Tencent Music Entertainment Group

Good evening, good morning, and welcome to Tencent News Entertainment Group's first quarter 2026 earnings conference call. I'm Milson 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. Kashan Pang, our Executive Chairman, and Mr. Ross Leung, 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 today's call as we made forelooking statements. Please note that we'll discuss 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 course be recorded. With that, I will now turn the call over to Kexin, Executive Chairman of TME. Kexin, please.

Thank you, Madison. Hello, everyone, and thank you for joining our call today. Despite an increasingly competitive landscape in the music streaming industry, we delivered a steady performance overall this quarter. Our growth is increasingly driven by diversified monetization across the music value chain. With the offline concert-related business achieving another quarter of triple-digit year-over-year growth, we will continue to accelerate the development of our multi-dimensional commercialization model, which is deeply rooted in our commitment to cultivating arrivals and legitimate music ecosystem. While AI is rapidly expanding the supply of content, it is also introducing significant market noise and new industry challenges. The profileration of unauthorized AI-generated content not only creates headwinds for our music subscription growth, but also undermines creators' rights and dilutes the long-term value of the music ecosystem as a whole. In response, we are working closely with creators, rights holders and regulators to lead and champagne robust copyright protection efforts. While the nature of these challenges is unique to the AI era, we have successfully navigated major copyright and IP transitions before and have consistently been at the forefront of those efforts. We remain confident in our ability to adapt, lead by example, and help shape the future framework for intellectual property protection in the age of AI. This commitment has further sharpened our focus on what truly drives long-term value and sustainable growth. Today, we are now convinced than ever that original human creativity and premium music IPs are the ultimate differentiators. That's why we are evolving beyond traditional streaming services into an integrated music ecosystem that further unlocks the value of every piece of IP. This holistic approach is designed to deepen engagement and expand user wallet share. Against this backdrop, we have further optimized our catalog, ensuring that our licensed and proprietary content offers valuable emotional responses that users qualify. Let me share two examples. First, we further enhanced our classic music catalog. Capitalizing on the enduring demand and extended life cycles of timeless hits, we recently renewed the contracts with label, including JVR Music, Linfair Records, and Mockabye Baby Music Limited, securing continued access to iconic catalogs from artists such as J. Chow, Zhou Zhilun, Karen Mock, Mo Wenwei, Harling Yu, Yu Chengqing, and Angela Zhang Xiaohan. Further, we are enforcing our leadership in premium copyrights. We also deepened our strategic partnership with TF Entertainment, providing users with a 30-day head start benefit for upcoming releases and exporting collaboration across physical products, live performances, and other IP-related opportunities. Second, the streaming share of our in-house new releases has seen a steady rise, reflecting our ongoing efforts to enhance production capabilities. A notable example is our collaboration with Sony Pictures on the Chinese film song, The Starfixes, for the scientific blockbuster, Project Hail Mary. Performed by Josen, the song granted strong traction upon release, quickly topping multiple charts across our platforms. Across our business, AI has become a key enabler, accelerating time to market, improving production efficiencies, and enhancing user experience. Importantly, it complements, not replaces, human creativity, and further reinforce the scarcity and value of premium IPs. Let me walk you through how we are actively embracing AI to further enhance our content ecosystem and in turn, unlock additional value from legacy IPs. First, we provide creators with tools to reshape every stage of the creative process. For instance, our one-stop AI music production tool, Venice, stimulates the full cycle songwriting process of professional musicians, from lyrics, compositions, and arrangement to vocal performance and mixing. This empowers creators to produce high-quality work more efficiently and at lower cost. Second, as we bring more legitimate AI-generated music onto our platform, we are pleased to see that high-quality AI works can, in turn, revitalize classic IPs and endure them to younger generations. Some AI covers of classic hits are often among the most popular tracks. By reimagining iconic songs with innovative styles and vocals, These reinterpretations sparked renewed interest, driving listeners back to the original versions and amplifying the visibility and commercial value of legacy IPs. As more premium IPs thrive on our platform, they serve as a powerful engine for our broader communicationization efforts. By building his top holistic Penn IP related music experiences, we continue to lead industry consumption and grow at scale. Whether through immersive live performances or innovative fan-based economy, we are elevating music's influence while deepening water share. Specifically, First, our highly loyal user ecosystem continues to attract leading artists and IPs seeking deeper collaboration. By strengthening strategic partnerships, we extend IP value chains through integrated virtual and physical offerings. A key example is our collaboration with Jay Chow on his digital album, Children of the Sun, where we launched a package that offerings combining the album, SVIP memberships, and physical collectibles. Supported by a nationwide offline campaign across 45 cities, the release achieved a strong viral traction, topped the major charts, surpassed 1,000 million renminbi in sales and drove meaningful SVIP conversions. We also deepened the partnership with leading artists including Cai Xu Kun and Roy Wang, Wang Yuan, whose recent releases delivered a strong fan engagement and commercial performances. Second, we also continue to strengthen cross-cultural reach through different offline partnership with leading domestic and international labels and artists. This quarter, we delivered multiple flagship concerts, which drawing over 10,000 attendees. maintaining a strong execution standard in live performances. Notably, Baby Monsters concert in Taiwan, China, and NCT Wish concerts in Hong Kong, China, attracted both core fans and border audience, expanding their reach. Third, we are cultivating a primary artist roses to amplify the global footprint of Chinese music. This is amplified by Silence Wang, Wang Sulong's debut world tour across Asia and North America, and Guy Zhou Yan's first large-scale show in Singapore. Domestically, concerts by Will Pan, Pan Weibo, TLA, Yuan Yawei, Angela Zhang, Zhang Shaohan, Jane Zhang, Zhang Liangying, and Zhang Yuan, further deepened the fans' engagement. Before concluding, I would like to share our ESG progress. In April, we published over our 2025 ESG report. Over the past years, we stepped up in created empowerment, product inclusively, and value chain sustainability. These efforts reinforce the long-term value and resilience of our ecosystem, as reflected in the ESG rating upgrades and external recognition. In closing, we are encouraged by the progress we have made and the challenges we are elevating the strategic priority and investment in copyright governance, taking a more resolute stance to safeguard the long-term health of the music industry. We remain committed to advancing the border creative economy, unlocking new opportunities and driving enduring long-term value. Now, I would like to hand the call over to Ross for an update on our overall platform development. Ross, please go ahead. Thank you.

