Earnings Call: Q3 2020

Nov 11, 2020

Earnings release

Ladies and gentlemen, good evening and good morning, and thank you for standing by. Welcome to the Tencent Music Entertainment Group 2023rd 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. Thank you, Matt. Hello, everyone, and thank you all for joining us on today's call. Tencent Music announced its quarterly financial results today after the market close. An earnings release is now available on our IR website at ir. Tensormusic.com as well as via Newswire services. Today, you'll hear from Mr. Ka Sheng Han, our CEO, who will start the call with an overview of our recent achievements. You'll be followed by Mr. Tony Yip, our CFO, who will offer more details on operations and business developments. Lastly, Ms. Shirley Hu, our CFO, will address our financial results before we open the call for questions. 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. These forward looking statements are based on management's current expectations, 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, performance or expectations implied by these forward looking statements. All forward looking statements are expressly qualified in their entirety by the cautionary statements, risk factors and details of the company's filings with the SEC. The company does not assume any obligation to revise or update any forward looking statements as a result of new information, future events, changes in market conditions or otherwise the service required by law. Please also note that the company will discuss non IFRS measures today, which I'm more thoroughly explain and reconcile to the most comparable measures reported under the International Financial Reporting Standards in the company's earnings release and filings with the SEC. You are reminded that such non IFRS measures should not be viewed in isolation or as an alternative to the equivalent IFRS measure and other non IFRS measures are uniformly designed by all companies including those in the same industry. With that, I'm now pleased to turn over the call to Keesun, CEO of Tencent Music. Keesun? Thank you, Melissa. Hello, everyone, and thank you for joining our call today. In the Q3, we continue our healthy trajectory of unlocking opportunities in China's online music entertainment services through various monetization models. Our online music services record a well rounded outstanding performance, while social entertainment services moved further along as part of recovery. 1st and foremost, our online music services recorded well rounded outstanding performance. To begin with, subscription revenues maintained a robust growth, increasing by 55% year over year. This will attributable to the strong growth in paying users of 4,600,000. A new record of quarterly net increase, which took our number of online music paying users to 51,700,000. Paying ratio reached 8.0 percent, up by 2.6% points year over year and 0.8% points quarter over quarter. While we recorded 46% year over year growth in online music paying users, with AR PPU expanded by 5.6% year over year, demonstrating our philosophy of quality growth. For non subscription revenues, we record outstanding performance from advertising, delivering a revenue growth rate of triple digits year over year. Shelley will provide more color later on. Additionally, we maintained the top one position and the leading market share in digital album releases. Thanks to our increasing promotional capability and ability to monetize the idol fan base economy, Our digital album release and fan idol operation services help not only superstars, but also emerging artists. For example, sales of Sunny Yang, Yang Yoon Jin's first solo album, How's the World Today, Tianqiqing and Smile by Katy Perry on our platform ranked number 1 in digital sales nationwide. No Turning Back, Xiaohuan Yusheng, the title song of the 14th album of JJ Lin, Lin Junjie, not only ranked it the 1st in digital sales among all online platforms, but also quickly took the number one spot on 8 of QQ Music's top charts on the 2nd day of its release. Furthermore, online music services had positive impact on overall margin again in the 3rd quarter, benefiting from strong subscription and advertising revenue growth and demonstrating the scalability of our businesses and our commitment to win win cooperation. 2nd, we also continue to strengthen our music content leadership through forming more partnerships with additional domestic and international music labels in various genres, covering different regions. We formed in-depth strategic cooperation with renowned indie music partners, including Peer Music and Learning Network. Moreover, we direct more resources to support indie musicians and promote original music. Our Tencent musician platform has become an essential driving force to enrich our music and entertainment content ecosystem, provide support to artists at all stages of their careers and drive the growth of the industry. We continue to see triple digit year over year growth in both the number of participating indie musicians on the platform and the number of original songs uploaded to it. We saw the number of indie musicians exclusive to us increased by more than 20 times compared with a year ago, boosted by a series of financial incentive and technology based support services. 3rd, we are both pieced and humbled to say that more and more younger users are embracing our platform, trusting our services and contributing to our increasingly interactive environment. In return, we continue to add more trend setting content, including more music centric variety shows that are popular among the younger demographic, which successfully attracted younger users on our platform. To the home community, the innovative features we introduced in QQ Music version 10.0 in July has also received a tremendous endorsement, particularly from younger users. We are pleased to see that user penetration continues to improve, community engagement is increasing and the number of video views per user is also on the rise. It not only has helped us foster the cultural cohesiveness of our user communities, boosted facilitating reviews and updates on music and industry trends, but has also become a new promotion channel for labels and artists. Within a few months of its release, Putong community has become home to more than 100 artists and artist groups and that number is still growing. In October, QQ Music Putong community has chosen by the famous K Pop female band, Black Pink for their new album debut. Last but not least, our new initiatives have been tracking well and serve as an important foundation for long term sustainable growth. We continue to win share in the growing long form audio market in China. During the Q3, we have further enriched our content offering, quadrupling the