fans and achieved outstanding sales performance. All of the above examples illustrate the power and fire wheel of our content and platform dual engine. Supported by our massive user base, fueled by expanding content ecosystem and constant innovations, we have reinforced the virtuous cycle, allowing us to design diverse services to address users' needs. With user interactions deepening and community engagement strengthening, It boosts the reach of quality content on our platform and attracts more attention from artists and labels, both home and abroad, feeling the sustainable growth of our ecosystem. Last but not least, on ESG, For seven consecutive years, we have proudly won the Music Gardens-based public welfare program, partnering with singers and teachers to support music education in rural areas. This year, we invited V-SYNC users to redeem their points accumulated through incentive ads to directly support the program, sparkling greater users' interest. Over 380,000 participants took part. Looking ahead, we will continue to leverage our dual-engine strategy, explore new opportunities and expand our reach, building a seamless, vibrant, all-in-one music service platform for music lovers. Now, I would like to hand it over to Ross for a deeper dive into our overall platform development. Ross, please go ahead. Thank you.

Thank you, Kasia. Hello, everyone. Our music ecosystem continues to strive in the third quarter, benefiting from our profound user insights and observational excellence. As we focus on enhancing the value proposition for user, This quarter, we achieved a steady growth in SVIP penetration and ARPPU. We are also building a diversified product portfolio, catering to different user cohorts to effectively expand our platform's reach to a broader audience. To this end, our commitment to harnessing AI to elevate users' experiences continued to empower us to remain at the forefront of delighting music users. First, on system integration, we were among the first to support Apple's Liquid Glass mode in iOS 26. and introduce the liquid glasses themes and the players on Android for optimized visual effects and better interactions. We also fully adapted our app for Harmony OS with core music features now largely aligned with what we offer on Android. Second, we upgraded the player interactive features and AI pod functionalities For example, we invited more enlightening designs and tokens on the playback page, creating delightful surprise across new touchpoints, which also proved effective in new sound promotions. We also pioneered multi-mode sound transition feature, AutoMix, offering seamless remix and a more immersive streaming experience. To effectively deepen engagement, we expanded our AI-powered Lyricist card feature, newly covering over 200 leading artists. The card collecting process is full of threats and fun, driving sharing among users and increased user activities. Our upgraded AI Assistant allows users to generate a personalized playlist with just one type or easily create their own original music. This has significantly lowered the barrier to creative expression and helped increase content consumption through recommendation. We are here to serve and delight. As a result, users can unlock additional tools and perks from our multi-point membership offerings. Whether a freemium user, a deeper value ads member, or a standard subscriber, we provide different services to cater to the distinct needs of users. In fact, recently, we started to see an increasing willingness of freemium users upgrading to ads members, which also led to increased time spent. For those looking to experience the ultimate service, our SAP offers an unparalleled range of freemium features. which have been crucial in driving SYIP adoption rate and average spend. Its penetration and ARPPO expanded both year-over-year and quarter-over-quarter as we introduce new privileges and innovative services that strengthen its value proposition and inspire the music appreciation in new ways. A new highlight to share. First, premium sound qualities remain a key draw for SVIP. As we accelerated its results, QQ Music newly introduced DTS bombing external speakers, became the top convention driver among audio qualities. Viper Airtel Sound 2.0 in Kugel Music. with its improved sound quality. Sound-classified and reduced data usage also proved to be highly effective in retaining SVIP loyalty. Second, our insight into content and the user provided us to provide creative offerings, which in turn helped boost SVIP uptake. For example, the digital album, an integral part of our content ecosystem, remains effective at the SYIP convention. Members highly appreciate their privileges access to digital albums alongside limited edition collectible NFC cards. Notable collaborations this quarter include Ethan Chang, Chen Yixun, Fair and Dreams, and Idol's self-titled Japanese EP, which has significantly boosted SYIP conventions. Another example is Starlight Cars. In the third quarter, we rolled out new starlight cards featuring popular artists such as Fiona Seed, aespa, Idol, and Things in Time's Shidai Shao Nian Tuan, which instantly became a big draw. We have also expanded artist partnerships to include more international musicians. including JYP's Yeezy, Japan's Joey Oatman, and Western artist Jake, replicating our success domestically. We recently extended our Starlight Card offerings to the Hong Kong and Thailand market through our music platform, Jokez. Third, we wrote out several target initiatives to reinforce the artist-fan connection and strengthen user loyalty through Babel. We expanded our artist routers by onboarding over a dozen musicians from domestic labels, such as Hu Xia, Nas Tide, and Ride, giving more fans the chance to interact directly with their favorite artists online. This, in turn, attracted a broader user base. We leveraged AI to further localize the bubble features and the functionalities, leading to improved user retention. The new and upgraded features include the in-app translation and the speak-to-text capabilities empowered by large AI models, as well as desktop shortcuts for quickly and spontaneous access. We also launched a limited edition badges to celebrate the key artist moments, such as new song release, birthdays, and the debut anniversaries. This compliment by unique fun-only perks, helped strengthen emotions ties between artists and the fans, resulting in improved rotation and engagement. In summary, we are pleased with the progress we have made in enhancing the value of an increasingly diverse use space. Moving forward, we remain committed to further enhancing our cost transit and the platform efficiency. We are well positioned to continue to shape the industry from music creation to enjoyment. 