Thank you, Ka-Shen. Hello, everyone. In our increasingly competitive landscape, we are building a more resilient platform powered by our content and a platform dual engine, during user differentiation, engagement, and the lifetime value. As we strengthen our competitive edge and further differentiate our offerings, we are transitioning to a membership-based model that goes beyond content subscriptions to deliver more immersive music experiences. I will share more details shortly. For today's call, I would like to primarily focus on two areas. user growth and monetization efficiency improvement resulting from better services. On the user front, Minting Health's top of the final remains our foundation. Let me share some updates. First, we are excited to further deepen our integration with the WeChat ecosystem to broaden reach and streamline user conversion. By embedding a pathway within video accounts, we facilitate a seamless transition from short video music discovery to full track playback on our platform. This also elevates musician's exposure, helping them convert casual short video viewers into allowing fan base on our platform. Second, for Google, well competitive pressure is a bit more acute. We allow the barriers to enter through more freemium and as memberships. Third, we leverage AI to drive engagement with improved recommendation system, efficient discovery enabled by AI agents, and easier playlist creation, growth in music access, boosted engagement. We also saw exponential growth in both AI-driven messaging and playback DAO. At the same time, Personalized features such as theme avatars, player innovations, and interactive tools led to a deeper sense of belonging on our platform. Turning to how we are unlocking greater IP value and increasing user lifetime value, we continue to execute existing tiered plans. As I mentioned earlier, we launched a new initiative to transition to a membership-based concept with enriched content and rights offerings. Although still in its early stages, we see strong long-term potential in IP-driven offerings through enhanced benefits and integrated rights. First, SYP membership continue to stay stronger adoption and the rotation thanks to our refund operations and the innovative benefits. For example, we are upon the CCT. Tan Jianci as our first cross-platform SYP family brand ambassador. This strategic partnership significantly enhances the perceived value and the public awareness of our premium offerings. In addition, to further differentiate our SYIP premium offerings, we continue to expand the fund-based benefit and audio privileges. On the content front, we introduced the China limited edition digital albums combined with physical collectible for leading K-pop artists such as Blackpink, Aesol, and Ivy. On the platform and the product front, we launched the TME Connect, enabling high fidelity audio transmission across multiple devices. Google Music launched Live House sound effects and QQ Music further deepened the collaboration with Doobie to become the first music platform in China to support Doobie SA4 audio format. We also extended this immersive experience to Doobie House, an offline audio experience space for artists like Charlie Puth, Silence Wang, Wang Sulong, and Blackpink. Second, we pioneered more IP-centric memberships to capture diverse user demands. A key milestone this quarter was the launch of our inaugural fan club, Romance Universe, with Silence One, Wang Sulong, offering priority ticket access, unique content, and artist-centric perks that resonate well with fans. At the same time, we continue to expand artists rich on Babel, welcomed Su Ruiqi as Babel's first Sony music artist, and enhanced product features such as in-chat search functionality with further strengthened user engagement and retention. Last but not least, we are unlocking incremental growth by scaling IP-driven offline offerings. particularly with artist merchandise. For instance, we sold as a sole distributor for Transform Project, top Denglong Shao Nian Zu He debut physical album and other sold out merchandise such as Yuqi Song Yuqi Skiggy New Year gift box and Hu Xia Plus collectibles. Beyond merchandise, we brought the idol city of synths, China. They built an exhibition to life in collaboration with Cube during a multi-dimensional immersive experience for fans. To conclude, our challenges remain. We are confident in our path forward. We will continue sharpening our competitive edge to strengthen our vibrant platform, one that attracts users, deepens engagement, and unlocks new monetization opportunities. 