number of licensed titles year over year. The enhanced content library has resulted in increasing MAU penetration, reaching 11.7% in the 3rd quarter, compared to 9.4% in the 2nd quarter and 4.7% for the same quarter of last year. Additionally, the robust expansion of both licensed and UGC content has continued to enhance average user time spent in the Q3. We also started to make head rate in growing long form audio paying users through effective subscription plans ranging from high value standalone 1 to our cross sales packages that leverage great synergies between our music and long form audio businesses. Our online concert, TME Live, is growing from strength to strength. This innovative performance value continue to attract more high profile domestic and international artists such as Andy Lau, Miu Dehua, Yi Chen Chen, Chen Yixin, Charlie Zhou, Joseon, Jessie J among others. Since its launch in March this year, we have hosted more than 30 live online concerts for domestic and international iconic artists of different genres and styles, representing 4 to 5 live events on average per month. We also made further progress in exploring monetization opportunities, including attracting sponsorships from well recognized domestic and international brands across different industries. Separately, the growth paying user base via TME Live underpinned significant scalability and monetization potentials, which was evidenced by the recent online concert of Richard Zhang, Ren Yanqi. This concludes my prepared remarks. And now Tony will discuss other highlights and important areas of focus for our businesses. Tony, please go ahead. Thank you, Kachen. Hello, everyone. Apart from the key developments discussed by Kashin just now, I will provide additional highlights for online music services before I move on to the discussion of our online social entertainment services. In terms of product upgrades, we continue to innovate and optimize products to make our online music streaming experience more visual and personalized, leading to enhanced user satisfaction. On video enrichment, we added more music centric short form videos, MVs as well as other UGC content, which has contributed to improved average time spent and the total video streams on Kugo Music. For QQ Music, users are more engaged with video content creation, and we have seen sequentially increased daily published UGC. We continue to make the music discovery journey more fun and immersive for our users with personalized recommendation accounted for an increasing proportion of streaming volume on our platform. Now turning to social entertainment services. Overall, it continued to recover steadily in the 3rd quarter, resulting in a faster revenue growth rate compared to the Q2 of this year. We are also pleased to see its AR PPU expanding both on a year over year as well as on a quarter over quarter basis, driven by users' improving willingness to spend following the COVID-nineteen pandemic for both live streaming and online karaoke. Our music centric live streaming services maintain healthy growth. The key operational targets are twofold. 1, growing and maintaining the number and the quality of live performers to solidify our advantage in music centric live streaming content and 2, growing a fan based economy by drawing on the strength of our popular content and interactive features. As of the end of Q3, the number of live streaming performance on QUGO Live grew by over 40% year over year and the number of exclusive performers increased at a healthy pace compared to the same period last year. We are in good momentum recovering from the pandemic and our paying users have seen sequential improvement in terms of retention rate driven by effective and targeted operational initiatives as well as personalized recommendations. To meet users' demand, particularly younger ones born after 1990s, we continue to expand our live streaming categories to include more ACG, Chinese ancient style and cosplay to enrich content offering. We are pleased to say that our efforts are paying off illustrated by increasing user time spent on newly added categories. Fan Life, the separate live streaming application for Q2 Music launched in June has also shown good traction. In the Q3, we saw more musicians joining the platform and we started to introduce interactive features to facilitate more interactions. We are on track to scale it up and expect more meaningful revenue contribution from fanlight in 2021. Next, let me discuss our online karaoke services. While we strive to provide better services to more users to core users who are loyal to our platform. We continue to proactively tackle the competitive pressure on user time spent from other forms of entertainment. Over the past few months, we have been making significant investments into improving WeThink's product experience, which are beginning to yield encouraging results. Most recently, we launched a fresh UI design of the recommendation feed on the homepage of the app as well as enhanced recommendation algorithm to make browsing content more immersive and engaging and allow users to see a greater variety of interesting content, instead of just content posted by their friends. These efforts have resulted in increased content consumption by users on WeSing compared to the 2nd quarter, which in turn incentivizes content creators to publish more content, thereby create a virtuous cycle of content creation and consumption. As a result of these product improvements, WeThink has recorded faster advertising revenue growth within the revenue mix compared to virtual gifting among friends, which led to healthy AR PPU expansion and healthy revenue expansion with an understandable decline in the number of paying users in the 3rd quarter. In addition, we are also pleased that these product improvements have contributed to growing average daily user time spent on WeSing since September. We also continue to enhance social networking attributes of Weezing. Our strength to facilitate the deepening and broadening of social ties with families and friends is a key element that distinguishes us ourselves from other online entertainment platforms. To better cater to the increasing demand for long distance socializing and capture the opportunities arising from the pandemic, We added Friend KTV, Hao You Ge Fang within online singing rooms, which vividly emulates the offline karaoke experience online to facilitate unique social connections amongst families and friends. Since its launch in late September, it has been gaining traction among users and we expect it to further boost the penetration of online singing rooms. As we stay focused on keep working on the key areas such as video enrichment and social networking attributes for WeSing, we have seen encouraging results in its user metrics and are