Tencent Music Entertainment (TME) Q1 2026 Earnings Call - AI-Driven Piracy Threatens Core Streaming Growth as TME Pivots to IP-Centric Ecosystem

Millicent Tu, Head of Investor Relations, Tencent Music Entertainment Group: Good evening, good morning, and welcome to Tencent Music Entertainment Group’s 1st quarter 2026 earnings conference call. I’m Millicent 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 news wire services. During today’s call, you’ll hear from Mr. Kashang Pang, our Executive Chairman, and Mr. Ross Leung, our CEO, who will share an overview of our company strategies and business updates. 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 make forward-looking 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 earnings release and filings with the SEC. All participants are muted at this time. After management’s remarks, there’ll be a Q&A session, and please be advised that today’s call is being recorded. With that, I will now turn the call over to Kashang, Executive Chairman of TME. Kashang, please.

Kashang Pang, Executive Chairman, Tencent Music Entertainment Group: Thank you, Millicent. 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 multidimensional commercialization model, which is deeply rooted in our commitment to cultivating a vibrant 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 proliferation 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 champion 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, resonate that users crave. 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 contracts with labels, including JVR Music, Linfa Records, and Mokaby Baby Music Limited, securing continued access to iconic catalogs from artists such as Jay Chou, Zhou Jie Lun, Karen Mok, Mo Wen Wei, Harlem Yu Cheng Qing, and Angela Zhang Shao Han, further reinforcing our leadership in premium content copyrights. We also deepened our strategic partnership with TF Entertainment, providing users with a 30-day head start benefit for upcoming releases and exploring collaboration across physical products, live performances, and other IP-related opportunities.

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 theme song, The Star Readers, for the scientific blockbuster, Project Hail Mary. Performed by Zhou Shen, 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. We provide creators with tools to reshape every stage of the creative process.

For instance, our one-stop AI music production tool, VEMUS, 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 re-imagining iconic songs with innovative styles and vocals, these re-interpretations spark 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 holistic pan 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 Chou on his digital album, Children of the Sun, where we launched the package, the 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 CNY 1 billion in sales, and drove meaningful SVIP conversions.

We also deepened the partnership with leading artists, including Kun, Cai Xukun, and Roy 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, BABYMONSTER’s concert in Taiwan, China, and NCT WISH concerts in Hong Kong, China attracted both core fans and broader audience, expanding their reach. Third, we are cultivating our premier artist rosters to amplify the global footprint of Chinese music. This is exemplified by Silence Wang Sulong’s debut world tour across Asia and North America, and Gai Zhou Yan’s first large-scale show in Singapore.

Domestically, concerts by Will Pan Weibo, Tia, Yuan Yawei, Angela Zhang Shaohan, Jane Zhang Liangying, and Zhang Yuan further deepened 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 inclusivity, and value chain sustainability. This 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 broader 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.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: Thank you, Kasha. Hello, everyone. In an increasingly competitive landscape, we are building a more resonant platform powered by our content and the platform dual engine, driving 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, maintaining a healthy top-of-funnel 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 basing video accounts, we facilitated 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 a loyal fan base on our platform. Second, for Kugou, where competitive pressure is a bit more acute. We lowered barriers to entry through more freemium and ad memberships. Third, we leveraged AI to drive engagement with improved recommendation system, efficient discovery enabled by AI agents, and easier playlist creation. Growth in music assets boosted engagement. We also saw exponential growth in both AI-driven messenger and the playback DAU.

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 engaged content and the right offerings. Although still in its early stages, we see stronger long-term potential in IP-driven offerings through enhanced benefits and integrated rewards. First, as VIP membership continue to see stronger adoption and retention thanks to our refined operations and innovative benefits. For example, we appointed JC-T, Tan Jianci, as our first cross-platform VIP family brand ambassador. This strategic partnership significantly enhanced the per se value and the public awareness of our premium offerings.