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, everyone. Let me now turn to our financial results. In Q3, 2025, our total revenues grew 21% year-on-year to RMB 8.5 billion, marking the highest revenue growth since Q1, 2021. This was resulted from continued growth momentum in music subscriptions, together with robust growth in offline performances, advertising services, and artist-related merchandise sales. Online music revenues grew 27% year-on-year, trying to be $7 billion. Music subscription revenues grew 70% year-on-year to RMB 4.5 billion in Q3 2025, driven by continued growth in monthly ARPPU and subscriber base. Monthly ARPPU reached RMB 11.9 this quarter, compared to RMB 10.8 in the same period. of last year, primarily driven by expansion in SVIP membership program. This quarter, we continue to broaden and strengthen the SVIP benefits. For example, KQ Music newly introduced the DTS booming external speaker, and we expanded Starlight Cards with more popular artists. Both are popular features to drive SVIP adoption. Additionally, our multi-pronged membership offerings across ADS membership, standard memberships, and SYP membership also contributed to improved user engagement and the conversation. All of these efforts have laid down the foundation for the health growth of our subscription units. Advertising revenue continued its strong growth trajectory on a year-on-year basis, primarily driven by more diversified product portfolio and innovative AD formats, such as AD-supported model. Offline performances and artist-related merchandise sales delivered triple digital year-on-year revenue growth this quarter in Q3. We successfully held multiple concerts, both domestically and internationally. In the overseas market, we hosted 14 shows for G-Dragon across six cities, achieving robust ticket sales. In the domestic market, we successfully hosted concerts for high-profile artists such as Will Pan-Wei-Bo and Jianzhang Zanianyu. In addition, we provided concerted related merchandise sales during the concerts, which offered more artist-fan connection opportunities and in turn contributed to the revenue growth in artist-related merchandise sales. Social entertainment service and other revenues were on the 1.5 billion, down by 3% year-on-year. Our growth margin in Q3 2025 was 43.5%. 0.9 percentage points year-on-year. The increase was mainly attributable to strong growth in musical suppression and advertising revenues, alongside a lower revenue-sharing ratio in social entertainment services. At the same time, new growth areas, such as offline performances, and artist-related merchandise sales have lower gross margin. The revenue mix shift may cause gross margin fluctuations in different periods. Diversification in revenues offers the possibility for further growth in our revenue and gross profit, and help us cultivate a more comprehensive one-stop music services ecosystem. Moving on to operating expenses, they amounted to RMB 1.3 billion, representing 15.5% of our total revenues in Q3 2025, compared with 7.4% in the same period of last year. Selling and marketing expenses were RMB 260 million, up by 18% year-on-year, primarily due to higher content promotion expenses and channel spending. We keep monitoring market conditions and increase spending as needed with financial discipline. General and administrative expenses were under 1.05 billion, up by 5% year-on-year, primarily due to growth in employee-related expenses. Our effective tax rate for Q3 2025 was 70.7% and remained relatively stable compared with ETI in the same period of 2024. We accrued withholding income tax of RMB 118 million this quarter. For Q3, our net profit increased by 29% to RMB 2.2 billion and the net profit attributable to equity holders of the company increased by 36% to RMB 2.2 billion. Non-office net profit increased by 28% to RMB 2.5 billion. And the non-office net profit attributable to equity holders of the company increased by 33% to RMB 2.4 billion. Our diluted earnings per ADA this quarter was 1.38, up by 37% year-on-year. And non-AFA's diluted earnings per ADA was 1.44, up by 33% year-on-year. As of September 30, 2025, our combined balances of cash, cash equivalents, term deposits, and short-term investment Well, I'm finished. 36.1 billion. as compared to RMB 34.9 billion as of June 30, 2025. This combined balance was impacted by the repayment of US$300 million for the senior unsecured lots due in Q3 2025. And it was also affected by changes in exchange rate of RMB to USD at different balance sheet dates. Looking forward, we will put more efforts in IP cultivation and self-product content, while keeping product innovation to foster a vibrant and comprehensive music ecosystem. With solid growth in our core business and increased product diversification, such as offline performance and artist-related merchandise, we are well positioned and are confident in the high-quality growth of our business. This concludes our prepared remarks. Operator, we are ready to open the call for questions.

