Earnings Call: Q2 2021

Aug 16, 2021

Earnings release

Ladies and gentlemen, good evening and good morning and thank you for standing by. Welcome to the Tencent Music Entertainment Group 20 21 Second Quarter Earnings Conference Call. Today, you will hear discussions from the management team of Tencent Music Entertainment Group followed by a question and answer session. Please be advised that this conference is being recorded today. Now I will turn the conference over to your speaker host today, Ms. Millicent Teah. Please go ahead, ma'am. 20. Thank you, operator. Hello, everyone, and thank you all for joining us on today's call. Tencent Music announced its quarterly financial 20. Today, you'll hear from Mr. Keqing Pan, our Executive Chairman, who will start the call with an overview of our recent updates. Please note that this call may contain forward looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 20. These forward looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, 20. All forward looking statements 20. I expressly qualify in their entirety by the cautionary statements, risk factors and details of the company's filings with the SEC. 20. The company does not assume any obligation to revise or update any forward looking statements as a result of new information, future events, 20. Please also note that the company will discuss non IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the International Financial Reporting Standards and the company's earnings release and the filings with the SEC. You are reminded that such non IFRS measures should not be viewed in isolation as an alternative to the equivalent IFRS measure and other non IFRS measures are not uniformly defined by all companies, including those in the same industry. With that, I'm very pleased to turn over the call to Keshun, Executive Chairman of Tencent Music. Keshun, please. 20. Thank you, Melissa. Hello, everyone, and thank you for joining our call today. As we announced on July 26, 20. Tencent recently received an administrative penalty decision issued by the State Administration for Market Regulation of the 20. We sincerely accept the decision and will continue to strengthen our operations in accordance with all regulatory requirements, drive innovation and fulfill our social responsibilities. 20. In compliance with the requirements of copyright license exclusivity, we will operationally focus We have taken several important steps in this regard. Specifically, as Executive Chairman, I am responsible for enriching 20. Our content ecosystem, whether licensed or self produced as well as expanding our capability within the music industry to offer additional value services and solutions to artists and users. Our CEO, Ross, Ross will elaborate on this in a moment. We will continue to deepen our partnerships with hundreds of music labels 20.6 percent. In addition, we are pleased to announce that the company has been able to expand our licensed content coverage in alignment with the new requirements and work to provide more and better content offering to over 6 20. We are pleased to report that We have been consistently making breakthroughs in diverse music verticals, including new hits, Chinese Asian style, and particularly full coverage of hip hop variety shows. We are also writing our profile among the younger generation and the rappers alliance. This is turn has resulted in a sequentially increase in user engagement from young users. While bottling our offering of copyrighted music, We have also been working closely with our upstream value chain, artists and other partners 20. Over the past few quarters, we partnered with prominent artists such as Zhang Ziqi, Justin Yi, Yan Tianxi and Angela Zhang, Zhang Xiaohan, and co produced over 2,000 chart topping songs across gaming, Directed by a highly regarded Chinese film director. From creating the film song itself We are pleased to be able to contribute to this award winning project. I'm also pleased to share our progress in counterfeiting and promoting indie musicians. During the Q2 of 2021, through the Tencent Musicians program, our roster of indie artists achieved triple digit year over year growth with a strong stream showing consistent increase both year over year and quarter over quarter. 20. Musicians view us as a reliable partner given our well structured financial incentives, which for the first time included a revenue sharing mechanism for the naira and songwriters. They are also attracted by our efforts to pioneer enhanced copyright protection based on blockchain technology, On top of that, our appetite for cultivating blockbuster on the Tencent Musician Program platform has grown significantly. For example, within 3 months of its release, we've collaborated cross platform efforts from QQ Music, and inspire the numerous cover versions. In the future, we will start to build a closed loop system and education and training for musicians, all of which reflect our desire and determination to help musicians grow and succeed. We have also upgraded our platform's promotional capability and further developed our active and RevPORATE A&R capability. For example, we connected narrators and musicians performance brand continues to bring new opportunities to the Company with a strategic focus on omni