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 the challenging environment, we have delivered steady financial results in the first quarter of 2026, with 7% year-on-year revenue growth. Revenues from music-related services grew 12% year-on-year, driven by solid growth in revenues from membership services and offline performances related to services. supplemented by growth in revenues from advertising services. Revenues from membership services were unbeat 4.6 billion, up by 7% year on year. In the first quarter of 2026, this quarter, we started to presenting membership services revenues to be better reflected the nature of our membership business. revenues from membership services primarily consist of membership fees paid for membership benefits and privileges within music-related services. Over time, Some IP-related benefits, such as artist merchandise and offline performances, have emerged as key drivers of SVIP adoption. Additionally, our newly launched fan club membership further enriches fan experience and is a great example for enriching integrated product with content in the platform strategy. These collaborations we have built with the strategical artists across musical promotion, offline performances, artist-related merchandise, and fan club membership provide more immersive experience for fans and help enrich privileges of our membership programs, building win-win relationships for everyone. Additionally, we delivered a solid year-on-year growth with advertising revenues, driven by growth of AD-supported model and sponsorship advertising. Our increased number of paying users and the charm of casual users created more challenges for our advertising business in the increasingly competitive market. We have taken actions and improved ads exposure, lowered entry barriers, and often more engaging. inactive ads tasks for users. As our engaging growth engine, offline performances related services have achieved strong results. In Q1, we have positioned our strategic artists, such as Will Penn, Silence Wong, and Guy, on high-profile stages across the master and overseas markets. Effectively expanding the global influence and further unlocking the long-term commercial value. Also, we have hosted flagship concerts with leading K-pop groups, including Babymonster and NCT Wish. Revenues from social entertainment services and others were only 1.4 billion, down by 9% year-on-year. Our gross margin in Q1, 2026 was 44.9% up by 0.8 percentage points year-on-year. The year-on-year increase was primarily due to increase in revenues from membership services and advertising services, along with decreased channel fees. Additionally, We are happy to see cost-efficient improvement for IP-related services. In the long run, we are confident that our gross margin will remain competitive in the industry, although it may fluctuate quarter over quarter due to seasonality. Moving on to operating expenses, they amounted to 1.2 billion, representing 50.3% of our total revenues in Q1, 2026, compared with 15.5% in the same period of last year. Selling and marketing expenses will be 271 million, up by 36% year on year. In response to the competition and to mitigate the impact of user charge, we increased channel spending this quarter. Operationally, we have improved the relevance of target audience while keeping high ROI level in the industry. Going forward, we expect to dynamically adjust our channel spending strategies according to evolving market conditions with ROI requirements. Meanwhile, we expect to increase content promotion and continue to provide high-quality content to our users, which concurrently helps grow users on our platform. General and administrative expenses were RMB 940 million and remained relatively stable compared with the same period of 2025. Our net profit attributable to equity holders was RMB 2.1 billion, compared with RMB 4.3 billion in the same period of 2025. As we have recognized again of RMB 2.4 billion deemed the disposal of an associate in the first quarter of 2025, our diluted earnings per ADS this quarter were RMB 1.34 billion. This quarter, we started disclosing non-FIS metrics of adjusted EBITDA to better reflect our core business operation results. For Q1, 2026, our adjusted EBITDA was RB 2.8 billion, up by 10% year-on-year. Non-FIS net profit attributable to equity holders of the company was RB 2.3 billion, up by 7% year-on-year. As of March 31, 2026, our combined balance of cash equivalents, term deposit, and short-term investment was RMB 41 billion. As compared to RMB 38 billion as of December 31, 2025, this combined balance was affected by changes in the exchange rate of RMB to USD at different balance sheet dates. In March of 2026, we declared a cash dividend of U.S. dollar 0.12 per ordinary share or U.S. dollar 0.24 for ABS for the year ended December 31st, 2025. And the cash payment for the dividend of U.S. 317 million was made in April 2026. In addition, as part of our long-term commitment to shareholder returns, we plan to complete the two-year stock repurchase program that we announced in March 2025 on time. Finally, I'll conclude with some remarks on the outlooks. Looking ahead, while challenges exist, our long-term strategy and the commitment to investment in content and technology remain unchanged. We continue to focus on IP development for the long run health of our business and industry. And through comprehensive collaborations with our strategic partners, we will continue to bring new benefits and privileges to our users and create more innovative products All these factors enable us to build a richer and more dynamic music and entertainment ecosystem. This concludes our prepared remarks. We are now ready to open the call for questions.