Thank you. Shirley, if you are dialing in by phone, please press 5 to ask a question and then press 6 to unmute yourself. If you are accessing the call from the Tencent meeting or vote meeting application, please click the raise hand button at the bottom left. For the benefit of all participants on today's call, please leave yourself to one question. If you have more, please re-enter the queue. If you ask a question in Chinese, please may we ask you to repeat in English. And the first question comes to the line from Morgan Stanley, Bill Yang. Yang, your line is open.

Thanks a lot for the opportunity. I would like to ask about the fourth quarter this year and the 2026 outlook for the business. 感谢提问的机会,我想问一下管理层现在这个时间点怎么看待公司在今年四季度和2026年的业务展望,非常感谢。

Thank you so much for your questions. And with our holistic, high-quality growth strategy, we delivered another quarter of strong results on both of the top and the bottom line. We continue to lead the industry in music consumption and creation, and we are confident to deliver good results. On the music subscription side, our multi-pronged membership offerings lead to better caters to users' diverse needs. Number of paying users and ARPPU grow steadily while user retention and time spent remained healthy. SVIP penetration and ARPPU increased year over year and quarter over quarter. In addition, I would like to point out that the newly launched X memberships also gain the momentum, which will help us to unlock greater value from the freemium users as well. On the non-subscription side, our one-stop music entertainment service platform will continue to drive users' demands and business growth. First, on the advertising side, our diversified and innovative ad formats continue to create value for advertisers and users. So it will continue to drive steady business growth in quarter four. Second, on the fast growing live concerts business, we have already achieved a significant breakthroughs formed and aboard, which will contribute to a triple digit year to year revenue growth. Last, on the fan-based economy, we have explored a variety of new product combinations and service formats, which will be effectively helping artists and music labels to further unlock commercial value. So in short, for the year 2025, we remain hopeful to deliver strong performance of our online music services to further driving good revenue and profit growth of the company. Looking ahead to 2026, we are committed to implement our platform and content ecosystem dual engine strategy. With the strong foundation that we have built together with the new initiatives, we expect sustained healthy growth in our mutual subscription business, although at a slightly slower rate given its high base. Non-subscription businesses' contribution to the group performance will continue to increase and is expected to grow faster than the subscription business.

Thank you, Kexin. And then the next question comes from Goldman Sachs Lincoln. Lincoln, your line is open.

Thank you, management, for taking my question. And it convinced I'm a very solid quarter in the third quarter. So I just want to quickly touch on the industry landscape here, especially for the music streaming business. I think recently there is a bit of a market concern over some pure music app competition, you know, in terms of the faster MAU ramp-up or potential high budgets for purchase of music contents. So just want to wonder, you know, mention the thoughts. Do you see anything changed in terms of the competition landscape at all? And also a strategy to further enhance our leadership in terms of the content differentiation, our user mindset, and overall, you know, service offering to consumers. Thank you.

I would like to ask if the competitive situation has changed. I have seen that there are some channels where there is competition on the purchase content and user platform. So I would like to ask the management team if there are any new ideas on the competitive situation that can be shared. And how will the next step improve our core competitiveness?

Uh,

Well, thank you very much. Thanks for your question. Regarding the competition, I think we still have the same competitors in the music industry, and including Soda Music as well as NatEase Music, and also Soda Music and Tomato Music Trio from ByteDance. But for sure, we also noticed the growth from Soda Music.