optimistic that the social entertainment MAU as a whole would bottom in the 4th quarter and begin to improve into 2021. Last but not least, we are expanding our value proposition within the online music entertainment space, leveraging our deep insights into music trends and strong content promotional capabilities, we will become more engaged in cultivating artists and content production through deeper partnerships with content providers and proactively explore cross domain cooperation to capitalize on future monetization opportunities. With that, I would like to turn it over to our CFO, Shirley Hu for a closer review of our financials. Thank you, Tony. Hello, everyone. Next, I'll discuss our results from a financial perspective. Overall, we achieved outstanding growth in online mail services, particularly in music subscriptions and advertising revenues this quarter and continue recovered in our social entertainment business. We are also very pleased to see our gross margin improvement sequentially. Our total revenues were RMB7.6 billion, up 16.4 percent year over year. Our music subscription business continues to grow rapidly with revenues of RMB1.5 billion in the 3rd quarter and a year over year growth of 55%. On a year over year basis, paying user and AR PPU grew 46% and 6%, respectively, resulted from continuing user retention improvements and effective payroll strategy execution. In addition, our advertising business had a significant growth this quarter as our strategic focus to grow advertising business started showing results this quarter. As a result, our online music revenue reached RMB2.3 billion this quarter, up 26% year over year despite decreases in sub license revenues and the sales of digital albums. Social entertainment services and other revenues were RMB5.3 billion, up 12.7% year over year, primarily due to growth from online color okay and live streaming. AR PPU increased 32%, while paying users dropped 14.6% on a year over year basis. During the quarter, we grew our ad business significantly and also offered more device by content on platforms, both resulted in higher AR PPU. We have always been focusing on monetization improvement. Developing advertising business on raising platform is one way to improve monetization ability of the platform. This quarter, we balanced between growing number of our paying users and the developing advertising business. Furthermore, we reduced incentives that are less efficient in terms of attracting new paying users. Consequently, number of paying users declined this quarter, but our overall monetization on the platform has improved. Our gross margin was 32.4% in Q3 2020, up 1.1% sequentially, while down 1.6% compared to the same period last year. The year over year decrease was primarily due to increased investments in new product and content offerings such as long form audio and the TMB Live that are still ramping up in terms of revenue generation as well as increased revenue sharing fees to strengthen our platforms competitively this year as compared to same period last year. Sequential gross margin improvement was as a result of lower revenue sharing ratio in live streaming because we focus on improving efficiency of promotional activities and reduce the less efficient incentive for user spending as our loving to dream business recovers. Online milk services have had positive impact on overall margin this year and this trend is expected to continue as our subscription revenues continue to grow while licensed content costs gradually rationalize as our music industry evolves. Now moving on to operating expenses. Total operating expenses for Q3 2020 were RMB1.4 billion and was 18.9% as a percentage of total revenues, staying relatively stable compared to 19% in the same period last year. During the quarter, we increased the promotional spending for new and existing products to strengthen our product competitiveness and solidifying our advantage in music centric live streaming. Additionally, we continue to invest in R and D for product enhancement and technology innovations, leading to higher employee related costs in R and D. Our effective tax rate was 9.3%, decreased from 20.8% last quarter as one of our operating entities in China became qualified for certain tax benefit this quarter. Our net profit attributable to equity holders of the company was RMB1.1 billion. Non IFRS net profit attributable to equity holders of the company was RMB1.3 billion and the non authorized net profit margin was 17.8%. As of September 30, 2020, our combined balance of cash, cash equivalents and term deposits were RMB 27,600,000,000 representing an increase of RMB 5,400,000,000 from Q2, which was primarily driven by proceeds received from notes offering. Looking forward, we'll keep focusing on monetization improvements and the diversification, including growing our advertising business, while maintaining core content investments. As we had said previously, we continue to be optimistic about the future of the broad music industry and are confident in overall ecosystem and the product pipeline that we are building in the long run. This concludes our prepared remarks. Operator, we are ready to open the call for questions. We will now begin the question and answer session. Our first question comes from Alex Poon with Morgan Stanley. Please go ahead. Congratulations on various strong results. My first question is related to music net adds. Can you also comment on the gross addition number? Is it also a historical high number in Q3? Because I additions, can you comment on the you have a number of drivers, including your payroll, your promotion, unbundling its raw form audio, TMB Live, Puton Communities, a lot of drivers helping this overall growth in your net apps. Can you just on an overall basis, are you seeing for each percentage of some moving behind or while you are seeing a better conversion of paying users? So I am just want to understand, are we seeing a better inflection of your efficiency of moving stuff behind the table? And then another question is around Double 11 promotion. So you are doing this in the buy 1, get 1, 3 annual membership for Green Diamond versus the half price last year. Do you expect this to be better paying user conversion this year versus next year? And the second question is regarding gross margin. So you also mentioned a number of drivers helping the gross margin improvement, including advertising, subscription and less incentives for the social entertainment side. If I take a longer term view in Q4 and next year, can advertise should advertising the subscription business be a more sustainable gross margin driver, so we should expect this gross margin improvement to continue sequentially from Q4 onwards? Thank you very much. Thank you for your question. I'll take the first part of your