Thank you, Shirley. If you are dialing in by phone, please press find to ask a question and then sit and mail yourself. If you are accessing the call from the Tencent meeting or Vogue meeting application, please click the raise hand button at the bottom left. For the participants, for the benefits of today's call, please limit yourself to one question. And then if you have more, you can go back to the queue. The first question comes to the line from Lincoln from Goldman Sachs. And Lincoln, your line is open.

Thank you for accepting my question. I also saw that we achieved a very good result in the first quarter. As I said, we are now taking a holistic approach of the ecosystem. I'd like to ask about music revenue. In the past 26 years, what have you seen? Especially with regard to the growth drivers of membership and non-membership income. And we are also concerned about the changes in the competitive status of membership businesses. And regarding the ecosystem, we just saw the approval of the Himalayan acquisition. I don't know if you can share with us some of the benefits and combinations of the TME ecosystem. Thank you.

Thank you very much for giving this opportunity to ask first question. Just now, first of all, congrats on the good performance in Q1. And just now you said you're going to take a holistic approach and also make sure you use the whole ecosystem to improve our business. My question, first of all, is about the revenue guidance for the remainder of 2026. Give us an outlook on the member and non-membership business and what are key drivers for future growth, and especially as we know that the competition remains intense. especially for the membership businesses. And speaking of the ecosystem, we have noticed that the Xima IaaS data has been improved by the regulator, and it can give us an update on how it can improve our performance in the whole ecosystem.

Okay, thank you, Lincoln, for that question. I will first follow our current and future guidance and make some statements. In fact, in the current environment that is full of challenges, in the first quarter of TME, we still achieved a very stable growth in performance. Thank you, Lincoln, for your question. First of all, I want to say a few words about the guidance for the remainder of 2026.

Despite a challenging environment to achieve a steady performance in Q1, this is attributed to our common platform through Android strategy, which has helped us build an irreplaceable, one-stop music entertainment system. This quarter, our non-membership growth was robust, and our performance-related businesses once again achieved a triple-digit year-on-year growth.

We are currently facing a lot of pressure from competition. On the one hand, it is due to the competitive platform, the flow of users, and the continuous price competition. In addition to the AI-led copyright issues and content issues, the growth of our subsequent music media-related business revenue will bring certain uncertainty. In the future, we will focus on the following three aspects.