SPEAKER 1

Well, for TME, we always believe competition is normal. And this is also what we see from the past to now. And this year also marks the 20th anniversary of QQ Music. And along the way for our development, we have already encountered many competitions.

So we can look at it in two ways. One is the platform, and the other is the content. The content can be supplemented later. From the platform point of view, we think music is a relatively traditional business on the one hand. That is to say, based on the media business, traditional recommendation, search, and management of my assets are still the most important parts of the media experience.

Well, regarding the computation, I'd like to touch upon platform and the content, the two perspective. Regarding the platform, I think for music application, it's still a traditional business. And the business is based on the streaming business, where traditionally we do have the recommendation, where our asset management maintain the same and most important and critical user experience for us regarding the streaming business.

I think our competitive edge still rests with our music library, along with the user asset management that has been accumulated for so many years. At the same time, the performance of our sound quality and sound effects is still leading in the industry. In addition to the sound quality of the current music, we will be releasing a new version of Quanjing Sheng this quarter.

But at the same time, you can also say that TME still lead the industry regarding the sound quality and sound effect, where we also continue to provide the sound quality, the lossless sound quality to the market.

同时我们也正在去跟高音质的设备,就HiFi设备去做对应的联动。 我们仍然会希望说在耳机和这种高音质音箱和供放的高音质设备上能够去铺开我们的内容的优势。

We also continue to engage with high-sound quality equipment or musical fixtures, including the hi-fi, and continue to engage the earpiece and the loudspeaker high-quality sound effects, fixtures, and equipment to further extend our content coverage.

In addition to this basic product, in fact, in our entire group, we have expanded our experience of other rich diversified music.

where you can see besides those basic products within TME, we have already further extended our business to provide a more enriched and diversified music experience to our users.

From now on, whether it's Starlight Card, or our latest badge, or our social media platforms with fans like Bubble, we have achieved a better result. This is not the case with other products.

Especially from our recent performance on the Starlight card, along with our user badge, as well as Bubble, we do have the in-app artist and the fans interaction, which all yield very positive results, which are not exist for any other competing products.

. . . . .

Well, at the same time, regarding the social entertainment business, and our recent product still shows great potential and advantage regarding commercialization. And we also have the Earth-like karaoke events, which also yield very positive results. This can also help to consolidate our traditional business advantage.

Well, I think a majority of people just pay attention to the changes on our mobile applications, where for any music product, you have to still keep an eye on the user reach, as well as content coverage on multi-terminals and multi-devices. So we still have a relatively large user size on the PC side. We still have a very high penetration rate in the car market in the new field. At the same time, our performance on Hongmeng has also been in the lead in the entire music app.

We can say that at our PC end, and we still have a huge subscriber base, and also for the in-car service, we have a very high penetration ratio. Especially recently, we're actually leading the music applications by working with Harmonia OS.

So this is basically what we think, based on the optimization and innovation of our product experience over the past few years, and the performance of our technology, we believe that we are still in a very strong position in the financial environment.

They can stay based upon our product innovation, optimized user experience, and continued innovation, and will still be able to pioneer and lead the market development. Regarding the patent or the copyright for TME, we always provide the most complete and high-quality application content in the whole industry.

Besides releasing different genres of the songs, the most important thing we did for the past few years is continue to engage and co-create many different musical content with music creators in our industry. Besides working for different genres of the songs, and recently we also started to follow and work with Tencent Games and Tencent Video to create their top-notch IP for the co-creation of the OST songs. And the results we got in the industry, especially our users' love and recognition. In addition to this, we also see that we are currently working with our partners in all areas to create content. This has gone beyond the field of original songs. We are more in the performance, fan economy, and so on. We have also started many different ventures. This also provides our users with the most comprehensive and top-notch content for our entire platform.

So you can see that our cooperation with Tencent Games and Tencent Video and actually delighted the user and also be quite popular among the user. Well, more importantly, we continue to forge the comprehensive partnership with our partners. not only for the traditional sound cooperation but also for the co-creation of the content including the earth-like concert as well as the fan-based economy and we also made multiple extensions of collaboration with the partners. What we do is to provide the most comprehensive and high quality content to our users.

So based on the current TME platform, the 1T2E strategy, this is indeed our current biggest competitive advantage and difference. And we can really help the overall protection of copyright and the promotion of our entire music line, etc. There is a very good result.