In addition, to further differentiate our VIP premium offerings, we continue to expand fan-based benefits and audio privileges. On the content front, we introduced China limited edition digital albums combined with physical collectible for leading K-pop artists such as Blackpink, EXO, and IVE. On the platform and the product front, we launched the TME Connect, enabling high fidelity audio transmission across multiple devices. Kugou Music launched the live house sound effects, and the QQ Music further deepened the collaboration with Dolby to become the first music platform in China to support Dolby Atmos audio format. We also extended this immersive experience to Dolby House, an offline audio experience space for artists like Charlie Puth, Silence 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 Wang Sulong, offering priority ticket access, unique content, and artist-centric perks that resonates well with fans. At the same time, we continue to expand artist reach on Bubble, welcomed Su Ruiqi as Bubble’s first Sony Music artist, and enhanced product features such as in-chat search functionality, which 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 served as the sole distributor for TransfOrmProject, TOP登陆少年 debut physical album and other sold-out merchandise such as Yuqi, Song Yuqi, (G)I-DLE New Year gift box, and the Hu Xia support plus collectibles.

Beyond merchandise, we brought the Idol City of Sense China debut exhibition to life in collaboration with Cube, delivering a multidimensional immersive experience for fans. To conclude, while challenges remain, we are confident in our path forward. We will continue sharpening our competitive edge to strengthen our vibrant platform. One that attract 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.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 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 services, supplemented by growth in revenues from advertising services. Revenues from membership services were RMB 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 better reflect 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 per-performances, have emerged as key drivers of VIP adoption.

Additionally, our newly launched fan club memberships 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 strategic artists across music 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 in advertising revenues, driven by growth of ad-supported model and sponsorship advertising. Our increased number of paying users and the churn of casual users created more challenges for our advertising business in the increasingly competitive market. We have taken actions to improve ads exposure, lower the entry barriers, and offer more engaging interactive ads tasks for users. As our engagement growth engine, offline performances-related services have achieved strong results in Q1.

We have positioned our strategic artists, such as Will Pan, Silence Wang, and Gaai, on high-profile stages across domestic and overseas markets, effectively expanding their global influence and further unlocking their 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 CNY 1.4 billion, down by 11% 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 efficiency 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 RMB 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 were RMB 271 million, up by 36% year-on-year. In response to the competition and to mitigate the impact of user churn, 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, 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 a gain of RMB 2.4 billion on gaining the disposal of an associate in the first quarter of 2025. Our diluted earnings per ADS this quarter were RMB 1.34. This quarter, we started disclosing non-IFRS metrics, adjusted EBITDA, to better reflect our core business operation results. For Q1 2026, our adjusted EBITDA was RMB 2.8 billion, up by 10% year-on-year. Non-GAAP net profit attributable to equity holders of the company was RMB 2.3 billion, up by 7% year-on-year.

As of March 31st of 2026, our combined balance of cash equivalents, term deposits, and short-term investment was RMB 41 billion as compared to RMB 38 billion as of December 31st of 2025.

This combined balance was affected by changes in the exchange rate of RMB to USD at different balance sheet dates. In March 2026, we declared a cash dividend of $0.012 per ordinary share or $0.24 for ADS, for the year ended December 31st, 2025. The cash payment for the dividend of $317 million was made in April 2026. In addition, as part of our long-term commitment to shareholder returns, we plan to complete the 2-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 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.

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.

Millicent Tu, Head of Investor Relations, Tencent Music Entertainment Group: Thank you, Shirley. If you are dialing in by phone, please press 5 to ask a question and then 6 to unmute yourself. If you are accessing the call from the Tencent Meeting or VooV Meeting application, please click the Raise Hand button at the bottom left. For the benefits of today’s call, please limit yourself to 1 question, and then if you have more, you can go back to the queue. The first question comes to the line from Lincoln Kong from Goldman Sachs. Lincoln, your line is open.