However, competitive pressure remains significant. This already priced competition within the industry, coupled with the rampant issue of pirated content driven by AI has introduced uncertainties regarding the future revenue growth of traditional streaming services. Moving forward, our operational focus will center on three key areas.

The first point is that we are working hard to increase our authority. We embrace AI as a tool to improve content production efficiency, but we will not let AI become an excuse for infringement. For the current chaos in the industry, we have already established a special authority mechanism First of all, strengthening enforcement to prevent AI from becoming an excuse for infringement.

In response to industry chaos, we have established a dedicated rice production mechanism to resolutely safeguard the legal interests of our platform, copyright owners, and creators. We welcome tech innovation, but we'll do everything in our power to suppress song-washing and other infringing behaviors.

Uh, uh, Second, expanding top of funnel traffic through deeper integration with the Tencent ecosystem.

April this year, we entered into a deep strategic partnership with WeChat channels. By breaking short-form video with music consumption, WeChat channel users can now jump directly to QQ music with one single click when they discover music they like. This creates a seamless connection from discovery to legitimate listening, collection, and high-quality consumption, while providing music creators with greater promotion and exposure opportunities.

On the third hand, we will continue to take advantage of the prosperous IP ecosystem on our platform, deepening the core of music consumption for users. Over the years, we have accumulated not only a large amount of valuable content, but also a lot of creators who produce good songs. In order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order to fully release the long-term value of this ecosystem in order

Third, leveraging our flourishing IP ecosystem to solidify the one-stop music consumption mindset. Years of accumulation have provided us not only with a massive library of premium content, but also with the creators behind the heads and the loyal fan base that follow them. To fully unlock the long-term value of this ecosystem, we're broadening our competitive advantage through two dimensions, IP expansion and value deepening.

First of all, we will continue to expand the IP of artists while expanding the IP of artists. We will also work hard to build our own artist system. Currently, we have gathered a lot of top-notch and outstanding musicians. In China, there are a lot of very talented artists in our organization. The second value is the extension of our value. After the establishment of our existing artist system, we can also be more flexible in connecting music creation to commercial authorization, brand cooperation, and the chain of the entire industrial chain, which helps to improve the efficiency of our IP borderline. As an example, with our collaboration with Wang Sulong, an artist of strategic cooperation, The content of the collaboration has been expanded from the content of the song itself in the early stages to now helping him hold a personal concert, the sales around the physical body, and this quarter we have also created the first fan club member service, which surrounds the experience of the fan, which is the core of the artist, including our priority daily routine and unique fan encouragement, etc.

Well, first, expanding the IP matrix. While continuously expanding our matrix of partner artists, we're also building our in-house artist system. Currently, our ecosystem features numerous talented artists. A second is extending value chains. Establishing an in-house artist system allows us to flexibly integrate the entire industry chain, from music creation to commercial licensing and brand collaborations, significantly improving IP monetization efficiency. Taking our strategic partnership with the Silent Swamp as an example, our collaboration has evolved from early digital release rights to organizing concert tours and selling physical merchandise. This quarter, we also co-launched our first fan-based membership service, building a dedicated artist-centric fan experience that includes priority entry and unique fan benefits.

So in the end, we understand that the future of the business will be affected by the competition. We also expect that there will be some fluctuations in the short term of the membership and advertising business. But when we focus on doing our best to maintain our content, to attract users, and to maintain it, and to create and transform it around AI, we are optimistic about the performance of long-term performance, and we can maintain a stable long-term growth.

Looking at a year as a whole, we expect some short-term volatility in the growth rate of our membership and advertising business due to competition, but we will try to be proactive in safeguarding our copyright and try to divert more traffic from the ecosystem. In the long run, we remain optimistic about our comprehensive IP-based monetization and which we expect to maintain steady growth. Thank you.

For XIMA, because we just received an approval, we will also strictly abide by the requirements of the National Economic and Trade Administration. We will carry out all the promises and ensure that the trade can be legally and legally promoted.

We just received a notice of the approval from SAMR and along with the Tencent Group, TME and Tencent Group will follow strictly the requirements of SAMR and honor all the commitments to ensure the transaction will be proceeded accordingly and legally.

Thank you. And then this question comes from Alicia from Citigroup.

Alicia, please. Alicia, your line is open.