I can say that now we do have the well-established platform with very robust content creation. We're adopting the one-body with two-wing strategy. That is indeed our largest competitive edge and differentiation compared with other competitors. And we're also going to continue to integrate the platform and content for further development. That is also good for our IP protection and also continue to drive the subscription business development, which will be ultimately positive for our future business growth.

So indeed, the industry is facing various competition, but we're still very confident for our future development.

Thank you. And the next question comes from Alicia Yap from Citigroup. Alicia, please.

Hi, good evening. Thanks for taking my questions. Congrats on the solid results. I have a question regarding the music concert. So can management share with us what would be your 2026 pipeline for the music concert? So how should we be thinking about modeling the revenue growth from music concert merchandising and also the digital album sales? So what are the challenges and opportunities on pursuing music concerts business and also to ensure the sustainable, steady, long-term growth? Thank you.

Thank you very much. Thank you, management. Thank you for allowing me to ask questions. First of all, I would like to thank the management and congratulate the management for achieving excellent results in the third quarter. I have a question related to our offline concert. Can the management share with us some of our financial management and planning for offline concerts in 2026? Thank you.

Thank you very much, Alicia, for your question. In fact, in the field of performance, for TMA, we have been determined to invest in it for a long time. And in the past few years, we have built up the scope of our entire performance business. Including our own artist tour, the first tour. At the same time, we will also hold their tour with the top singers in the industry. Thank you very much. Thanks for the addition.

And you see that for the Earthlight performance or concert, this is actually a commitment for TME to go for. And we also have a long-term investment for that. Especially for the past few years, I will just share with you what we did from a few perspectives. First of all, regarding the artist tour, and we still organize the top artist tour for the most popular artists in our industry. Where at the same time, we also invite the top artists to come and to stage the Earthlight Concert. Where internally, we also have our own proprietary IT, including TMEA as well as TEMA. So for TME, we did a comprehensive resources investment and a substantial resources allocation to make sure we continue to advance the Earth-like performance.

Over the past few years, we have been gaining experience and gaining more recognition from our partners. As I shared with you in the previous script, this year, we also held a tour of the Asia-Pacific region of Korean artist G-Dragon, which gave us a lot of different experiences, and also allowed us to achieve a success in the entire Asia-Pacific region.

uh well actually um the air flight performance not only help us to build our experience but also continue to forge a deep bond with our partners for example in the prepared remarks i have already mentioned what we do for d dragon the south korean artist we have to stage his Asia-Pacific region tour. And this can actually help us to further accumulate experience, but at the same time, it also hit a great success in Asia-Pacific region. And such experience from the tour events can also be replicated and be introduced into other large scale of like concert and performance. So we are very happy and satisfied with what we were being achieved.

In the future, in addition to arranging more head-to-head performances, we will also try our best to improve the overall level of our concerts. So we also hope that through our unique advantage of TME, we can exert the advantage of the online platform and music ecosystem, so that our overall experience of music concerts can be improved to another higher level, and also become our competitive difference and advantage.

So you can see that besides organizing more top artist tours and performances, and we're also going to leverage our own proprietary IP, including TMEA and TEMA, to continue to improve our performance in organizing the offline performance and concert. This also can showcase our unique advantage, because TME would be able to integrate our online and offline music resources and continue to further deepen our collaboration with the musical ecosystem. In that way, it can also make sure that our audience will enjoy a high-quality music experience, and that can also become our competition advantage and differentiation.

Through our organization of more headquartered performance projects, we also hope to give more performance privileges, fans' economic privileges to our users. This can also promote our overall 8-month business expansion at SVIP. At the same time, we also hope to give our users a more comprehensive experience of consuming in TME.

So by organizing such top artist performance, we also hope that we will provide more performance privilege as well as privilege to the fan-based economy to our user. This can also help to promote the SVIP subscription business development, where at the same time, we will be able to provide our user a more comprehensive and immersive experience by staying with TME.

As for the fan economy, we will also have more services around us, including some premiums that we just mentioned. We have also gained a lot of users' love. Especially in the performance of G-Dragon, the sales of our surrounding products have also been very good. So this is also a place where we will continue to invest in the future.

We're regarding the fan-based economy and we also continue to further improve our service to the fan groups and community by providing the primary privilege to them, which is proven to be very popular among our fans. For example, I have already shared with you the G-Dragon Asia Pacific tour. The merchandise sales from that tour proved to be quite successful. This is also what we continue to do by providing the primary privilege to our users.