channel promotion and monetization. On the online side, we host monthly concerts for top artists 20.9 percent and merchandise to create a holistic and more immersive user experience for online live performances. On the offline side, TMG Live is expanding its footprint with a plan to launch offline initiatives, including daily live performances in key cities such as Beijing and Shanghai and collaboration with the Tencent Musician platform and the local tourism industry. We are also working with Playhouse to organize weekly indoor music festivals, With our focus updated in content, I would like to pass the call to Ross, who will share more about our platform strategies. Ross, please go ahead. Thank you, Kanshi. Hello, everyone. Since I became CEO in April, my focus has been on strengthening our platform's competitiveness and finding new ways Over the past few months, We have made good progress on this front. With respect to visualization, we are applying shared middleware and architecture, 20. And we are pleased to see that its DAO penetration is increasing quarter over quarter. 20. QQ Music just launched a new version feature in immersive release in August With expanded user case and a more diverse content, we anticipate these efforts will increase video views 20 2 initiatives, all of which are still work in progress. 1, we are upgrading the synchronized listening 20. 3, we are upgrading within online karaoke rooms We'll make online scene more fun and social engaging. The new version will offer a broader sales of online scene experience, including different party size ranging from solo and the device to small and large groups as well as catering to different needs such as singing on demand, singing along on demand, singing practice, interim PK and the classroom activities. 20. We will soon launch Vixin virtual live streaming room to provide a new entertainment experience, In the future, we will expand the metaverse live streaming to more use cases, We have also made progress in partnering more closely with broader Tencent Ecosystem, another During the second quarter, we 20. This is an important step for us 20. 1, enrich the music video content on both TME platforms and the Vision video account 2, Leverage mission to expand our promotional capability and the strength with the allocation of video traffic to TMI platforms, 20. 20. As the first start, recently QQ Music for the first time joined force with Beijing Video account and presented Allegiant Summerline, Our next step will be strengthening the interactions between artists 20. First, 20. QQ Music launched a new feature which allows users to update their vision status with the songs they are listening to, making sharing more dynamic and fun. 2nd, users can now customize their vision written tones with selecting music From Tencent Music. Sir, by leveraging Vixin's translations AI technology, 20. QQ Music now supports high quality translations of English songs into Chinese. Last but not least, We worked with Tencent Video to enhance the exposure of video content. For example, within 2 weeks of release, Long form audio is an effective complement to our music products and the content portfolio and the value added to user engagement. During the Q2, we restructured this business unit to further streamline 20. As NBA China's official strategy, music partner, Weihai will cultivate an NBA podcaster ecosystem, With this improvement, long form audio MVU growth over 90% year over year in the second quarter. As one of our industry leading innovators, we launched NFT digital site platform based on blockchain technology. We will seek to offer more tools for artists to active users, broader exposure In conclusion, there is still a lot of work to be done, 20. Now I would like to turn the call over 20. Thank you, Ross. Hello, everyone. Online music mobile MAUs were 623,000,000 in the 2nd quarter. Despite some churn of casual users resulting in a year over year decline, 20. MAUs were up slightly on a sequential basis. In terms of user engagement, core music users have become more engaged with our platform 20. As total user time spent was up year over year and quarter over quarter. In addition, Paying users become more active on our platforms after they have subscribed to our service when compared to before they subscribe, Which means as our paying user base grows, not only does this improve our overall monetization, 20. The level of engagement on our platform coming from this core group of users also increased. We continue to of 43% during the Q2. As a new music content consumption channel, IoT enhances our ability We're pleased to report that growth momentum 20. Our online music services continued into the 2nd quarter. As a result of effective marketing 20. And continued progress in adding high quality music content into the subscription plan, the number of paying subscribers subscribers during the quarter. Our paying subscriber ratio grew to 10.6% in the 2nd quarter, up from 7.2% during the same period last year. On a year over year basis, User retention continued to improve and average revenue per paying user remained healthy, reflecting users growing willingness to pay for 20. Advertising revenues delivered robust year over year growth rate in the 2nd quarter. Ad revenue benefited from an expanding pool of advertisers from a variety of industries, increased ad inventories and ECPM on a year over year basis, as well as optimized app display. However, Growth in the Q2 was lower than our expectation as they were impacted by regulatory guidance on app launch, splash screen ads We will continue to improve the user experience of our apps to comply with the guidance And we'll also invest in new ad formats to meet the needs of diverse advertisers. Turning to our online music products. We further refined product positioning within our multifaceted portfolio. For example, we further bolstered QQ Music's image as a young and trendy brand. 