question around the net adds and I'll let Shirley answer the question relating to the margin. We're very pleased with this quarter's results in terms of the net adds. We reported the largest sequential net adds of 4,600,000 and surpassing 50,000,000 subscribers for the first time. That is driven by a combination of a very well executed payroll strategy that we've talked about in the past. By the end of this year, we are on track to exceed the 20% target of content behind the paywall, which is a very strong pace. And while there may be quarterly fluctuations, especially into kind of the Q4, given that we have been fairly aggressive in adding a lot of content in the 1st 3 quarters of this year. Overall, I think this continues to be a massive secular growth trend that are supporting us as a tailwind in the years to come. And so we wouldn't be too focused on it on a quarter over quarter basis. In terms of the rest of the drivers bundling, promotion in terms of temporary promotion and discounts are all very good drivers. We indeed are seeing retention rate continue to improve on a sequential basis, which is the trend that has begun since the beginning of last year and that trend is continuing. And in terms of your question about sort of one off promotional discounts, I would say that those are effective in capturing longer term subscribers who may opt to sign in for multi months as opposed to a single month. And while it look as if it's a discount in the front month, they are actually accretive to our overall ARPU in the long run because we are able to lock them in for a longer period at the full ARPU in the subsequent months. So I think overall that's an efficient way for us to acquire new additions. And now let's Shirley address the margin question. Okay. Let's address the margin. Q3 gross margin is 32.4% higher than that of Q2. There is two reasons. 1, when live streaming revenue recovered from COVID-nineteen, we focus on the operational efficiency of live streaming business and reduce the less efficient promotion activities for stimulating user spending. So the revenue showing fee for this part is saved. 2, subscription revenue and advertisement revenue grows rapidly have a positive impact on gross margin. And yes, we think the advertisement revenue rapidly growth will be continue and that also will be have a positive effect on our gross margin. We expect our gross margin to be relatively stable in Q4 compared to less in Q3. One hand, our news subscription revenues and advertising revenue growth have positive impact on our gross margin. On the other hand, we have annual gala in Q4, where we test to conduct more promotional events and provide higher incentives, which generally would result in higher revenue sharing cost. So overall, we expect our gross margin will to be relatively stable in Q3 compared to in Q4 compared to Q3. Understood. Thank you very much. Congrats again on the great results. Thank you. Next question please. Our next question comes from Benny Wong with HSBC. Please go ahead. Hi. Good morning, management. Thank you for taking my question. So I was wondering that in terms of the latest rule on the anti what are some of the things that you think might potentially impact the industry, sir? And how do you view it or maybe potentially any implications we should expect on GMV? And then second of all, is that if I look at the net add, right, on a Q on Q basis, is there a little bit soft, right, on the subscriber side and also on the paying users live streaming side? So anything that we can strive to surpass the growth? And also if you can comment a bit on the audio like the podcast, like the audio strategy in terms of the potential monetization. I know I understand that I understand that there's already subscription revenue there. But then what and I see the step up in potential step up in penetration you mentioned in press release to 11% from 4% earlier. So if you can help us to understand better on that the 2 questions. Thank you. Thank you for your question. We also noticed the new draft regulation that came out just yesterday. Obviously, we're in the process of evaluating that. We've always maintained a close and constructive communication channel with government authorities. And we're committed to complying with the relevant laws and regulations and to contribute towards the overall healthy development of the music industry. And so I think that's as much as we can say in relation to the regulatory front. I'll let Kachen talk about the long form audio podcast question. Yes, sure. First of all, I think that we have been fully committed to provide more long form audio content to our users. We started the business just in this year, but we have already got a very significant progress on this year with BlumBlum Audio. The total content that we have right now is actually over triple digits year over year growth when compared to last year. And the most encouraging result is we are seeing that right now the user penetration has actually reached it over 11% regarding on our total user base. So which means that this is well accepted by our users and also we are seeing a very strong and healthy growth trend. I think that for the long form audios, it really fit with our content strategies Because what we are aiming is, we are seeing that we are the platform that can provide the best content to our users, which is not limited to only music audios content, but also other forms of content. And we are also seeing that this is a very natural way for our user to not just listening to music, but can also enjoy different forms of content throughout the days. We are also seeing that there's a lot of synergy, for example, with our current music partners, like the top tier artists or other emerging KOLs on the Internet, they're providing good music content. They can also help us to create very good quality long form audio as well. Beside this, we also have a very partnership with the Chinese literature and also other long form audio content providers. So I think that we are really in a good trend. And right now, we have already focusing ourselves in growing our user base and the penetration rate of the long form audio. And in the years to come, I think that the monetization will also pick up as well, not just from the subscription point of view, but also from the advertising opportunities as well. So we are very positive on this side. Next question please. Thank you. Our next question comes from Eddie Leung with Bank of America. Please go ahead. Good morning. Thank you for taking my questions. I have two questions, if I may. The first one is about the overall music mobile MAU. I think it's inevitably having some pressure given we start to put more content over the table. But just wondering if as we add more video content as well as other free