Lincoln Kong, Analyst, Goldman Sachs: 好，谢谢，Yu Chengqing接受我的提问了。那我也是看到我们一季度又取得了很稳健的一个成绩啊。那刚才这个Yu Chengqing其实有说到，就是我们现在是有take一个holistic approach of the ecosystem嘛。那我想问的话，就是这个音乐相关的这些收入，在2026年，比如说余下的这段时间的一个展望啊，尤其包括就是会员和非会员收入的主要的一些增长的driver啊。以及大家肯定也比较关心，就是会员业务目前的这个竞争的一些态势的一些变化。然后讲到这个ecosystem相关，就今天刚才也看到就是Ximalaya的这个收购的一个批准吧，我不知道就这个东西，管先生现在可不有一些分享，它对我们这个TME的整体的这个生态的一个帮助啊，和结合应该是怎样的？谢谢。

Translator/Interpreter, English Translator: Thank you very much for giving this opportunity to ask first question. Just now, first of all, congrats on the good performance in Q1. Just now you said you’re going to take a holistic approach and also make full use of whole ecosystem to improve our business. My question, first of all, is about the revenue guidance for the remainder of 2026. Can you 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. Speaking of the ecosystem, we have noticed that the Ximalaya deal has been approved by the regulator, and can you give us some update on how it can improve our performance in the whole ecosystem.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 好，谢谢Lincoln的提问。那我先就按照我们当前未来的那个guidance先做一些阐述。其实坦诚讲，在当前的比较充满挑战的环境底下，TME在第一季度我们依然是实现了非常稳健的业绩增长。主要是我们坚持了平台与内容生态双引擎的策略，帮助我们构建了一个不可以替代的一站式的音乐娱乐生态。本季度我们看到音乐非会员的业务增长是比较强劲的，演出相关的业务再次实现了三位数的同比增长。

Translator/Interpreter, English Translator: Thank you, Lincoln, for your question. First of all, I’ll 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 content plus platform dual-engine 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.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 我们当前面对的竞争压力是比较大的，一方面来源于竞争平台在用户流量以及无序的价格竞争，叠加了AI带来的盗版问题、内容的问题，对我们后续的音乐流媒体相关的业务收入的增长，会带来一定的不确定性。那我们后续会在运营重点上，围绕以下的三个方面。

Translator/Interpreter, English Translator: However, competitive pressure remains significant. Disorderly price 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 3 key areas.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 第一点呢，我们是大力地加大我们的维权的力度。我们拥抱AI，但作为提升内容生产效率的工具，但我们不会让AI成为侵权的借口。针对行业当前的乱象呢，我们已经建立了一个专项的维权的机制，坚决地维护平台、版权方以及创作者的合法的权益。那我们也欢迎技术的创新，但尽一切的能力来挤压那个洗歌、盗歌、蹭热度等等的侵权行为。

Translator/Interpreter, English Translator: First of all, strengthen enforcement to prevent AI from becoming an excuse for infringement. In response to industry chaos, we have established a dedicated rights protection 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.

Kashang Pang, Executive Chairman, Tencent Music Entertainment Group: 第二个方向呢，我们会在用户的流量方面，我们已经在加大还有加深跟腾讯体系的合作。今年的七月份开始呢，我们已经开始加大了跟微信视频号的深度战略合作，打通了短视频与音乐的消费场景。视频号用户听到好的歌曲以后呢，他可以一键跳转到QQ音乐直接收听，帮助用户实现从发现音乐，而且从内容到正版的收听、收藏以及高品质的消费的无缝连接。音乐的创作者呢，也可以获得更多的宣传，还有曝光的机会。

Translator/Interpreter, English Translator: 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 bridging short form video with music consumption, WeChat Channels 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.