1st, We continue to add popular and trendy content to meet the younger generation's demand for Chinese Asian style music, We deepened our presence into schools and college campuses through online and offline activities such as on campus competitions and graduation ceremonies. Notably, the 2021 QQ Music Graduation Concert spurred nearly 500,000,000 social buzz. 3rd, our new functions such as synchronized listening and Putong Planet will further boost interactions among users. Finally, as our Putong community has become a cultural hotspot for young users. We are attracting more artists such as Cai Shukun, 20. Switching gears to our social entertainment services. Both MAUs and paying users declined quarter over quarter due to intensified competition with other Pan Entertainment platforms. In response, Ross elaborated earlier regarding our areas of focus to strengthen our competitiveness and we look forward to sharing more progress in the future. For WeSing, in addition to the new WeSing initiatives that Ross just laid out, During the Q2, we adopted technology to include an immersive chorus accompaniment sound effect These improvements have led to a more enjoyable user experience while recording songs, which in turn For our live streaming services amidst increasing competition, We will steadily embrace the latest industry guidance and remain firmly committed to promoting a healthy 20. In this regard, during the Q2, We continue to make progress with contributions from QQ Music's live streaming and category expansion adding thrust to our efforts. 20. With a dedicated tab fueling additional traffic within QQ Music, QQ Music's live streaming recorded 20. Solid growth and is on track to further scale up into the second half of twenty twenty one. In terms of category expansion, Kugo Live continued expanding its exposure in the Chinese ancient style category For our live streaming is that we introduced our 1st cross platform live streaming event to extract operational synergies across TME's live streaming platform. In June, Kugo Live and WeSing jointly hosted their 1st cross platform competition, effectively increasing the vibrancy of both platforms. This resulted in significantly higher revenue to send virtual gifts for the first time. Moving forward, we plan to replicate the successful events into new cross platform opportunities. With that, I would like to turn the call over to Shirley, our CFO, for a closer review of our financials. 20. Thank you, Tony. Hello, everyone. Next, I'll discuss our results from financial perspective. Our total revenues for Q2, 2021 were RMB8.1 billion, up 16% year over year, driven by strong growth in online music services, particularly in music subscriptions and advertising. 20. Our online music revenue were RMB3 1,000,000,000 this quarter, up 33% year over year. In the Q2 of 2021, our music first person billings continued to grow rapidly with revenues of RMB1.8 billion This was a result from our continuous improvement in product and content, 20. Expanded sales channels and effective marketing campaigns. Monthly AR PPU was RMB 9 this quarter 20.3 percent in the same period last year as we offer the more effective promotions to drive rapid growth in paying users this quarter. 20. Our Q2 advertising revenues had strong growth year over year, but it was lower than our expectation as they were 20. The year over year growth was mainly because we partnered more closely with Tencent and provide better advertising solutions 20. To comply with the new guidance and mitigate its impact on our revenues, we are directing more resources 20. To meet the needs of diverse advertisers, which may take time to bear fruit, social entertainment services and other revenue were 20. Facing the competition from other entertainment platforms, we are making efforts in returning existing and attracting new performance We are also revamping product futures and exploring more diversified initiatives to maintain steady revenue scale in social entertainment services. Additionally, advertising revenue on our leasing platform contributed to year over year growth. However, The growth was slowing down as the business was also negatively impacted by the new guidance issued by regulators Gross margin was 30.4% in Q2 2021, down 9% year over year. 20. Due to increased revenue sharing ratios for Weixin to strengthen our platform's competitiveness as well as increased investments 20. Total operating expenses for Q2 2021 were RMB1.7 billion and was 21% as a 20. As compared to 19% in the same period last year, selling and marketing expenses were 669,000,000 up 16 year over year. The increase was due to higher user accretion expenses and the promotional spending on new products such as long form audio to enhance our product's long term positioning. 