content, Is it any strategy or any ways just to more maintain a more sustainable MAU base on the music side? So this is more kind of like a long term strategic question. And then secondly, just a numeric question. We noticed that the ARPU of social entertainment went up quite a bit. So just wondering how much is because of the mix shift between live broadcasting and karaoke and any other reason we should pay attention to the trend? Thank you. Sure. In terms of the music MAU, I think given our very large user base on the music side, This quarter's small decline is a minor fluctuation. In the grand scheme of things, we're very confident that we'll be able to maintain our leadership position in the streaming market, in the online music streaming market As a result of all the efforts that we talked about, which includes enriching our content offering, continue to make a number of product improvements, as well as new business initiatives. In particular, with regards to the content offering and enrichment, as you rightly pointed out, our content offering is not just limited to music or audio based media format. But increasingly, as we alluded to across our earnings call, we continue to make a lot of investment into the video enrichment across all of our apps. That includes official music videos. It also includes user generated content provided by content creators. And these video content show up across a number of different modules within the platform. It could be in the feed, recommendation feed. It could be in the streaming page while you're listening to music. It also could be through just overall the social community such as Pudong community. So I think all these efforts and combined with, for example, new formats of media consumption like TMB Live, which is a truly pioneering asset within the industry, bringing all the offline concerts online and we've done over about 30 online concerts this year, which by far is a more number of concert organizations than any online or offline concert organization entity, even if you look at it before the COVID pandemic. So I think these are all efforts that we continue to make to enrich the content offering to strengthen our platform that will help maintain our leadership in the long run. And then in terms of the question around ARPU and revenue mix within social entertainment, it is not that the live streaming revenue is outgrowing the karaoke revenue. That's not the case. In fact, the karaoke revenue continued to grow at a faster pace than the live streaming revenue this quarter. The reason for the ARPU to increase is primarily a mathematical reason because the ARPU is calculated by dividing the social entertainment revenue as whole by the number of paying users. And because of what myself and Shirley has talked about within WeSing, we made a number of product enhancements. For example, we launched a new design of the recommendation feed on the front page, which includes the full screen feed that make browsing content more immersive. And along with that, we also enhanced the recommendation algorithm to allow users to see a greater variety of that content instead of just content being posted by your friends. So this actually creates more demand for content consumption, which is what we saw. And that brings about more opportunity for us to monetize through advertising as opposed to monetize through virtual gifting amongst friends. And that's why overall that we think revenue continue to grow as a platform. And within that, the advertising revenue is growing at a faster pace than the virtual gifting revenue amongst friends. And that lead to a drop in the paying number of paying users, but resulted in a growth in the overall Weezing revenue. And so taking all that into account, that's why you saw the improvement in revenue and ARPU terms, but a drop in the number paying user terms. Thank you, Andy. Can we take the next question please? Our next question comes from John Egbert with Stifel. Please go ahead. Great. Thanks for taking my question. Congrats on the results. I'd love to follow-up on advertising as you're just alluding to it. It like advertising was a bigger driver of the momentum in online music services this quarter. Are you able to quantify the momentum in ad revenue or give us a sense of how meaningful a contributor it is to this segment? And maybe could you talk about any recent innovations in your suite of ad products that you're excited about or anything in the pipeline that you think can move the needle on advertising growth next year? And I guess a follow-up to that, have you given additional consideration to sponsored recommendations or other tools for artists to grow their audience bases? Because it seems like your rapidly growing indie artist population could really benefit from tools like that. Thanks. Yes. Yeah. Thank you. Advertising is indeed a very strong growth driver within the online music segment this quarter. Advertising revenue has grown over well over 100% this quarter on a year over year basis. Approximately, it accounts for just less than half of the non subscription revenue within online music. And so it's the largest piece of the revenue within non subscription revenue in online music. And as we've talked about actually over the past two quarters now, we've said that this year is an investment year for us to improve on our advertising capability, our sales team, our advertising product stack, etcetera. And with the recovery of the overall economy and the overall advertising environment following the pandemic, which mostly impacted the first half, we are starting to see that opportunity arise and we are ready to be able to capture that advertising momentum as we go into 2021 in a number of ways. Number 1 is that just across many of our platforms, we in the past have been fairly conservative in the form of advertising monetization. There's a lot of advertising inventory that are under our control with in the past not made it available. But going forward, I think that becomes an opportunity for us to make it available and as there is increasing demand for them. And secondly is, we will start you will start to see us doing more testing around some form of a freemium model, whereby free users would be more exposed to advertising, as an example, and paid user would be less exposed to advertising. And that's a form of another form of advertising driver that we look to invest in, into 2,001. Yes, exactly. And I'm also seeing that this we are also creating more and more use cases for our users to enjoy music anytime everywhere, right? So like the in car environment, which is really good use cases for our users to enjoy music and also advertising is going to be have a lot of opportunity out there. As we also mentioned during our prepared remarks, we talked about the TMB Live. I think this