Earnings Call: Q4 2018

Mar 20, 2019

Ladies and gentlemen, thank you for standing by, and welcome to the Tencent Music Entertainment Group 4th Quarter and Full Year 2018 Earnings Conference Call. At this time, all participants are in a listen only mode. 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 Tu. Please go ahead, ma'am. Thank you, operator. Hello, everyone, and thank you all for joining us on today's call. Tencent Music has announced its quarterly financial results today after the market closed. An earnings release is now available on our IR site atir.tensamuser.com. Today, you'll hear from Mr. Ka Chun Pang, our CEO, who will start off the call with an overview of our growth strategies and initiatives. He will be followed by Mr. Tony Yip, our presser, who will offer more details on our recent business development. Then Ms. Shirley Hu, our CFO, will address our financial results in more detail before we take your questions. Before we proceed, please note that this call may contain forward looking statements made pursuant to the Safe Harbor provisions for the Private Securities Litigation Reform Act of 1995. 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, performance or expectations implied by these following statements. All forward looking statements, as expressed, qualify 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, except as required by law. Please also note that today's 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 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 that non IFRS measures are not uniformly defined by all companies, including those in the same industry. With that, I'm now very pleased to turn over the call to Mr. Kachen Pan, CEO of Tencent Music. Kachen? Thank you, Minifin. Hello, everyone. Thank you all for joining our very first earnings conference call as a public company. 2018 was an eventful and extraordinary year for Tencent Music. In 2003, we embarked on a journey to digitize and transform the music industry in China. After 15 years of hard work, on December 12, 2018, we successfully completed our initial public offering on the New York Stock Exchange. The IPO has launched us onto the international stage, elevated global recognition towards our brand and endorsed our successful track record. It has also intensified our efforts in executing our mission of using technology to elevate the world of music in people's lives. Our 2018 results were marked with high growth and strong profitability. For the full year 2018, total revenues increased by 72.9% year over year. Net profit attributable to equity shareholders increased by 38%, while non IFRS net profit attributable to equity shareholders increased by 119% year over year. Online music services paying users increased by 39% to 27,000,000 and social entertainment services paying users increased by 23% to 10,200,000 during the Q4 of 2018. As the leader of the Chinese music industry, we are revolutionizing the ways that our users discover, listen, sing, watch, perform and socialize around music. We continue to make wondrously efforts to innovate our products, launch new ad features to engage users, and increase the breadth and depth of our content offering to satisfy the ever evolving demand of the music bands in China. We are introduced innovative user cases and product features to make the interaction between the artists and performers and their followers and friends to engage in to promote social connectivity, resulting in a push to our user stickiness, leveraging our platforms and vibrant popularity, we continue to attract an increasing number of content partners and talents, and encourage them to produce more high quality content, and help them cultivate and expand their fan base. Our innovative multi format content offering that extends into music variety shows, short videos, artist interviews and mini concerts and our unparalleled access to an immense audience has rendered us the partner of choice for content partners and artists to promote their creative work within our ecosystem. Our tremendous volume of data, proprietary analytical algorithm and deep understanding of content trends have all helped us enhance our personalized targeting, attract and retain more users, generate more interactive reviews and improve our user experience. In summary, we achieved robust financial and operational performance in both our online music and social entertainment businesses in 2018. To fuel our growth for the years to come, we are fully committed to investing in content, products and technology. Going into 2019, we will continue executing relentlessly our mission to use technology to elevate the road of music in people's lives. We are confident that as we continuously develop and promote high quality content across our platform, we will be able to not only augment on our market leadership, but also foster the growth and development of the overall music industry. Now I will turn the call over to Tony to discuss our business developments in more details. Thank you, Ka Shing. Hello, everyone. During the Q4 of 2018, our operations continued to show substantial growth across both online music and social entertainment services. In online music services, our paying users increased by 39% to 27,000,000. We added 2,100,000 paying users sequentially, which is substantially higher than 1,100,000 for the same period last year. Mobile MAU increased by 7% to 644,000,000 from 603,000,000 a year ago. Paying ratio also improved to 4.2% from 3.2% a year ago. Our continued operational improvements are driven primarily by enriching our content offering, deepening our user engagement and increasing promotion capability. 