Are you with us? Oh, hello? Yeah. Can you hear me now? Yes, we can. Okay. 感谢管理层接受我的提问, 也恭喜稳定强劲的业绩。 我的问题是关于包月这一块, 想请管理层能否给我们划分一下不同的等级, 比如说尤其是广告订阅用户的增长。 我们这种新增的Fan Club和Bubble的这种新型的订阅服务, 他们的贡献或者是以后的增长潜力大概是怎么样的? 然后未来会不会这些对于整个阿普的增长是一个重要的驱动力? 我知道喜马拉雅交易可能刚刚批准,不知道管理层有没有一个初步的,就是说后面的一些长音频订阅的一些初步的计划跟我们分享,我自己欢迎一下。 So thanks management for taking my questions, my questions is related to subscription. Can management share some details about the subscription tiering split? What is the growth status for the advertising subscription user? And also, what are their retention rates? And the contribution and the growth potential from those newer subscriptions like the Fan Club and Bubble, will this become a meaningful driver for the blended output growth in the future? And then with the pending approval of the Himalayan transaction, any preliminary plans on the long-form audio substitution plan in the future? Thank you.

So let's look at it now. First of all, we need to make sure that our current position, our current group, we want to be a comprehensive music service platform.

First of all, the positioning of TME this year is to make a one-stop music service platform.

Google Music and QQ Music has been developing for over two decades.

And over the years, we have been expanding our business based on music.

So in the past few years, we have extended from traditional music subscription business to a wider and richer service category. For years, we have evolved from doing traditional streaming business to a broader category of business.

As to your question about user retention for different tiers of users, we have not disclosed this number, but in general, it's very stable.

The design of a multi-tier member system is to meet the demands of different kinds of users. So, for example, we use the free mode to expand the free mode and the advertising members to improve their flow and consider some of the commercial values.

For light users or not those very active users, we're using like free and ad-supported approach to improve intention and have their commercial value.

基础的音乐服务始终还是对于相对比较高的这种对于音乐的一个认同而且比较有粘性的用户去提供的一个会员的服务。

Basic music service is mainly for the users who have a relatively high demand for music and also for those sticky users.

更深度的更行动我们所以在目前刚才提到我们去建立了无论是主要基于粉丝的Fan Club 包括巴宝的这些基于粉丝效应的这些服务 那么都是针对于有更多元化的用户需求来对应的

For those deeper value users, like our products like FanCloud, bubbles are for those users who have a more diversified demand.

So we believe that in the future, for IP-based music subscription services, not just music, but also audio, for example, for listening books and children, we will be able to discover greater business opportunities and promote our users.

I believe in the future, the IP-based music subscription, not just a music subscription, but also the audio subscription business, including like book listening or kids' audios, this IP-based content will create bigger commercial opportunities and also improve our retention.

So, in general, from now on, we are still trying to build a comprehensive service platform based on IP. At the same time, we are trying to improve the flow of users. Naturally, these business opportunities can be discovered by us.

All in all, in the future, we will continue to build an IP-based one-stop music service platform. And with all of this, we can continue to improve user retention and tap more business opportunities. And this is the very part that provides the most value compared with our competitors.

Thank you. And the next question comes from .

Yang, your line is open. There has been a good growth year-on-year, but there has been a slight drop compared to QonQ. I would like to understand more about the reason behind this. In my understanding, the seasonality of this business is not very strong, but it is also possible that EQ may be a part of the concert, and I don't know if there will be any impact on the ratio. In addition to the seasonality, I don't know if there are any problems such as the loss of customers or the defense of Tencent Music. For example, some users may drop from the mid-to-high end to the low end. 那这种情况多不多,然后如何判断接下来的这个环比的走势,那就是 membership 收入的环比走势,谢谢。

Thank you very much. My question is about member services. We noticed that this quarter, if you look at where year-on-year growth, that's very good. But if you look at quarter over quarter, it's going down slightly. I'm just wondering what is the reason behind it? Because as far as I can tell, this business doesn't seem to have a very strong seasonality. And probably, I guess, it's because Q1 is the low season. But apart from the seasonality, is there any other possible reasons, like competition, some turns of users, or some higher-value users are changing their packages from high packages to some cheaper packages? And could you also give us some guidance of the future quarter-over-quarter growth for this business?