is a tremendous success, especially under the COVID pandemic. We are seeing that there's many new opportunity has been created, especially on the online and offline concerts. Right now, we are focusing on the online concerts, but we're also seeing that some of the other advertising sponsors which is coming in, there's also some other new form of advertising partnership as well. And in the future, when the COVID, the pandemic is under control, I think that there's all the further rounds of synergies that can be created like the online and offline concert synergy. This is something that we are focusing on. TME is always not just focusing on today's business. We are also focusing on the future business. We are focusing on creating an ecosystem. So not just on the news apps that we have been doing well, but we need to do it well from an ecosystem point of view. So on the offline, online synergies and also the different areas, I think that there's many opportunity. So the advertising will going to become one of the significant revenue stream for CME in the years to come. Thank you. Next question please. Our next question comes from Alicia Yap with Citigroup. Please go ahead. Hi. Good morning, management. Thanks for taking my questions. I have questions regarding more medium to longer terms on the social entertainment opportunity. So given the developments of the industry and also the evolvements of the user behavior, What is management view on medium to longer term opportunity for social entertainment? What type of new monetization opportunity in addition to the online advertising, which you just mentioned that we could further explore into, so any other new monetization ways that we could think about? And in terms of some of the challenges that you have been facing, I understand the company has been doing a lot of product enhancement features to retain the user. So what are the areas that you think TME still need to address to in terms of the challenge that you're facing for especially on the time spent dilution for other applications out there and how confident you are on retaining and reengaging the user? Thank you. Yes. Thank you. As I previously mentioned, with respect to social entertainment, MAU and time spent, we primarily relates to WeSing because that's a account for a majority of that. We've made a number of significant investments into improving the product experience and the platform. We talked about the recommendation feed, which I won't repeat. But just as a point to highlight, we're encouraged by the fact that we're starting to see these improvements translate into improvements in the underlying metrics within Weixin. For example, our average daily user time spent has started to improve on a sequential basis since September. And that gives us the confidence that the social entertainment MAU will bottom in Q4 and stabilize and start to improve into 2021. In addition to that, we also made investments to better cater for the increasing demand for long distance social use cases, right, such as strengthening the friend KTV feature with an online singing room, because we want to better position WeSing in the long run as the leading online social entertainment destination amongst friends and family. And so the social networking attributes is an important area for us to focus on. And through these online singing room features, which emulates the offline experience, We are able to better cater to long distance connections between friends and families. And since we launched that feature in September, it has gained very good traction. And we believe this feature would help further boost the penetration of online singing rooms. And as a result, more social networking attributes on the platform in the long run. And so all of these things ultimately translates to time spent and DAU, which we're starting to see improvements in the underlying metric starting in September. Yes. Tony really make a good point regarding the social aspect. I think for TME, it's always our competitive advantage. It is something that we have, but the other competitors do not have. Not just limited to the social entertainment side, but also on the music platform as well. As we mentioned, we talked about the Put on Commodity, which is a new feature that we just launched a couple of months ago, but has already been receiving tremendous success. This is all talks about interactions, okay. So all the users can interact with themselves. In their Putong community, they can share the pictures, they can share different contents. They can also interact with the artist and also other defense society as well. So it is very important for us to create a place for our users and also the artists to communicate. And we are also seeing that it also have another area just like a media approach, okay, like Blackpink that we mentioned, they choose Pudong community to become their page to debut their new songs. We also receive a tremendous success. So I think that this is something that TME should do and TME should continue to invest in, not just on the social entertainment side like the karaoke room for friends and family, but we also have this kind of portal community for the user lovers and also the asset. I think we will continue to doing this and it's going to make ourselves to be distinguished from our comparison. Okay. Thank you. Our next question comes from Thomas Chong with Jefferies. Please go ahead. Hi, good morning. Thanks management for taking my questions and congratulations on a very solid set of results. Back to the subscription services, given that we are seeing a very strong net adds in Q3, how should we think about the net adds trend in Q4 as well as the outlook in 2021? Thank you. Thank you. Like I previously mentioned, I think we're not overly focused on quarter over quarter fluctuations in the net adds. We've had a very strong year irrespective of how you measure it in terms of the growth in the subscription revenue as well as paying user. And we've been fairly ahead of schedule in terms of the 1st 3 quarters in terms of growing the paying user as well as adding content behind the paywall. So I think into the Q4, while the absolute level of net adds may not be as strong as 3rd quarter, but overall, it could remain in a secular growth trend that will continue into next year and beyond. In terms of the outlook, we again are very pleased with this quarter's results with very strong online music subscription revenue continuing to grow at a rapid pace. Our paying ratio continues to improve. Very strong ad revenue as we talked about as a result from a lot of the investments we've made in prior quarters and while achieving all of this with growing margin sequentially. We believe China's online music industry is still at an early stage of development and continues to be in a