1st, to further enrich our content offering, we continue to add strategic partnerships with well known domestic and international labels, thereby solidifying our industry leading music library. We also strengthened our multi format offering such as long form audio shows and short videos, and thereby broadened our product features and deepened user engagement. In addition, we further improved personalization features to tailor recommendations of songs, playlists and feeds to better fulfill user preferences, as well as added proprietary audio settings to enhance users' listening experience. As a result, our user engagement increased meaningfully throughout the year. Secondly, we established an expanded strategic cooperation to increase our repertoire of high quality original content. We co produced Produce 101, a music related variety show with Tencent. The show attained significant popularity and enabled us to unlock a strategic partnership to lock in a strategic partnership with the top ranked performing band called the Rocket Girls, and we contributed to the rapid rise in popularity. As of December 2018, over 2,000,000 copies of Rocket Girl's first album were sold on our platform, thus making it China's best selling digital album in 2018 by volume. We also launched a series of live streamed video talk shows, which promote singers through drip videos and serve as an ideal launchpad for artists to release their new songs. In addition, we leveraged our ecosystem's strong distribution and promotion capabilities to cultivate aspiring music talents. For example, our Tencent Musician program offers a full suite of services to nurture and promote up and coming independent artists. This open platform not only significantly simplified the process for artists to upload and manage their soundtrack across our entire platform, but we also share with them our data analytics and equip them with actionable intelligence on music trends. In addition, we provide independent artists with offline stages, including music festivals and live house of shows to showcase their performance and attract followers. Our comprehensive online and offline resources combined with our strong capabilities in distribution and promotion have garnered significant recognition across the industry. As a result, songs from Tencent Musician Program generated more than 70,000,000,000 total streams on our platform in 2018. Turning to our social entertainment services. During the Q4 of 2018, paying users increased by 23 percent to 10,200,000. We added approximately 300,000 paying users sequentially, which is a healthy number in line with the same period last year, when social entertainment services were experiencing a very rapid ramp up. Mobile MAU increased by 9% to 228,000,000 from 209,000,000 a year ago. Paying ratio also improved to 4.5% from 4.0% a year ago. Such growth in social entertainment resulted from our achievements in engaging and empowering users through our broader set of use cases, attracting an increasing number of live streaming talents and diversifying our content with high quality original music performed by our certified singers. For We Sing, we focused on expanding the breadth and depth of its business operations both online and offline. We launched new multilateral interactive features such as multi mic singing room. We also added proprietary technology features for smart sound adjustment to correct off key high pitched sound during performances, including both one button correction to maximize convenience or targeted individual fragment correction to optimize performance. We rolled out offline mini karaoke boots, as well as WeSing Television additions to allow users to easily share what would otherwise be offline karaoke experience with their friends online. We also added more short form video features enable users to easily produce short videos using the music they love. WeThink's innovative model has successfully improved interactions across our music users and social entertainment users, strengthened their social connections, increased engagement and further differentiated us from our competition. For live streaming, we continue to focus on improving the quality of music content offered to our users. We screened and selected thousands of talented live streaming performers as certified singers, where we not only distributed their music on our platform, but also arranged approximately 600 minutei concerts in 2018 and attracted millions of viewers to help increase the popularity of these certified singers among a broader audience. We will continue to empower our live streaming performers to help them launch their music career, and in turn, they continue to provide quality content that is highly complementary to our industry leading content library. In summary, we continued our strong growth trajectory across all of our business lines and made further progress in content enrichment and user engagement. Looking forward, we believe our premium content offering, innovative product features and advanced data technology will enable us to increase user traction, enhance user experience and improve monetization opportunities. With that, I would like to turn the call over to our CFO, Shirley Hu for a closer review of our financials. Thank you, Tony. Hello, everyone. Let me go through our financial highlights. We delivered a strong 4th quarter and the full year results for 2018. For the Q4 of 2018, revenues increased by 41% year over year to RMB5.4 billion. The increase was driven by the robust growth from both our online music and social entertainment services. Revenues from online music services increased by 45% year over year to RMB1.5 billion. The growth mainly comes from subscriptions, sub licensing and the sales of digital music albums. Subscriptions revenue was RMB695 1,000,000, up 38% year over year. In the Q4, we continued to offer promotional subscription packages with automatic renew and more users enrolled in this program. Revenues from social entertainment services increased by 53% year over year to RMB3.9 billion. We introduced new functions and ways for