Kashang Pang, Executive Chairman, Tencent Music Entertainment Group: 第三方面，我们会继续利用好我们在平台上的繁荣的IP生态，深化用户一站式的音乐消费的新致。多年来的积累，让我们不仅仅拥有了海量的优质的内容储备，更拥有了很多生产好歌的创作者，在IP以及追随这些艺人的用户群。为了充分地去释放这个生态的长期的价值，我们正通过IP的规模的扩张以及价值的深挖两个维度来拓宽我们的竞争的优势。

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

Kashang Pang, Executive Chairman, Tencent Music Entertainment Group: 首先我们在那个扩大IP的矩阵里面，我们会不断地扩大合作艺人、艺人的IP的矩阵的同时，我们也会发力地去构建我们具有艺人的体系。目前我们的生态呢，已经聚拢了非常多的头部的以及非常出色的音乐人，在我们的中国里面有很多的非常优秀的艺人已经在我们的矩阵里面。第二个呢，价值呢，就是我们的价值的延伸，我们具有的艺人的体系的建立之后，我们也让我们可以更灵活地去打通音乐创作到商业授权、品牌合作和全产业链的那个链条，显著地提升我们IP的变现的那个效率。以我们与战略合作的艺人像汪苏泷的合作作为例子，合作内容已经从早期的围绕歌曲本身的内容首发权益，拓展到现在帮他举办那个个人的演唱会、实体周边的销售，以及本季度我们也携手打造了首个fan club的会员的服务，围绕以艺人为核心的构建专属的粉丝的体验，包括我们优先入场，还有独特的粉丝福利等等。

Translator/Interpreter, English Translator: 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. Second is expanding the value chains. Establishing an in-house artist system allows us to flexibly integrate the entire industrial chain, from music creation to commercial licensing and brand collaborations, significantly improving IP monetization efficiency. Taking our strategic partnership with Silence Wang 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 base membership service, building a dedicated artist-centric fan experience that includes priority entry and unique fan benefits.

Kashang Pang, Executive Chairman, Tencent Music Entertainment Group: 所以最后呢，我们对于未来的那个业务的展望，我们是理解到会受到那个竞争的影响，我们也预期会员以及广告的业务的增速在短期内会有一些的波动，但当我们集中精力做好我们的内容的维权，加大用户的引流，还有那个维护，在围绕AI的综合的打造，还有变现呢，我们对长期的业绩的表现还是比较乐观的，而且能够保持一个稳健的长期的增长。

Translator/Interpreter, English Translator: Looking at a year as a whole, we expect some short-term volatility in gross rating from 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.

Kashang Pang, Executive Chairman, Tencent Music Entertainment Group: 好，对于喜马拉雅，因为今天刚刚我们获得了一个批准，所以我们在我们，我们也是跟腾讯集团一起，我们也将严格地去遵守。

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 国家市场监督总局对我们这里面的各项公告里面说的各项要求，我们认真地会去履行各项承诺，确保交易能够依法合规地推进。

Translator/Interpreter, English Translator: We just received a notice of the approval from SAMR. 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.

Millicent Tu, Head of Investor Relations, Tencent Music Entertainment Group: Thank you. The next question comes from Alicia Yap from Citigroup. Alicia, please. Alicia, your line is open. Are you with us?

Alicia Yap, Analyst, Citigroup: Oh, hello. Yeah. Can you hear me now?

Millicent Tu, Head of Investor Relations, Tencent Music Entertainment Group: Yes, we can.

Alicia Yap, Analyst, Citigroup: 感谢管理层接受我的提问，也恭喜这个稳定强劲的业绩。那个我的问题是关于这个包月这一块，想请管理层能否给我们就是划分一下这个不同的等级，比如说尤其是广告订阅用户的这个增长，还有这个用户的留存大概是怎么样的一个情况。然后另外呢，就是我们这种新增的fan club和Bubble的这种新型的这个订阅服务，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RPU的这个增长是一个重要的驱动力。然后我知道这个喜马拉雅交易可能刚刚批准了，就是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。我自己翻译一下。So, thanks management for taking my questions.