20. General and administrative expenses were RMB1 1,000,000,000 up 39% year over year, For example, we are applying the shared mid waiver and the ad culture and we recently launched the Putong Management team and amortization of intangible assets addressing from the acquisition of lazy audio of Approximately, RMB66 1,000,000 also contributed to higher general and administrative expenses this quarter. Taking up the impact from the acquisition of Maisie Audio, G and A would have increased 30.1% year over year. 24. Our effective tax rate for Q2 2021 was 11.5%. 20. Our net profit was RMB871 1,000,000 and the net profit attributable to equity holders of the company Our combined balances of cash, cash equivalents, term deposits and short term investments primarily driven by payment for stock repurchase. Cash generated from operating activities had a positive impact 20. We will keep focusing on new products, such as long form audio and revamping existing product features for our long term sales growth. 20. This concludes our prepared remarks. Operator, we are ready to open the call for questions. Thank you. We will now begin the question and answer session. And the first question will come from Alicia Yap with Citigroup. Please go ahead. 20. Hi, good morning, management. Thanks for taking my questions. I wanted to follow-up on 20. Regarding these potential business operation impact that you're expecting post The regulatory fine, would that be more on the subscription trend that you're expecting or is it more on the difficulty to convert more future paying user. And what kind of offsetting measure that in your mind that you plan or have done To minimize the impact, would it be possible to push more on the freemium model with higher online ad revenues potential? 20. Thank you for your question. I'll take the first part of the answer and then Perhaps other from management can add. I think as you know, towards the end of July, there was a penalty decision by the regulatory authorities, 20. Pursuant to which among other things we have to implement a rectification plan to terminate exclusive music We sincerely accept that decision and are committed to complying with all the requirements Fully and in a timely manner. While the decision will have an impact on our music business, It is worth noting that all the music that has been available on the platform We'll continue to be available on the platform to our users and we'll focus on strengthening our operations in accordance With the regulatory requirements, we'll also focus on better serving our users through product innovation, Which Ross and Kashin has elaborated on. And we'll also focus on fostering the healthy development of musicians and the music industry as a whole. Let me pause there and see if others in management have other 20. Yes. I just would like to add is Allison, thank you for your questions. And I think that one of the key competitive edge 20. We implied a dual 5 group strategies, which means that we do not just have the music platform. But again, As we mentioned, we also committed to continue to develop our content ecosystem, which will make us to be in a more As you mentioned, frankly speaking, we definitely will follow the decision by the regulators, And we will comply on it in a timely manner. And also, we are seeing that it will have some impact on our operational day to day operations, but I don't think that is going to be have too much impact on our, for example, driving our online subscriptions. As you see, I think we are still in a really good momentum because the users have been 20. Educated and they really see the value of music and they are willing to pay for music as long as we are providing high quality 20. So we still have the confidence that our online music services will be driving in a healthy manner. And also as I mentioned, we continue to expand our footprint and working together with different industry partners, Especially on the content creation side, not just the upstream for the content in production, but we are also doing the downstream, which Organizing more and more like the online and offline music concerts. And this is not just regular concerts, but we also have some creativity and new features for the online interaction with the users. So I think that all of this, the dual 5 year strategy will Yes. We are also in discussion with Tencent Video to cooperate in the area of joint subscription. 20. That's a work in progress and we'll update everyone in the next quarter. Thank you. Next question. The next question will come from Alex Poon with Morgan Stanley. Please go ahead. Thank you, management, for taking my question. My first question is regarding the exclusive content. Could management share roughly how much streaming volume overall and behind the paywall is driven by 20. And what is the percentage roughly from independent musicians at this moment? And how would That's my first question. My second question is regarding user acquisition Because from now on, we won't have we'll have less exclusive license contents. Do we expect we will spend more on user acquisition? And how much right now we are spending on acquiring new users? 