users to interact with their friends and their idols on our platforms in 2018. Our users' willingness to pay continued to improve. Therefore, both our paying user base and user spending expanded in the quarter. Cost of revenues increased by 63% year over year to RMB3.6 billion in the 4th quarter. The increase was mainly due to increase in content fees and revenue sharing fees. We continued to invest in our content offering. We produced more enhanced content and partnered with more music labels to meet user demand for diverse forms of music entertainment. Turning to the operating expenses. Total operating expenses increased by 58% year over year to RMB1.4 billion. The increase was mostly due to higher employee benefit expenses and the professional fees incurred from our IPO last December. Employee benefit expenses were higher in the quarter due to increased headcount and employee incentive. We also increased spending on promoting the company's brands and content in the quarter. We recorded an operating loss of RMB970 1,000,000 in the Q4, mostly due to one off RMB 1,500,000,000 share based accounting charge from the share issuance to Sony Music and Warner Music in October of 2018. Excluding this one off charge, operating profit would be RMB559 1,000,000. Non IFRS net profit attributable to equity holders of the company increased by 37% year over year to RMB916 1,000,000. As of December 31, 2019, cash and cash equivalents were RMB70,400,000,000 compared to RMB5,200,000,000 as of December 31, 2017. The increase was mainly due to strong operating cash flow and the proceeds from share issuance, including our IPO in 2018. We generated operating cash flow of RMB1.9 billion in the 4th quarter and RMB5.6 billion in the full year of 2018. Going into 2019, with our strong profit and balance sheet, we will increase investment in our product, technology and the content offering. We plan to accelerate our investment in content to meet the users' demand for more diverse forms of music related entertainment. Also such investments may put downward pressure on our margins in the short term, pivotal to the continuous expansion of our user base and improvement of user engagement. This concludes our prepared remarks. Operator, we are ready to open the call for questions. We will now begin the question and answer session. And our first question comes from Wendy Chen of Goldman Sachs. Please go ahead. Hi. Thanks management for taking my question. So my one question is regarding the other online music revenue. So we see in the Q4, the other online music revenue, including sublicense and digital album sales, remain at a level above RMB800 1,000,000, the same asset last quarter. So just wondering, going forward, should we see this as a sustainable level for this revenue line as the sublicense agreement continue into next year? Thanks. Our other revenue included double license revenue and digital ad and advertising. And in Q4, sublicense revenue is decreased because we in Q3, we have some one off revenue booked. And we expect the sublicense revenue will keep steady growth in next year and no more one off effective on next year. And for digital sales of this album, we also expect that the growth will be steady. And for advertising, I mean, the revenue is also steady because that is not our main focus on our business. Our next question comes from Eddie Leung of Bank of America Merrill Lynch. Please go ahead. Hey, good morning, guys. Thank you for taking my questions. I heard that both Tony and Ming mentioned that in 2019, we would step up our investment in content. So could you talk a little bit about the content journals that we would be increasing our investment given we think most of the pop music record labels are already working with us. So wondering what type of content we would be investing in? And then given the investment in content, how should we think about the music paying ratio going forward? And then finally, just a quick housekeeping question. Could you remind us how much of the IPO related professional service fees we accounted under our G and A in the Q4? Thank you. Sure. I'll take the first part of your questions and then I'll let Shirley take the IPO fee related question. So our content investments are comprised of a couple of areas. The first area is continue to expand our label partnerships, both domestically and internationally. For example, genres that would include ACG, so animation, comic and gaming, EDM, electronic dance music, Chinese ancient genre, which has very national Chinese style ancient music as well as urban type music, which includes R and B and hip hop. Today, we already have the largest content library in China. And we cover almost all popular genres. But increasingly, we see the trend of more and more niche genres coming up both domestically and internationally. And so there is still going to be more investments in that area. The second bucket includes the multi format of content that we talked about. For example, in terms of video, we'd be investing in variety shows. We co produced Produce 1 on 1, as we mentioned. We also self produced a music chart countdown show and that's also a music variety show format. We also have other forms of talk shows, which talk shows with artists or talk shows that help to promote music. And then we also extend into long form audio shows. And that includes, for example, book reading as well as just the ordinary radio type talk shows around music. And then thirdly, we'll continue to partner with our label partners in joint ventures or other corporations to further venture into new genres that we're not currently in, which includes our JV with Sony and Liquid State and potentially others to come. And then I'll let Shirley take the question about the IPO fees. The last question. We booked the IPO fees in Q4 around US10 dollars to US15 $1,000,000 Got that. You mean, dollars 10,000,000 