My question is related to subscription. Can management share some detail about the subscription tiering split? What is the growth status for the advertising subscription user? What are their retention rate? The contribution and the growth potential from those newer subscription like the fan club and Bubble, will this become a meaningful driver for the blended RPU growth in the future? With the pending approval of the Ximalaya transaction, any preliminary plan on the long form audio subscription plan, you know, in the future? Thank you.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以我们现在来看，首先我们要清楚我们目前的整个今年，今年定位，我们自己目前的集团，我们是做，要作为一个一站式的综合的音乐服务平台。

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

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 因为从酷狗音乐和QQ音乐这边，我们其实已经发展了二十多年，这么多年来，我们其实持续是以音乐为核心去拓展我们的业务版图。

Translator/Interpreter, English Translator: Kugou Music and QQ Music has been developing for over two decades, and over the years we have been expanding our business based on music.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以在这么多年来，其实我们已经比较好地从传统的音乐订阅业务，已经延伸到了更广泛和丰富的服务的品类。

Translator/Interpreter, English Translator: For years, we have evolved from doing traditional streaming business to a broader category of business.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以刚才你那个问题来说，就是我们的，因为这几级会员的留存，我们目前并没有公布，但是我们可以说，因为这个几级会员的提供使得整体的会员的留存是一个相当于比较稳定的。

Translator/Interpreter, English Translator: 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.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 实际上多级会员体系的设计是仍然还是针对于我们不同的用户对于音乐的这样一个需求来定义的。

Translator/Interpreter, English Translator: The design of a multi-tier member system is to meet demands of different kind of users.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以我们比如说，我们对于轻度的用户，或者说在本身的中低活跃这个群体里面，我们始终使用免费模式去扩大，免费模式以及广告会员来去提升他们的留存，以及去考虑其中的一些商业的价值。

Translator/Interpreter, English Translator: For light users or not those very active users, we’re using like free and ad-supported approach to improve retention and tap their commercial value.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 基础的音乐服务，始终还是位于对于相对比较高的这种，对于音乐的一个认同，而且比较有粘性的这些用户去提供的一个会员的服务。

Translator/Interpreter, English Translator: Basic music service is mainly for the users who have a relatively high demand for music and also for those sticky users.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 对于更深度的，我们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Bubble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。

Translator/Interpreter, English Translator: For those deeper value users, like our products like fan club, Bubbles are for those users who have a more diversified demand.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 对，所以我们相信，其实现在未来针对于IP为核心的这样的一个音乐订阅服务，那包括，不止音乐，包括音频，就是我们现在说，我们现在看到的就是比如我们对于听书和儿童这类的，这类的，相对来说这种音频跟音乐更深地基于IP的高价值的内容服务，我们能够提，能够发掘更大的商业机会和提升我们的用户的留存。

Translator/Interpreter, English Translator: 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 a bigger commercial opportunities and also improve our retention.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以总来看，也就是说相对来从现在后面开始，我们仍然还是围绕着IP为核心去建立这样的一站式的综合的服务平台，那同时在上面去更好地提升用户的留存，那么在其中自然而然的这些商业机会就能够被我们去挖掘到。

Translator/Interpreter, English Translator: All in all, in the future, we will continue to build IP based one-stop music service platform. With all of this, we can continue to improve user retention and tap more business opportunities.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 对，这也是我们现在其实跟竞品竞争对手来相比来看，我们应该是最具价值的这一部分。

Translator/Interpreter, English Translator: This is the very part that provides the most value compared with our competitors.

Millicent Tu, Head of Investor Relations, Tencent Music Entertainment Group: Thank you. The next question comes from Morgan Stanley. Yang Liu. Yang, your line is open.