Okay, thank you. And then this question comes from Jeffrey St. Thomas. Thomas, your line's open now.

Hi, good evening. Thanks, management, for taking my question. My question is about our subscription services. Given that we have been strengthening our output growth while we are maintaining our steady net S, I just want to get some color with regard to how we should think about our 2026 growth driver for the subscription services. How should we think about the growth momentum for our people and NET-S? I'm just wondering if we are seeing the competitive dynamic environment in terms of the competition. Would there be any changes in terms of the growth driver, i.e., Would we launch more lower-priced packages to drive the subscriber growth? And the R pool may not be as fast as what we previously expected. And on the other hand, when we look into our SVIP subscribers and the penetration, can management talk about the goal in 2026? Thank you.

Thank you very much. Thank you, management. I have a few questions here. First of all, we can see that at present, in our monthly service, we, including ARPP, including Jinxi, are all in a very happy state. Can you share with us from the perspective of long-term observation in 2026? From the perspective of 2026, what are some of the driving forces of our main growth? Thank you.

Actually, from the current goal of 2026, we still believe that our entire subscription users can achieve a relatively steady growth. Its driving force is mainly from the following aspects. The first and most important is still content payback. That is to say, we will still provide the most superior unique content based on our high-quality self-knowledge and our relatively good cooperation with the copyright parties.

Thank you very much. Thanks, Thomas. Regarding our overall target for 2026, I think we're still going to register a very steady growth for the subscriber base. And regarding the growth driver, it may come from the following aspects. First of all, still leveraging the high-quality content for business growth. We're still going to provide the high-quality content, working with our IP partners to continue to provide the high-quality and unique content to our users.

From the point of view of content, we will continue to expand into new fields next year. In other words, besides pure music content, for example, for our new light cards, as well as concerts around us, as Karen mentioned earlier, we are not only based on content, we are not only based on the content of songs, but we still think that we will achieve better results based on other related products.

Well, the second growth driver may come from the content privilege. Because starting from 2026, we're going to explore the new boundaries. Besides the traditional music content, we're also going to pursue the boundary for the Starlight Card, the Earthlight Concert, as well as the merchandise. Because my colleague used to mention, regarding the content, we not only do the music content, but also continue to develop other peripherals of merchandise to continue to pursue a sustainable business growth.

另外一个比较大的驱动力, 至于订阅的主要还是功能特选。 那我们仍然在音质音效, 我们的装扮,我们的铃声编辑, 包括我们的今年取得比较好的增长的AI的作歌, 这部分都仍然是能够给用户提供更差异化的功能。

Another key growth driver for the subscription business would be rest with the functional privileges, including the sound quality, sound effect, the ringtone editing, as well as the AI-empowered sound writing. This can actually be the differentiating function we offer to the market.

So, generally speaking, we're still going to continue to consolidate and innovate on both content and the functionalities.

In that way, we will be able to further grow the size of our subscription business and also achieving ARPPU growth.

In the face of low-cost members, this is actually not what we are facing now. We have been facing low-cost members for so long. In fact, we have actually done a lot of preparation in the past few years, including the free advertising model that you can often see now. It is already a method that we introduced three years ago.

I can say that regarding the second part of your question, the low-priced package, and this is not something new to us, and we have already seen such a thing for many years, and especially we have already been prepared for that. Especially you can see the freemium model, and that is a model we have started from three years ago.

So basically, from our basic logic, in terms of the current commercialization overall structure, we are from free users, and then to our advertising members, to our ordinary members, and then to our SYP, such a multi-level structure to face our entire user size.

I can say that from the fundamental business logic and regarding how we consider the growth of the user, we first of all have the free-to-use service user, and then they go for ad-supported mode. And then we do have the regular user, and then they will be upgraded to SVIP. It's a multi-prolonged membership in order to help to further grow our user size.

Even in the part of free incentive advertising, we can actually use this model in several products. But from the actual business data, we are much more efficient in single DAU than other companies.

We can say that especially for ad support element, even if it is also being provided by other competing products in the market, but if you take a look at the commercial data, especially the monetization efficiency of a single DUA actually makes TME trump other competitors.

所以基本上我们现在目前已经有比较好的经验是在这样的商业化效率以及在用户的留存中间取得比较好的平衡。

So in other words, we already have a very good experience in balancing between commercialization efficiency and user retention.