long term secular trend that will provide a lot of monetization opportunities. And as we are the leading platform in the industry, we'll continue to benefit disproportionately from this long term trend. On a near term basis into the next quarter, we expect the total revenue to continue its healthy growth of around mid teens on a year over year basis. That's on the total revenue level, which is driven by continued strong growth on the online music revenues, which should go at a similar pace to Q3 on a year over year basis. And for our social entertainment revenue to grow around low teens on a year over year basis. And looking beyond the next quarter, which is more important, given our businesses continue to recover across all cylinders at a healthy pace from the impact of COVID in the first half, we're very optimistic that the total revenue growth next year would continue to improve and be stronger than the growth rate this year. And we'll share more details around that when we announce the full year 2020 results. Thank you, Tony. Song Hsieh, the next question please. Our next question comes from Vincent Yu with Needham and Company. Please go ahead. Sure. Thank you, management, for taking the question and congrats on the great quarter. So I have two questions. One is, we noticed QH Music and Kuaishou has just completed the album 12 on the event. So should we expect more partnership between the two platforms in the future? And how should we think about the potential motivation or conversion opportunity for these partnerships? My second question is in terms of the Payroll strategy, will we take a more conservative approach in 2021 compared to the year this year to let natural acceleration and user paying behavior to play out? Or is there any specific targets we have in mind for payroll penetration for 2021? Thank you. Sure. In terms of partnerships with external short video platforms, we've been fairly proactive in partnering across the board with a number of video platforms, be it short video as well as long video such as Tencent Video. And because each platform has different target audience and slightly different user segmentation, we would obviously leverage that to the fullest when we see opportunities. With respect to Quai Show and short videos in general, we've said in the past that they are helpful promotional channels for music, and we'll continue to leverage that and leverage the promotional capabilities of short video platforms to promote music and monetization opportunities. And in terms of the paywall progress, if you look at 2019, we've added approximately 10% of the content behind the paywall after the 1st year. And by the end of this year, we'd be just over 20% by the end of this year. So I think we'll continue to follow this path and pace. And obviously, we'll need to do so with a lot of careful consideration to ensure that we balance the user experience with monetization opportunity, because as we continue to scale up the advertising opportunity, subscription, while it's a strong growth engine, may no longer be the only growth engine. And so we also need to balance other growth opportunity such as advertising as well. In addition to that, we will continue to make investments into new businesses beyond just subscription and paywall such as TME Live as well as long form audio that Kachen talked about. TME Live has seen tremendous amount of success in a short period of time with iconic megastars joining the performances. Andy Lau, Ethan Chan, Jesse Jay, just to name a few. And we are already starting to explore monetization models with Hearme Live, for example, in the recent Richie Jen's concert, Ren Tianqi's concert, that is only available to paid users and so not available for free. So that's an example of TME Live trying to venture into different monetization model beyond advertising. And in the form of long audio, that's actually a very good opportunity because depending on the different content type, there are different monetization opportunities that arise. I mean, for example, if it's a serial literature, chapter by chapter, then it's easier for us to monetize through subscription, whereas if it's other forms of cloud podcast or other forms of long form audio content, then there's opportunity for us to monetize through advertising. So I think we are excited about all these revenue growth opportunities as we look forward. Thank you. We can take the next question, please. Our next question comes from Zijin Liu with UBS. Please go ahead. Thank you, management for taking my question and congratulations on strong results. I have two questions. First, how should we think about the revenue potential of QQ Music Live Streaming in 2021? Will it become a major driver of social revenue in the year? 2nd, any potential drag from the live streaming regulation, which recently the regulator mentioned for December? Thank you. Okay. In terms of the regulatory guidance that you talked about, we have been very committed to complying with all laws and regulations. And based on our internal assessment, the new guidance does not have a meaningful negative impact to our live streaming business as we've been fairly compliant to the relevant rules. And then in terms of QQ Music's live streaming business, Fan Live, that business continues to grow while it is still early days. The positioning is very unique. We continue to see very strong addition in terms of the musicians that are joining the fan live platform to live stream and as a channel for them to connect with the fans. While the revenue contribution this year is not meaningful, we do expect it to go at a much faster pace into 2021. I think the exact details will provide more as we announce the full year results and give more guidance into the next year. Thank you. We can take our next question. Our next question comes from Hans Chung with KeyBanc. Please go ahead. Good morning. Thank you for taking my question. So I have a couple of questions. First, just can management provide some other metrics about the long form audio? I know we have achieved a very good progress in terms of penetration. And then but what about the time spent on average on the audio? And then also what's the mix in terms of the content consumption, for example, like the license content versus UGC? And then also what will be the potential margin profile for the business? Would that be how does that compare to the on the music subscription or the social entertainment? And then second question will be in the social entertainment business as a whole, how should we think about the near term to medium term driver in terms of the trend, in terms of the ARPU versus the paying user? It seems like the paying user sort of the saturate and then but we do have the upside in the ARPU. And then is that going to be the trend going