Yang Liu, Analyst, Morgan Stanley: 感谢提问的机会，我的问题也是关于会员服务的问题。这个季度会员服务年对年还是有不错的增长，但是环比Q on Q的话是有一点点下跌，我想多理解一下这个背后的原因，因为我的理解是这个业务按理说季节性不太强，但也有可能Q1可能是演唱会的淡季，不知道会不会有一些环比上的影响。那这个环比下滑的背后，除了季节性以外，我不知道是不是有一些比如竞争带来的问题，更多的是有一定的客户流失，还是腾讯音乐这边自己的防御，比如说有一些用户可能从中高端的套餐降级到了低端的套餐，那这种情况多不多？然后如何判断接下来的环比走势，就是membership收入的环比走势。谢谢。

Translator/Interpreter, English Translator: Thank you very much. My question is about member services. We noticed that this quarter, if you look at where year-over-year growth, that’s very good. If you look at quarter-over-quarter, it’s going down slightly. I’m just wondering what is the reason behind? As far as I can tell, this business doesn’t seem to have a very strong seasonality. Probably I guess it’s because Q1 is a relatively low season. Apart from the seasonality, is there any other possible reasons like competition, some churns of users or some higher value users are changing their packages from like high packages to some cheaper packages? Could you also give us some like guidance of the future quarter-over-quarter growth for this business?

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 我们其实可以看到，主要还是从，首先我先回答刚才那个问题，就是本身我们的并不是因为我们自己的SVIP的，跟SVIP的降低或者从其他的流失所导致的。所以我刚才也提到说，我们其实SVIP本身仍然能够保持比较好的一个增长，所以这是首先。首先这块就我们中高活跃的群体其实没有受到多少影响。

Translator/Interpreter, English Translator: Well, first, I want to respond to your question by saying it is not because some SVIP members have chosen some lower or cheaper packages or because of the churning of users. As you can tell that our SVIP member is still growing steadily, so our medium to high value users are still there.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以你去看到环比的这个变化的主要竞争确实来自于音乐流媒体这个板块，当然尤其是对于免费和价格敏感的用户。

Translator/Interpreter, English Translator: Well, as you mentioned, this quarter-over-quarter slight decline is mainly because of the competition on the streaming music streaming business, and especially for those free and ad-supported members.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 市场上也出现了一些偏离商业本质的现象，部分行业从业者也通过AI去生成一些盗版的内容，去快速填充曲库，并以激进的导流方式去争夺轻度和价格敏感型用户的注意力。

Translator/Interpreter, English Translator: 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 aggressive strategy to divert traffic and users into their platform. They’re also fighting for those light users.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以在我们看来，现在确实是一个比较重要的时刻，因为这时候其实是这样的行为相当于对产业这种健康生态的一种消耗，更是也是对我们自身长期商业价值的一个透支。

Translator/Interpreter, English Translator: Well, we noticed that this is a very important moment for the industry, because such behavior is an exhaustion of the economic value of this industry. Also they are consuming their own business value.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以面对这样的环境，就像我刚才所说的，我们仍然会去聚焦，我们仍然是要去专注于去做一个综合性的音乐服务平台。

Translator/Interpreter, English Translator: Amid this environment, as we said in the beginning, we will stay focused on building a one-stop comprehensive music service platform.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 当然就是这个来看，真的因为我们在整个的其实是两个大平台，两个比较大的一个音乐平台去提供了我们的音乐的包月收入，一个是酷狗，一个是QQ音乐。

Translator/Interpreter, English Translator: We provide monthly subscription music services on 2 music platforms, Kugou and QQ Music.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以刚才我讲话里提到的就是，其实实际上来说就是酷狗的平台的用户对于价格和对于促销的活动是更为敏感的，那在多平台这样选择的面前，轻度用户的流失性确实在相比之前是有所增加的。

Translator/Interpreter, English Translator: Users on Kugou platform is more price sensitive and promotion sensitive and well, in face of multiple choices and these kind of users are easily flowing away.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以我们这样的情况就是在，实际上在这样的话，其实是会影响到对于酷狗音乐平台的会员的开通量。

Translator/Interpreter, English Translator: Well, this will have some impact on the new membership growth on Kugou platform.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 那在这样的情况下，我们就要通过免费模式和广告会员来去降低我们的用户的使用门槛。

Translator/Interpreter, English Translator: In this context, we have to use the free and ad supported mode to reduce the barrier to entry.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 另外，我们的酷狗概念版在上半年也取得了一个比较好的增长，能够用更加灵活的定价和内容组合去满足用户的轻度化的需求。