to 15,000,000 Got that. Okay. Our next question comes from Alex Yao of JPMorgan. Please go ahead. Hi, good morning, management. Thank you for taking my question. I would like to follow-up with Ali's question a little bit more. You guys mentioned investments in original music content such as a music centric variety show, etcetera. Is this a big trend that you are seeing for your future content investment strategy and compared to the video space, for example, between you and the sister company Tencent Video, What's the difference between your investment strategy in original content and then Tencent Video's investment strategy in original content? And then related to that, how should we think about the gross margin in the next couple of quarters? Thank you. Sure. I'll take the first part of your question and then I'll let Shirley take the margin part of your question. We see there to be ample synergies between the music variety show investments in our platform. And for example, these music variety show genres are increasingly popular. And if the popularity of these shows can actually help promote and carry the popularity into our apps. And that's because very often when we either co produce or self produce these music variety shows, we would insert certain product features such as voting mechanisms or fan commenting mechanisms around the show, so that users can actually stay more engaged around the content of the show through our apps. And so that the 2 feet popularity of the 2 feet on each other. Secondly, the show itself generates a lot of content. There are a lot of songs. There are a lot of singers. It is a very good and effective way to identify and work with up and coming music talent. And so very often, the top performers that come on those shows, we would strategically partner and work with them They continue to help them produce even more music that is available and distributed through our platform and that becomes a unique content attraction. And thirdly, our music library can also be broadened and extended beyond just audio format to include the video format, the variety show can be further bisected into short video clips, which is also very complementary to our audio based content library. So all of this means that we see a lot of synergies between the music variety shows, which is why in the Q4 as well as in 2019, we'd be looking to make more investment in this area. One more point that I would like to add is regarding to our questions is, from PME point of view, we are much more focusing on the music centric variety shows. When compared to when we are talking about the Tencent video or other video platform, they will be more focusing on the more general approach. So since we have the expertise and the professionalism in doing the music content, so and also we understand the music users really well, so we also make that to be the preferred partner of choice. And that's the reason why not just Tencent Music, not just Tencent Video, but we are also seeing that some of the other video platform also come to us and trying to have this kind of joint ventures and partnerships with us regarding the music center variety shows. So I'll let Shirley to quickly go through the about gross margin, we don't provide the specific guidelines for the next year. But in the Q4, our gross margin decreased, mainly because first, our sublicense revenue is decreased compared to Q3. And in the revenue structure, the social entertainment revenue is increased. So the sharing base to cost is increased. And the other important reasons we continue to invest in content such as in house they've made content. So our gross margin has decreased in Q4. And we will continue to invest more in content like Cushing and Connie mentioned. So our strategy don't change. And I think our IPO just 3 months ago, our business outlook has now materially changed. Thank you, guys. Very helpful. Can I follow-up a little bit? So I think my first question is really about how do you think about from moving from a pure distributor role to a semi distributor and the semi content creator role in the value chain? I think well, first of all, we are by far the largest music distributor in the industry. And so I wouldn't exactly categorize that as a semi distributor type model. I think that is still our very much our core business is distribution and promotion and helping users discover music content. And our venture into more original content is really quite complementary to that core business. And we are doing it in a way that does not compete directly with our label partners. We continue they continue to be good partners with us, and we continue to work very closely with them. But we're only doing things where our label partners do not do, which is such as music variety shows, such as music chart countdown shows, such as long form audio shows that we talked about. All of these are investments that are quite complementary. And furthermore, from a Tencent Musician Program perspective, that serves a very massive long tail market that has traditionally been underserved. And the conventional labels focus on the top artists, whereas the Tencent Musician program focused on the long tail artists. We help them with uploading their songs, distributing their songs throughout our platform. So distribution is still the core part of that strategy. We provide the independent artists with the data that helps them produce better music. And so there is a production element that also feeds back into enriching our content offering. And these data analytics also help them identify what kind of music they ought to be producing. And we also give them a lot of exposure through our online resources and offline resources, some of which I talked about earlier. So all of these are part of our content strategy, which is in our mind quite complementary to our existing content partnership and our