forward? Thank you. Sure. In terms of long audio metrics, we like we said, we continue to see the MAU growth very strongly from just less than 5% MAU penetration last year into about 11.7% this quarter. So that's well over double in terms of the MAU if you do the math. And that's driven by obviously continuous improvement in the content offering. Our license titles the number of licensed titles quadrupled on a year over year basis. While the consumption is primarily relates to online literature at the moment, but we also talked about in the past quarter, this quarter, we've made investments into adding more user generated content. So that's going to be an area of focus as well going forward. And while it is still small at the moment. In terms of time spent, I think understandably given we're at an early stage of growing this business, the absolute level of time spent is not where it's still a long way from where we want it to be. So there's a lot of upside for us to grow that. However, when we do get additional time spent from the long form audio users, those are additional time spent on top of the music time spent that they spend on the platform. It doesn't cannibalize the music time spent. So with every addition with every additional time spent that we get on this type of long form audio content, these are incremental and accretive to the overall strength of our platform. And then in terms of your question about social entertainment growth going forward, because of the product design and product shift towards more advertising opportunity, in particular within WeSing, we do see that ARPU will continue to represent slightly more contribution in terms of revenue growth compared to paying users? Yes. When we talk about the social entertainment businesses, I think there's 2 key words. The first one that we mentioned before is a social element. It's very important. So as Tony and I mentioned before, we are focusing on creating the venue, online venue for our users to interact with each other. So that's the reason why we are pushing hard on enhancing the friends and family's call out the room. The second key point that I would like to make is, I think content is still the king. But when we are talking about the content from a social entertainment side, it's not just a performance, but also the user generated content as well. So we need to lower the barrier for our users to generate their own content. So we have been putting in a lot of efforts in creating more easy using tools for them to record their song, creating their own MVs. And then by doing all this kind of enhancement, we can help our users to create more and more content and higher quality content. And the metrics and also the numbers really give us a very positive feedback. And we are seeing that the number of content that was published by the users is increasing. We are also seeing that by the UI enhancement, more and more users is enjoying or consuming more content by the other users as well and we also improved the interaction among the users. So I think that by doing this 2 actually 2 5 view, okay, one is the social entertainment aspect, the ad is the content aspect. I think that we will be able to encourage and also improve the user engagement on our platform, which will make us to be more competitive when compared to the other online services available in the market. Thank you, Chen. So about the margin of the line, Shirley speaking, yes. About the margin of the long audio phone, in long term, we think that the margin will be very competitive to the online music margin and the social entertainment margin. And in the short term, we needed to invest more on our content and do some promotion on the revenues. So we think in the investment period, the margin impact of long form audio is negative in short term. Yes. Thank you, Shirley. So for the interest of time, we'll take the last question from the queue. Our next question comes from Ellie Jang with Macquarie. Please go ahead. Thank you, management for taking my question. Just a quick follow-up on the regulation question raised by the previous analyst. So given that we are seeing regulatory environment keep tightening in the entire Internet space and also considering potential more content control restrictions next year under the 100th anniversary of CPC. Could management share some thoughts in the overall outlook for the interactive media space, especially for live streaming? And just a quick follow-up on the Q4, if the management can share some color into our Signature Music Award events and how should we think about the potential impact on paying subs in ARPU? Thank you. Sure. In terms of regulatory front, I think like we said, we've been committed to complying with the relevant laws and regulations. Music in general tends to be an area that we are able to keep with the regulators fairly well. We've not had major regulatory negative incidences so far. And we'll continue to work very closely and maintain a constructive dialogue with the regulators on this front. And we'll continue to do our part to contribute towards a healthy development of the industry. And so I think that's our commitment. And then in terms of the I think you asked about the TME Live events. Yes, okay. And little bit more details on that. Regarding the TMEA, okay, last year we have a very tremendous successful TMEA, the annual awards. And we have one understanding that this year we are under the challenges of the COVID pandemic. So we are actually our team is working super hard see how we can continue to have the TMA to be organized this year, but maybe the format may be changing. We definitely want to do online and offline show as well, but it really depends on the how the pandemic is going on. So we will be providing more details when the details was confirmed. The other part that we're talking about for annual point of view is not just the TVA, we also have a lot of other annual events as well, especially for the live broadcast or social entertainment businesses, like the WeSing annual event and also the Google Live as well. We will continue to doing this, especially for all of the operations that we for the online operations, I think that will continue. So from the business point of view, it's not going to affect too much. But definitely, we want to see if we can arrange a certain kind of online and offline event, it will be a better form of user point of view, but Dan will provide more details when we have it on hand. Thank you, Kachen. Well, thank you everyone for joining us today. If you have any further questions, please feel free to contact the IR team. This concludes today's call and we look forward to speaking with you again next quarter. Thank you and goodbye everyone. Thank you so much. Thank you. Bye. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.