Translator/Interpreter, English Translator: Kugou Concept Version is also posting a very robust growth in the first half of this year because we’re adopting a more flexible pricing and content to retain these light users.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 而因为QQ音乐相对来说比较综合。

Translator/Interpreter, English Translator: QQ Music is a relatively more comprehensive platform.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以整体的我们的运营数据还是比较健康并且保持稳定的。

Translator/Interpreter, English Translator: The overall operational data on QQ Music platform is steady and healthy.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 然后用户本身的在全平台这个价值上是甚至是稳中有升的。

Translator/Interpreter, English Translator: The overall value of users on this platform is even increasing.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 另外，就刚才我们所说，在我们刚刚发布的微信视频号和QQ音乐的合作，我们相信也会进一步地去巩固我们在这个app上的竞争优势。

Translator/Interpreter, English Translator: The recent release of the collaboration between WeChat Channels and QQ Music will further consolidate our competitive edge.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 最后我们也相信，就是实际上我们在无论是在线下的体验，以及我们多设备上的用户的规模，仍然还是也是我们的一个比较好的一个竞争的一个优势，使得我们自己在未来去实现我们更好的商业、商业化的机会，提供一个更加非常好的一个基础。

Translator/Interpreter, English Translator: 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.

Millicent Tu, Head of Investor Relations, Tencent Music Entertainment Group: Thank you. The next question coming from Shirley Hu, where your line is open.

Analyst (Unnamed), Analyst: 好，谢谢，谢谢我的提问。我有个问题想请教一下Shirley总，因为我们看到这个季度的那个gross margin其实是比上个季度环比有一些提升，那我不知道这样会不会改变管理层对上个季度对于今年全年的这个gross margin这样的一个预测，因为当时你们说是一个平稳或者是一点点下降。然后我想再另外请教一下，就是sales marketing这个季度确实有增长，那你们有提到这个是因为你们跟这个腾讯那边做更深度的整合，我想问一下这一块的这个cost ratio会是一个one time吗？还是或是说在未来的几个季度里面会维持一个相对来说比较高的这样的一个数字？谢谢。

Translator/Interpreter, English Translator: Well, thank you very much. We noticed that the GP margin this year actually is growing a little bit quarter-over-quarter. I am just wondering in this case, will you change your overall the whole year guidance on GPM? Because I remember last quarter’s call you said that the overall year GP margin will stay flat or even decreasing slightly. We also noticed that the sales and selling expenses actually increased a bit. You said because of the like the deeper collaboration with Tencent ecosystem. I am just wondering this cost ratio, is it one-off or?

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 同比来看，我们的Q1确实是取得了不错的毛利率，那么主要的因为以下几个因素。

Translator/Interpreter, English Translator: Well, if you look at YOY, in Q1, we’ve had a very good GP margin, mainly because of the following reasons.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 第一呢，就是Q1的会员及广告收入持续增长，这个对我们的毛利率还是一个持续正向的。

Translator/Interpreter, English Translator: Number one is in Q1, we see a continuous growth of membership and ADS business, which contributes positively to our GP margin.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 第二点呢，就是尽管我们的IP相关业务收入占总收入的比例是相对增长的，那由于IP相关业务中的经纪类业务增长是比较快的，占比也逐递升高，那同时演唱会及活动类的业务积累了运营经验，也提升了运营效率。那么总体而言，我们觉得IP类的这个相关业务在本季度呢对毛利率的影响基本是没有的。

Translator/Interpreter, English Translator: Well, despite the fact that the IP related business is growing very, very rapidly in terms of the overall contribution to the revenue, and especially if you look at our brokering business is growing exponentially and its proportion for overall contribution to the revenue is also going up. We can also tell our offline performance and event business, through that, we have accumulated lots of experience and improve the operational efficiency. Overall, the IP related business impact on the GP margin is close to zero.