core business of distribution and promotion. Thank you, Alex. Next question please, operator. Our next question will come from Seung Jin Kim of Deutsche Bank. Please go ahead. Great. Thanks for the chance to ask a question. I wanted to follow-up on the reported kind of UMG stake that's out there. And if you guys have any updated thoughts on it and would this be more of a strategic kind of investment if we do get involved or is it much more of a financial investment? And alongside that, if you guys have any perspective on how to value an asset like that and how that valuation looks relative to our own valuation? Just any framework of how you guys are thinking about it would be vastly appreciated. Thank you. Well, it is obviously, we cannot comment on market rumors and speculation any market rumors or speculation now. Our investment philosophy is such that we will always evaluate the right opportunities thoughtfully and we only deploy capital very prudently in a strategic way that adds value to our business in the long run. Okay. Next question, please. Our next question comes from Wendy Huang of Macquarie. Please go ahead. Is it better? So my question is about the user traffic. So the online music MAU, I noticed declined by RMB11 1,000,000 sequentially this quarter. What's the reason behind that? And should we expect the resume of the growth into 2019? And also for the social entertainment user base, in the past few quarters, it has been going through some fluctuations. It declined sequentially in Q3, but resumed the growth slightly in the Q4. So how should we think about the reason behind the fluctuation and also the trend into the 2019? Thank you. Sure. So first of all, quarter on quarter softness in Q4 is normal seasonality, right, in terms of users because of higher levels of activities during Q3, during the summer break. We are satisfied with the Q4 performance. To put things into perspective, our music MAU grew by 40,000,000 year over year despite the already very large user base. And so our focus is very much on operating better and engaging the users better and providing them with a more multitude of user experience to enhance the stickiness of such users rather than growing the sheer size of an already very large user base. With a lot of users on our platform already, and we've done a lot in the areas that I talked about to increase engagement and user loyalty. We've been improving the content quality through technology driven solutions such as personalization, better curation. We offer the one button sound correction features that enhance the quality of the singing performances. We provide more fun and engaging features such as multi mic singing rooms, which we talked about. We also broadened our content offering to include multi format content such as short video, mini concerts, long form audio. We also extended user engagement beyond conventional online use cases into offline settings such as television additions as well as mini karaoke booths. And so while these investments may not immediately translate into MAU or paying user numbers, But these investments will most definitely translate into higher engagement and stickiness over time, which is the more important focus of our business. And also I think finally to put things into perspective, both our online music subscription revenue as well as the social entertainment revenue grew at a very healthy pace, which we are quite happy about. Our next question comes I have a relatively big picture about the 2019 outlook. Can management briefly talks about how we should think about the revenue as well as the margin trend? I think just now we talked about there's no material difference from what it is in the IPO. So just want to get a sense about how we should think about the key financials as well as any color on Q1 would be great. Thank you. Sure. We have not provided specific guidance on figures because we want to stay very focused on growing the company over the long term rather than being distracted by short term quarter on quarter fluctuations. And so without going into specific figures, we can say that we're very confident about the business and that it will continue to grow at a very healthy pace. And since the IPO, our strategy and And while there will always be seasonal fluctuations, And while there will always be seasonal fluctuations in the short term quarter by quarter, our focus is on the long term because we strongly believe that the China music industry has still has enormous potential. And as long as we continue to execute relentlessly upon our strategy that we've stated and the business direction we've stated, we will deliver long term value. Thank you, Thomas. Next question please. Our next question comes from Hans Chung of KeyBanc Capital Markets. Please go ahead. Hi, good morning management team. Thank you for taking my questions. So I'd like to dig into more on the social entertainment in Q4. And then can you provide any color around the segment regarding the financial or operational performance for Kugo live streaming or and versus the WeSing? And then going forward, how should we think about the driver for the social entertainment will be from either the user growth or the ARPU or the paying ratio? Thank you. Sure. So again, I think on in the Q4, we're pleased with the Q4 performance of our social entertainment services and that includes both WeSing online karaoke as well as live streaming. And the revenue growth are driven by both increasing paying users as well as ARPU growth. And in Weixin, we've achieved a lot. And for example, we talked about improving the quality of content and the product experience that we offer in WeSing through the technology based one button sound adjustment. Singing is a core feature within WeSing. And so by making it much more convenient for users to improve their singing performance, that is a major attraction and