Yes, we can see that... First of all, I would like to answer that question. It's not because of the reduction of our own SYP or the loss of others. As I mentioned, our SYP itself is still able to maintain a good growth. This is the first thing. First of all, the group of high-middle-level state-owned enterprises has not received much influence.

Well, first, I want to respond to your question by saying it's not because some SBIP members have chosen some lower or cheaper packages or because of the turning off users. As you can tell that our SBIP member is still growing steadily. So our medium to high value users are still there. Well, as you mentioned, this QOQ slight decline is mainly because of the competition on the streaming music streaming business, and especially for those free and ad-supported members.

There have also been some phenomena in the market that have deviated from the essence of the business. Some of these industry entrepreneurs have also used AI to generate some pirated content to quickly fill in the gaps and fight for the attention of lightness and price-sensitive users in such a way.

We've observed some phenomenon in the market that deviate from the business essence. Some other competitors are using AI to quickly fill their music libraries and trying to use the aggressive strategy to divert traffic and users into their platform. And they're also fighting for those light users. Well, we noticed that this is a very important moment for the industry because such behaviors is an exhaustion of the economic value of this industry and also they are consuming their own business value.

In this environment, as we said in the beginning, we will stay focused on building a one-stop comprehensive music service platform.

We provide monthly subscription music services on two music platforms, Google and QQ Music.

So like I mentioned earlier, in fact, Google's platform is more sensitive to price and discount activities. In the face of such a choice of multiple platforms, the loss of users is indeed increasing compared to before.

But users on Google platform is more price sensitive and promotion sensitive. And well, in face of multiple choices and these kind of users are easily flown away.

所以我们这样的情况,这样的话其实是会影响到对于酷狗音乐平台的会员的开通量。

Well, this will have some impact on the new membership growth on Google platform. In this context, we have to use the free and ad-supported mode to reduce the barrier to entry. Google concept version is also posting very robust products in the first half of this year because we're adopting a more flexible pricing and content to retain these live users.

And because QV music is relatively comprehensive,

QQ Music is a relatively more comprehensive platform. So the overall operational data on QQ Music platform is steady and healthy. The overall value of users on this platform is even increasing.

The recent release of the collaboration between WeChat channels and QQ Music will further consolidate our competitive edge. In the end, we also believe that both our offline experience and the scale of our multi-device users are still a competitive advantage for us, so that in the future, we can realize better commercial opportunities and provide a better foundation.

Lastly, our offline performance or experience or multi-device user experience and scale remain to be our competitive edge, which provide a solid base for us to further tap commercial opportunities.

Thank you. And then this question coming from Mizuho, where your line is open.

Thank you for your question. I have a question for Mr. Shelley. We see that the gross margin of this quarter is actually a little bit higher than last quarter. I don't know if this will change the management level for this year's growth margin, because at that time you said it was stable or a little bit down. Then I would like to ask you about the growth of sales marketing. You mentioned that this is because you did a deeper integration with Tencent. I would like to ask if this cost ratio is one-time or will it remain relatively high in the future? Thank you.

Well, thank you very much. We noticed that the GDP margin this year is growing a little bit, quarter over quarter. I'm just wondering, in this case, would you change your overall whole year's guidance on GPM? Because I remember last quarter's call said that the overall year's GDP margin will stay flat or even decreasing slightly. And we also noticed that the sales, selling expenses actually increased a bit. Is that because of the deeper collaboration with Tencent ecosystem? I'm just wondering this cost ratio, is it one-off or?

In comparison, our QE has indeed achieved a good margin rate, mainly because of the following factors.

Well, if you look at YOY in Q1, we've had a very good GDP margin, mainly because of the following reasons. Number one is in Q1, we see a continuous growth of membership and as a business, which contributes positively to our GDP margin.

The second point is that although our IP-related business income and total income are relatively increased, the economic business growth in the IP-related business is relatively fast, and the share price has increased. At the same time, the business of concerts and activities has accumulated operating experience and increased operating efficiency. Overall, we think that the related business in the IP-related business has basically no impact on the interest rate in this quarter.

Well, despite the fact that the IP-related businesses are growing very rapidly in terms of the overall contribution to revenue, and especially if you look at our brokering business, it's grown exponentially and its proportion for overall contribution to revenue is also going up. and it can also tell our offline performance and event business through that we have accumulated lots of experience and improved the operational efficiency so overall the iep related business as impact on the gp margin is uh is close to zero um The rigid cost control also generates very good results on ROC.