Ross Leung, Chief Executive Officer, Tencent Music Entertainment Group: 所以第三点就是我们也同时对各项成本呢进行了积极的管控，也提升了ROI，也取得了不错的成效。

Translator/Interpreter, English Translator: The rigid cost control, also generate very good results on our ROI.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 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的这个占比，收入的占比是显著低于去年Q4的。

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

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 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。

Translator/Interpreter, English Translator: It generates some positive impact over GP margin and also offsets the impact of the seasonality reasons of membership and advertising business.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 那么根据这个预期，我们对未来的这个收入增长的节奏的一个预期呢，我们预计这个Q2的这个毛利率与去年基本同期是持平的。

Translator/Interpreter, English Translator: Well, as to the, our expectation over future revenue growth, we expect to have a GP margin on par with last year in Q2.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 那么长期来看，我们预计我们现有的会员和广告收入的增速会稍有放缓，相对来放缓。但是我们会通过对各项相关成本的严格管理，在内容上减少对低价值非优质内容的无效的投入。那么结合苹果渠道费率下降的这个情况，我们认为我们的这一块的业务会保持一个盈利的韧性。

Translator/Interpreter, English Translator: Well, as our IP related business is growing robustly, which will have some structural pressure on our overall GP margin. We will keep optimizing our cost and adopt project basis measures to control costs. Also we’ll use our content platform, content plus platform strategy, online plus offline, and also improving, increasing the % of contribution of our own proprietary IP business. With all of these measures, we can maintain a steady profit.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 长期来看，我们对我们的毛利率保持行业的优秀水平是有信心的。

Translator/Interpreter, English Translator: In the long run, we are very confident to stay at the frontline of our GP margin in the industry.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 还有销售费用。对。那么讲到销售费用呢，确实在一季度是增长了36%。那么这个是我们面对这个日趋激烈的这个市场竞争，我们战略性地加大了音乐平台的这个获客的投入。那么我们聚焦广点通、字节等渠道的优质点位的流量，精准定向高价值的用户，并结合星光卡等付费的内容进行推广。那么渠道投放用户质量和效率都有明显的提升。

Translator/Interpreter, English Translator: 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. In face of such intensifying competition, we have to strategically increasing our expenses in user acquisition for our music platforms. We’re using different channels like ByteDance to acquire higher value users. We’re also using the Star Card of artists to acquire more high quality, high value users.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 同时呢，我们也增加了自有内容的推广的投入，那么进一步提升歌曲的曝光的热度，强化平台内容的核心竞争力，来使得这个我们的提升平台用户的粘性。

Translator/Interpreter, English Translator: 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.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 那么另外呢，我们依托这个腾讯系，我们今年也会将资源重点投向微信视频号的生态战略的合作，那么帮助视频号建设音乐生态。

Translator/Interpreter, English Translator: With the Tencent ecosystem this year, we will allocate some strategic resources with WeChat Channels, and we will help WeChat Channels establish its own music system.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 那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综去合作宣发，来提升视频号给TME引流的效率。

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

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 预计假以时日，随着视频号生态音乐生态的完善，借助微信生态的流量红利，TME能有效提升获客的效率。

Translator/Interpreter, English Translator: We expect that in the future, with the maturization of the WeChat Channels music platform plus our own content contribution, we will achieve a win-win results on two platforms.

Shirley Hu, Chief Financial Officer, Tencent Music Entertainment Group: 那么预计全年的销售费用会有合理的增加，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。

Translator/Interpreter, English Translator: For the whole year, the selling expense will have a reasonable rise and which will be in line with our previous whole year guidance and will in the following quarters, it will not be growing as fast as 36%.

Millicent Tu, Head of Investor Relations, Tencent Music Entertainment Group: Okay. Thank you, Shirley Hu. 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. This concludes today’s call, and thank you again. Look forward to speaking next quarter.

Translator/Interpreter, English Translator: Thank you. Okay, bye bye.

Millicent Tu, Head of Investor Relations, Tencent Music Entertainment Group: Bye bye.