a very innovative technology based product feature. We also launched a multi mic singing room. Previously, we talked about a singing room, which allows users to one user to sing. But now more than one person can sing together in singing rooms, and that becomes an additional enhancement to what is already quite an engaging use case. We also broadened the content offering to include short video to allow many more users to create short video using the music they love. And that again, we've also seen very good traction in terms of the growth of consumption there as well as the offline use cases that we talked about in terms of the mini karaoke booths offline as well as singing karaoke through television additions at home. So all of these efforts are translated into very healthy growth in our Weixin business. And then in terms of live streaming, we've also made a lot of investments into continuously improving the quality of the live streaming content, specifically around music. We continue to invest to help live streaming performers develop a music career. We ramped up our certified singer program, where we certified thousands of singers to make them more prominently appear and showcase their music creative work. We've also enhanced the live streaming content category substantially beyond just singing showrooms to include much more mini concert type genres as well as music variety shows and video talk shows type genres. And these mini concerts as well as live streaming of variety shows provide a very strong leverage and serve as a great way for our live streaming business to promote the emerging artists who are certified as our singers and thereby create a very strong virtuous circle of these emerging artists promoting their music through our platform, which enables them to produce even better quality music, which feeds into become highly complementary content on our music service. So all these are a good effort within our live streaming business that we continue to make investments in. And as a result, we've also seen very pleasing results in the 4th quarter. Next question please. Our next question comes from Bonnie Wong of HSBC. Please go ahead. Thank you. This is Binnie here. Thank you for taking my questions. Good morning here. If you look at the overall the paying ratio, we have seen a steady increase, right? So we just want to understand that if we look back, do you think that because there's some softness, right, in the MAU2 And we also see a steady increase in the paying users. So going forward in 2019, I think management in the opening remarks talked about a lot about enriching our content and personalizations and how we can drive up the step up in the paying users. So how can we think of that into 2019? Can we get is there any update on the strategies? Any more examples or maybe, as you said, like in terms of a variety shows or a sub production content? Can you give us more color into helping us understand how should we think about the paying users increase in 2019? And then a follow-up to that is that on the social entertainment services, if you look at the monthly ARPU, right, it also has been going very nicely, right, in this quarter. So can we understand the reason why on this on the monthly ARPU side, on the social entertainment services? And how should we look at that in terms of 2019? How should we think about company balancing between a growth and paying ratio and the ARPU? Thank you. Okay. Thank you for your questions. First of all, I think that when we are talking about driving the paying ratio of users, I think that these are very important is ongoing and gradually developing process. So we are not going to achieve everything in one day, but we are seeing a very positive and healthy growth and also with the experience that we have. We have to do a lot of things in order to drive it in the right direction. First of all, we need to continue to do the IP right protection correctly. So we have putting in a lot of efforts to make sure that all the IP rights of the music content was being well protected. Secondly, we're also spending a lot of efforts in educating our users that music do have a value. So we are also moving our content to the paid database step by step. First of all, as what we have mentioned before, we have created a digital album concept and also we are also making the new releases content into the paying model as well, so which means that our user only need to pay in order to listen to the content or download it or even enjoy other pre purchase full streaming. So what we are doing right now, I think is that we are still trying to look forward to ongoing process. So we don't want to do it too rushly. So we just want to make sure that it's not going to have too much effect to our user experience. So this is the way that we are working on. For the second question, you mentioned in terms of the social entertainment ARPU. First of all, we need to understanding that our social entertainment platform do have a really huge user base, which is over 200,000,000 of users, the active users in a monthly basis. Most of them are from the leasing platform and they do not have spending habits before. But after a whole year of even some education and hard work of our team, we have created a lot of things that help our users to start enjoying the business through paying. So we are seeing that there's a lot of even more people with sellers starting to pay through the leasing platform. So that's the reason why it helped to drive up the overall ARPU of the entire social entertainment business. Thank you. Next question please. Our next question comes from John Egbert of Stifel. Please go ahead. Great. Thanks for taking my question. I had a question on content investments. Investments in long form audio have really picked up with some of your peers outside of China. I'm curious whether consumption of this type of