环比来看,毛利率的提升主要是因为 IP 类的相关业务的收入的季节性波动。 Q1 的收入的占比是显著低于去年 Q4 的。

Well, if you look at quarter over quarter, the rise of GP margin is mainly because of the seasonality of IT-related business. Because if you look at Q1, the contribution from this business is far lower than Q4 last year.

对,这个对毛利率的产生了一个正向的影响,那么抵消了会员与广告收入季节性的一个负面影响。

Because it generates some positive impact over GP margin and also offset the impact of the seasonality reasons of membership and advertising business.

那么根据这个预期我们对未来的这个收入增长的节奏的预期呢,我们预计这个QR的这个毛利率去年基本同期是持平的。

Well, as to our expectation over future revenue growth, we expect to have a cheap margin on par with last year in Q2.

In the long term, we expect that our current membership and advertising revenue will slow down. But through strict management of the relevant costs, we will reduce the ineffective investment in low-value, non-hybrid content. Combined with the decline in channel rates, we believe that our business will remain resilient.

In the long run, we expect some slowdown of the growth rate from membership and advertising business, but we will adopt a very rigid cost control measures by reducing our resource allocation to low value, less effective content, and plus the reduction of kind of fees from Apple store. And all of this will provide enough room for the resiliency of our profits.

On the other hand, the rapid growth of our IP-related new business will indeed bring some structural pressure to Maoliuli, especially between seasons and seasons. We will continue to optimize and operate, and use the combination of platform and content, online and offline, using platform and content, online and offline, and use the combination of platform and content, online and offline, and use the combination of platform and content, online and offline,

Well, as our IP-related business is growing robustly, which will have some structural pressure on our overall GP margin, but we will keep optimizing our cost and adopt project-basis measures to control cost. and also we'll use our content platform content plus platform strategy online plus offline and also improving increasing the percentage of contribution of our own proprietary iep business and with all of these measures we can we can maintain a steady profit In the long run, we're very confident to stay at the front line of our GDP margin in the industry.

Thank you.

Well, as to the question about selling expenses in Q1, it went up by 36% year-on-year. That's mainly because of the intensifying competition in the industry. And in face of such intensifying competition, we have this particularly increase in our expenses. In user acquisition for our music platforms, we're using different channels like ByteDance to acquire higher value users. And we're also using the like art of artists to acquire more high quality, high value users.

At the same time, we have also increased the investment in free content promotion. Then further enhance the popularity of songs, strengthen the core competitiveness of platform content, to ensure the connection of our platform users.

In the meantime, we're also promoting our proprietary content, increase the music exposure, and also increase the core competitiveness of our own content. With all of these measures, we try to increase the stickiness of our users.

In addition, we rely on the Tangxun department to focus our resources on the cooperation of the WeChat video number ecosystem strategy to help the video number to build a music ecosystem.

With the Tencent ecosystem, this year we will allocate some structured resources with WeChat channels, and we will help WeChat channels establish its own music system.

如为视频号引入音乐人、头部、歌手和工作室, 并且和腾讯视频的头部的音中去合作宣发, 来提升视频号给TME引流的效率。

And we will work with the top tier musicians, singers and studios. We will do some joint promotions and even releases with them so as to create and improve the overall efficiency of our collaboration.

预计假以时日,随着视频号音乐生态的完善, 借助微信生态的流量红利, TME能有效提升获客的效率。

We expect that in the future with the maturization of the WeChat channel's music platform plus our own content contribution, and we will achieve win-win results on two platforms.

预计全年的销售费用会有合力的增加, 跟我们之前引导的全年的增长比例基本一致, 那不会像Q1这样达到36%这么高的一个比例吧? 对。

For the whole year, the selling expense will have a reasonable rise, which will be in line with our previous year guidance. In the following, of course, it will not be growing as fast at 36%.

Okay, thank you, Charlie. And thank you, everyone. For the interest of time, I will wrap up today's call. If you have any further questions, please feel free to contact the IR team. And this concludes today's call. And thank you again. Look forward to speaking next quarter.

Thank you.

Bye-bye.