20. And apart from CAC, guest and marketing, do we have to increase more discounts Hi. I'll answer the first part of the question and then regarding acquisition costs and ARPU, Shirley can address that. 20. We historically have not disclosed the exact percentages of streaming share relating to various types of content. But we do historically have exclusive content on the platform and also As part of the subscription plan. Although it's also worth noting that there is a fair amount of non Exclusive content within the subscription plan also. And then specifically with regards to the indie musicians streaming share that has been growing steadily over time. And we intend to continue to grow that over time As more and more musicians join our Tencent Musician platform and we're committed to supporting The development and as more and more of them joined to the platform, we are able to discover and work closely with the promising new talent to be able to jointly create music together. So I think that brings new opportunities for us in the content creation area as well. And then in terms of how it affects our subscribers, I think it's important to note that the users have been educated over a long period over a number of years to subscribe to the music service. It is a fairly consistent monetization model across the industry. And from a regulatory standpoint, we believe the regulators Also, keen to promote the overall healthy development of the music industry and having a viable and long term monetization model is an important part of that. And so I think we will continue to focus on Delivering high quality products and service to users through the dual flywheel of content and platform that Kashin and Ross And as we add more quality content, whether it is licensed or whether it is Co produced or perhaps going forward, there may be increasing self production as well. 20. We will be adding more high quality content into this subscription package and as well as more privileges 20. Healthy growth in our net adds, which recorded a record high net adds in the 2nd quarter, as well as We continue to see a healthy improvement, a continuous improvement in the retention rate for our subscribers. Alex, thanks for your questions, and I would like to add a little bit more color regarding the Tencent Musician Program. I think we have been doing really good work since we launched the Tencent Music Full Year program back in 2017. So after 4 years of hard work, I think that we have achieved a very remarkable results. And we are seeing that it's not just in terms of the quality of songs On the number of songs that have been distributed through our platform, I think that we are really creating value for the musicians and the music creators. 20. Like, for example, the IP rights protection, we also have developed an open platform, And then we help them to distribute through the Tencent ecosystem and also other outside channel as well. Besides, we also try to focusing on helping the musicians. They are not on their own. We try to do some collaboration between the 9 members and also other professional producers as well. So we try to bring them all together. And the Most important thing is to continue to produce high quality music. So this is very important that we will 20. And also, we are always focusing on creating value for the musician as well. We want them to do their hard work and the reward. So we also have continued to enhance our revenue sharing and rewarded system, which led our younger 20. And after the years of hard work, we have been achieving a lot and I think that we are in the really good progress. And also the last but not least I would like to mention is the PMV Live. Since that we have this kind of online and offline concerts and 2. We can also letting our Tencent musicians to start to participate in the PMD Live event as well And also in our live event, like the online broadcast as well. So there's a lot of things that we can work, and I this is strongly believing that this is one of the key So I hope that this answer will help your questions. 20 In terms of user acquisition from a platform perspective, our strategy continues to be a multi product portfolio approach, Whereby in addition to the 3 major music apps across Kuga Music, Kuga Music, Kuga Music, As well as we saying, we continue to incubate and expand our footprint into other segments With new products and then within each product, the overall strategy is to focus on videoization, social As well as community building. As an example, within Kugo, they've recently launched a new feature, which allow users 20. And also facilitate user interaction around those video content within the music app. And then similarly, QQ Music launched an immersive full screen video feed To provide and enrich video content within the music platform through these measures, We hope to acquire more users. Shirley, please go ahead. Yes. About the app of online music services, we expect that will be stable in the future quarters compared to Q2. We will balance the promotion campaigns and the rapid growth of our subscribers. And we expect our subscriber numbers can have very Thank you, management for sharing the whole the full picture. Thank you. The next question will