Of course, when it comes to the improvement of up value, you asked the last question, we have said this many times about SYP. This is still the most important part of us. SYP's penetration rate and up value will still be better. It is still growing according to our expectations. We expect to have a better driving force next year, because in addition to our content, we believe that the comprehensive cooperation of the copyright we mentioned earlier can better drive the growth of SYP.

We're responding to the final part of your question that is regarding to SVIP. And I think I have already said that in the prepared remarks, SVIP continue to be a critical part of our business. And for the penetration ratio and ARPPU for SVIP, they're still growing or even maintain a good growth as what we expected. Well, regarding the year of 2026, I think a key driver for SVIP, besides providing the subscription and high-quality content, we're also going to have and forge comprehensive partnership with our IP partners to continue to drive SVIP growth.

Thank you. And the next question coming from Maggie from CLSA. Maggie, your line is open now.

Thank you, Kashen, Shirley, and Melissa for taking my question. This is regarding the gross profit and gross margin. So in light of the potential revenue mix change, thanks to very robust growth in the offline performance as well as artist-related merchandise, how should we think about the profitability of these initiatives and their impact to our overall trend in gross profit as well as margin? Thank you.

Thank you, Mr. Guan. I have a question about interest rates and interest rates. As of now, we have seen a significant growth in our online concerts, as well as in the products and businesses related to artists. This has led to changes in our current income groups. What should we do to promote online concerts, as well as in the business process of artists, which may have an impact on our business, including interest rates and interest rates as a whole? Thank you.

. . . .

Thank you very much. Thanks for Alicia. From what we see now regarding our online music business, and we still maintain a continued growth for subscription business and advertisement business, where from the content cost structure and efficiency side, we continue to do the optimization. And I surely believe our subscription and advertisement business growth will continue to benefit the GP margin.

Of course, the advertising business will also have some seasonal changes, which will also bring some seasonal fluctuations to our policy.

But for sure, as you may notice, advertisement business were in constant seasonalities, and those seasonalities were indeed bringing the fluctuations to the GP margin.

As we continue to increase the investment in the overall IP of the artist around the concert, at the beginning of the business development, this will definitely have a negative impact on the net profit.

We can say that we continue to drive the development of the offline performance as well as to grow the merchandise for artists. And we will need to make further investment on the artist-related IP. Then in the initial stage of the business development, it will indeed have some negative impact on the GP margin.

但这些业务满足了用户的多元音乐的消费需求, 那么单用户的消费价值也会更高。

Whereas you can see that for those businesses, it can actually help to take care of the users' diversified musical needs, and the consumption values from a single user will surely be more elevated.

同时我们将组合整体的音乐服务,整合版权,一人IP的投入成本来提升这个成本的效率。

While at the same time, we also provide a comprehensive music service along with copyright and the artist's IP in order to further improve the efficiency of the cost.

长期来看,我们希望这些投入能够驱动收入和毛利润的整体的一个有效的增长。

For the long run, we hope our investment will help to drive the effective growth in both revenue and growth profit as a whole.

对,所以从现在来看Q4呢,我们来看就是说因为广告收入和这个包月的收入会有一个持续的一个增长。

At least from what we see now, in Q4 of this year, there will still be continuous growth for the monthly revenues for both the advertisement business and the subscription business.

At the end of this year, our concert and other fans' economic sales may be a little bit lower in terms of revenue. So overall, we see that Q4's net profit rate will still increase compared to Q3.

where we are approaching to the end of this year, the contribution from the sales of the offline events as well as the artist-related merchandise will contribute less to the overall revenue. So in that reason, the Q4 GP margin would be elevated compared with Q3.

In the year of 2026, based on our confidence in the advertising industry, as well as our investment in the performance industry and the fans around us, we will see that with the fluctuation of revenue in different seasons, there will be a certain fluctuation of our revenue in each season.

We look into the year of 2026, and as we continue to build our confidence over the subscription business and advertisement business, along with investment in the offline events, along with the artist merchandise, our revenue, or the revenue, may differ or fluctuate due to the seasonality reason.

We believe that the overall growth of revenue in the year of 2026 and the growth of revenue in the year of 2020 are relatively confident.

But overall speaking, we're still very confident for our 2026 revenue growth and JP margin growth. Profit. Profit. Profit margin growth, yes.

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