content is material for TME yet. If you're seeing anything attractive about the genre from a financial perspective, seems like with lower production costs and greater fragmentation of ownership, it could potentially carry a higher margin profile than music or some of your professional video content, but curious what you think about that? Sure. We're only in the early stages of venturing into long form audio. We started to add more long form audio content late last year, and we continue to do so in 2019 because we really see positive signs of user engagement. When a user engage in long form audio content compared to users who does not, users who do engage in non core audio content tends to have a higher time spent as well as a better higher retention rate. But again, I think it's still early stage for us. Audio content naturally is quite complementary to music content on our service. But I think for it's too early days. So I think for us we will continue to make progress and towards this direction. Okay. Next question please. Our next question comes from Gary Yu of Morgan Stanley. Please go ahead. Hi. Thank you. Good morning, management, for the opportunity to ask questions. My question is regarding our Ultima plan to transit to pay for streaming model. What have we done in terms of gradually moving some of the content behind the paywall? What should we expect this progress to take place in the next 1 to 2 years? Thanks. Sure. So we have already begun to lay the foundation for a gradual transition to pay for streaming. And to do this, we're doing it step by step by developing the user habit of paying for streaming. We've already begun to slowly, as Kachen mentioned, at a little bit of time step by step some of the content behind the paper streaming paywall. And so far, it was still early days, but so far the signs are short term switch. And we're committed to continue to make progress in this area because this is the way we believe is the best way to promote the overall healthy development of the music industry. And given the paying ratio is still at a very low level compared to international levels, we continue to see there to be a lot of growth potential for paper streaming to develop in the years to come. Thank you. Next question, please. Our next question comes from Alicia Yap of Citigroup. Please go ahead. Hi, good morning management. Thanks for taking my questions. Congrats on recent IPO. I have some follow-up questions on the online music service revenue. Should we expect the subscription follow-up on Sherry just to clarify. When you mentioned advertising and sublicensing revenue, when you say steady, do you mean steady growth or is it flat on the absolute dollar terms? Thank you. Yes. So in terms of the music growth, again, we don't while we don't provide specific guidance in terms of figures, we expect both music service and our social entertainment service revenue to grow at a healthy pace. And then in terms of the non subscription music revenue, we expect that to be a steady in terms of absolute level. About the pricing subscription revenue, that is the most part of our online music service revenue, okay? And for sublicense revenue and advertising revenue, I said it's steady growth, not very fast, just steady growth for next quarter. Yes. And also in the future, we should consider about all the new use cases that we are developing right now. I think the advertising as of today is not a really huge portion in terms of our revenue, but frankly speaking, we have no rush in pushing for this revenue stream, but they are the low hanging fruit. For example, if we have developed a new use cases as what we have mentioned before, For example, like the in car systems, which will create a very good environment for us to have some other advertising business model. So we will keep our mind and also our eyes open. So once all of these opportunities is at the right time and then we will go ahead and make sure that the user experience is good for our users as well. Okay. We will register the last question before we wrap up the call. Our next question comes from Wei Meng of CICC. Please go ahead. Great. Thank you management for taking my question. I have a specific question on Kugo. We learned that Kugo has made a significant new in Q3. Could you please talk about the performance of Google since then and in both paid subscription in music and live streaming? Thank you. Sure. So the new interface design at Kugo are seeing very good results. And number 1, we're better helping users to discover new music through the recommendation feed. Number 2, it allow us to get access to much more accurate data as to what kind of music and what type of song or albums or genres our users prefer because through each click and unclick on the recommendation feed, it gives us very specific data in terms of the user preferences. Number 3, through the recommendation feed, the feed itself enhances our promotional capability because since it's a personalized recommendation feed, we can leverage that feed to effectively work with music label partners as well as artists to promote their music to a much more targeted user base. And number 4, and given the feed is a much more visual format of engagement, it also lays the foundation for future advertising monetization in the future. And as a result, we've seen very good momentum and continued increase in music consumption that are consumed via the feed recommendation. This concludes our question and answer session. I would like to turn the conference back over to Milicent Tu for any closing remarks. Thank you, everyone, for joining us today. If you have any questions, please feel free to reach out to us through our Investor Relations website at ir.tensamuser.com. This concludes the call, and we look forward to speaking with you again next quarter. Goodbye. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.