come from Eddie Leung with Bank of America. Please go ahead. Good morning. Just a question on gross margin. We noticed a slight dip in the gross margin. So we understand that there could be a few reasons. For example, you guys In addition, we also know that from some other live streaming companies, the revenue 20. Sharing ratio to live streaming host in the industry could be increasing. And then finally, we also understand that 20. There has been more long form audio content. So could you give us a bit more color on 20. Thank you. 20. About gross margin, you said that 20. The reasons why our gross margin decreased in the Q2 and in the next quarters, We expect the revenue sharing ratio for Weixin will be continuing to increase and the investment on New products and content offerings such as the long form audio also be increased. So 20. This is the one respect one respect. And the second, we Expect our social entertainment will be under pressure. So This business gross margin is generally higher. So the random mix shift will from 20. Social to music, that will also be some negative impact on our gross margin. And for the inclusive license, cockpit drive cost, in the short term, we 20. Not very clearly impact on our cost structure because 20. We think that label and the industry also need time to change their operational. 20. So we believe the cost structure will be stable in the near term. Actually, in long term, we think that the cost structure of music will be changed from high minimum guarantee to Revenues showing that will be positive on our gross margin. So in conclude, we believe In the next quarters, our gross margin will be under pressure. Perhaps I'll add a little bit more context behind that as well. I think In terms of the outlook for the full year 2021, we currently expect The total revenue year over year growth rate to be approximately 10%, with online music revenue growth around 30% And we continue to see healthy operating leverage coming through for online music. So I think within the online music business, it continues to grow very nicely. While on the other hand, social entertainment revenue For the full year, it's expected to be roughly flat on a year over year basis due to the weakness in live streaming, as well as The margin reinvestment that Sherwin talked about. Now within Online Music, we continue to expect 20. Strong year over year growth for subscription revenue with paying user net adds continuing the pace of between $4,000,000 to $5,000,000 per quarter. And then on the other hand, while ad revenue is expected to continue to see strong growth, As we mentioned in the prepared remarks, the growth rate is expected to be lower than previously expected. That business is impacted by regulatory guidance relating to the launch ads in order to improve user experience. And then within social entertainment, the weakness We're seeing in live streaming is due to a combination of macroeconomic impact on paying users spending behavior. It's also a result of competition with short video platforms for users and for performers And also a result of conservative adjustments we are making to the live streaming operations to comply With regulatory directions in the areas of content, safety and tipping behavior. And therefore, I think 20. Taking all this into account, in terms of margin, we do expect the second half to see 20. Further pressure in the margin, as a result of the upward 20. Cost pressure in terms of revenue sharing to live streaming performance, the weakness in revenues that have a higher margin in the past And also reinvestments into new business and end products. 2. My question is about our long term business trend. Given that we are seeing softness in the second half, do we still stick to our long term 16. Coming from the differential tax rates that we need to think about in terms of the net margin side. 25. And on that front, can management also comment about any data protection and privacy issues I'll address most of that question and then Shirley can talk a little bit about tax. Well, first of all, in terms of 20. Data protection, we are committed to complying with the relevant regulatory requirements in the areas of data Privacy and Data Protection. So I think that's an important priority within the company and we continue to improve our operations And then in terms of long term growth trend, we're confident that despite The short term weakness in some of the business specifically relating to live streaming, we're confident about the long term trend of the business. And as I mentioned, the net adds for subscription of between 4,000,000 to 5,000,000 Per quarter continues, we expect that to continue. And I think it's worthwhile Coming back to our long term strategy, which is the dual flywheels of content and platform, because that's The plan that we continue to execute on. With respect to content, our goal is to build the most comprehensive content ecosystem covering a broad spectrum of music and audio offering. And so on the one hand, we'll continue to enhance and broaden our cooperation with label partners to expand our content library. And while on the other hand, we'll also partner with 20. Upstream content partners will partner with artists and indie musicians to co produce differentiated content or even self produce And then thirdly, we'll continue to foster the development of the Indian musicians. 20. I won't elaborate there as Kashin has talked a lot about. And fourthly, we'll deepen our cooperation with Tencent Group In the area of content production with businesses like Tencent Video, Tencent Pictures, Tencent Games, China Literature to co produce music content together to better capture the full value of their existing IPs. In fact, we've already co produced 2 dozens of chart topping songs relating to games, movies, literature, comic, IPs In cooperation with prominent artists such as, and as we mentioned in the prepared remarks, A theme song of the popular movie, is also a production from TME. So I think That's a comprehensive content ecosystem strategy that we pursue. And then within platform, We aim to strengthen our core competence around music, audio and social use experience. Specifically as Ross mentioned, There are kind of 4 main areas. Number 1, in the form of videoization, we continue to enhance the video features across all of our platforms. And as an example, we launched the video feed within QQ Music, an immersive full screen video feed. And as a second example, we will continue to deepen the cooperation with Weixin Video account. And then secondly, we'll continue to emphasize on social and community building. And as an example of that, 20. QQ Music launched the Putong Planet, a social feature that connects users with common music taste. And we also launched new features that allow users to update their Weixin status using songs they're listening to. So there's also opportunity for us to deepen our corporation in Weixin in the area of social and community. And thirdly, long audio is a highly complementary content and service And as we have seen in the past from the actual results, providing audio content to music users Actually help increase the stickiness of the platform and increase the overall time spent and provide a more attractive content across both music and audio, which is differentiated compared to other competitors in the industry. And then I think finally, we continue to operate a multi brand and multi product strategy. Each Product within the portfolio have its unique positioning that covers a unique user segment that has a very strong leadership in 20. And we'll continue to sharpen the operational synergies that will extract across the platforms and R and D efficiencies That will extract across the platform through middleware architecture building. So I think that's the overall strategy that we Intent to pursue and we're committed to executing on that. 20. About the tax rate, we think and believe that our ETR will be stable in entitled to win calculating our effective tax rate and until the application is approved. So that will be no impact The next question will come from Piyamudi with Goldman Sachs. Please go ahead. Thank you for taking my question. Shelley, you talked about how you move away from the current contract structure 20. With the labels, could you just generally speak about how you're positioned on a competitive perspective versus the other company When MSG were taking into account and how this is likely to evolve, that would be great. That's my first 20. And second, the other company that was looking to come to go public, they talked about a social ARPU that was significantly above yours. Does that represent an opportunity for you? And if so, how would you exploit that? Thank you. 20. Yes. I talked about the contract first. First of all, we would like to reiterate that you 20. We will continue to renegotiate our license contract Our partners in the exchange of the exclusive content in contract into nonexclusive Contract within a month. So we are now in the process to discuss the details with them. And as you know, it will also involve some of the detailed discussion regarding the business term. So we are in the progress to talk about the details and we really want to settle off this in a timely manner. And also in the other We are also talking to some of the other content partners that we do not have contract with them before Because we have some of the other exclusive contracts with other platform, so we will be fully committed to bringing the best quality of music and 20. C. Wei:] C. Wei:] Thank you. C. Wei:] Thank you. C. Wei:] Thank you. C. Wei:] Thank you. C. Wei:] Thank you. C. Wei:] Thank you. C. Wei:] Thank you. C. Wei:] Thank you. C. Wei:] Thank you. C. Wei:] Thank you. 20. And in terms of the margin side and in terms of the business side, I think that all the coproduced or self produced content, we will have a more superior margin. So this is also will help us to continue to lower our content cost from this aspect. So, Shaili, do you want to mention about the second half? Okay. The social entertainment app. So about social entertainment app, 20. We believe we expect that we'll be under pressure in the future quarters because we Do some adjustment automatically by ourselves because we think the regulatory will be tight on this part. So we will change our operational method and make This business is more healthy in the future. So and we believe if we can Weixin platform and our visual karaoke room can be get 20. Increase our social entertainment app in next year. So we think we have Many, many and we have many methods to increase this patch, such as we can 20. According to the order performance in our platform such as Kala Okay and 20. And we also can use our public More revenue on this part. So we believe in next year, our social entertainment revenues can be have 20 Good performance and revenue can be stable, yes, can be stable and a little increase. 20. Okay. So two points. First, Within the social entertainment ARPU, the Kugo live streaming ARPU is historically higher, whereas the WeSing 20. ARPU is historically lower. And within live streaming, we are actively building a middleware 20. That leverages the Kugoo capability onto WeSing live streaming, so that we could While the focus is more on the paying users for Weixing, through these Middleware architecture building, we hope to extract increased efficiency and thereby should add some value to the overall revenue generation. Secondly, we pioneered for the first time in the industry recently across platform live streamer PK competition across Kugo Live and WeSing. Specifically 20. That happened in June where we hosted the 1st ever cross platform competition. It gives the live streaming performers An opportunity to tap into the other platforms audience and thereby increase exposure. And the result we've seen is a significant increase in the revenues of participating performance as well as Attracting more paying users to participate even those that have never sent virtual gifts on the platform. They're attracted to 20. And so we hope to replicate that successful event into more cross platform opportunities. And I'll also add that within social entertainment, our plan specifically within leasing is that we're undergoing a major 20. Our product revamp to improve user retention and the revamp is centered around Strengthening WeSing's core competence around singing and social interaction. And WeSing We'll be upgrading the online karaoke room to make singing more fun and socially engaging. The new version of The karaoke room would offer a wider suite of singing features from solo to duet to small group singing to large group singing, As well as to cater for to allow the audience to pick the song they want the main singer to sing will allow the audience to sing along together with the main singer as well as to enable cross to pioneer a new entertainment experience that brings live streaming into a metaverse like environment. And in the near future, in that environment, performers can choose the avatar to perform the live streaming 20. And so in the future we'll expand this Metaverse like environment to more use cases and provide richer interaction opportunities and more imaginative virtual interactive experience. Thank you, Tommy. The next question will come from Alex Yao with JPMorgan. Please go ahead. Good morning and thank you management for taking my question. Just a couple of quick follow-up on the previous questions. Number 1, Regarding the usage weakness on the social entertainment side, are we losing the WeThink users These users are still on Google core. We are losing their usage and time 20. And number 2, I think Tony you mentioned the revenue outlook for the social entertainment for the full year is flat, Can you guys help us understand the monetization weakness into second half? Because on one hand, 20. You guys mentioned the increasing monetization efforts such as core server PK initiative across the key But on the other hand, if I'm not mistaken, Sherry mentioned, you guys are Doing different strategies and moderating the monetization on these platforms. Any color on the 20. Sure. From our social MAU perspective, the year over year decline is across both That we sing as well as live streaming. And the key reason for that is competition coming from 20. Other pan entertainment platforms such as short video. And we've talked about The action plans and the product revamp and the areas that we'll be doing to retain to better retain users And we acquired the traffic. In terms of revenue weakness in the second half for social entertainment, The weakness, as I mentioned, is primarily relates to live streaming revenue weakness in the second half. 20. That's a result of threefold. First, the macroeconomic impact on paying user spending behavior. 20. And secondly, continued competition, specifically from in particular from short video platform for users and also competition for performance. And then thirdly, we're also making conservative adjustments to the live streaming operations in order to comply with the stricter regulatory directions that we are facing as an industry overall. So I think the impact of these items obviously have a bigger impact And we are mitigating these impacts through a number of measures that we talked about, such as the cross platform competition, such as the 20. New features that a new product revamp that we're doing within social entertainment, but that would take time to fully compensate. We are now approaching the end of the conference call. I would now like to turn the call over to your speaker host today, 20 20. This concludes today's call, and we look forward to speaking to you again. 20. This concludes today's conference call. Thank you for attending today's presentation. You may now disconnect.