Ladies and gentlemen, thank you for standing by, and welcome to the Tencent Music Entertainment Group fourth 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 close. An earnings release is now available on our IR website at ir.tencentmusic.com. Today, you'll hear from Mr. Cussion Pang, our CEO, who will start off the call with an overview of our growth strategies and initiatives. He'll be followed by Mr. Tony Yip, our CSO, who will offer more details on our recent business developments. Ms. Shirley Hu, our CFO, will address our financial results in more detail before we take your questions. Before we proceed, please know 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 forward-looking statements. All forward-looking statements 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 know that the company will discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the International Financial Reporting Standards 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. Cussion Pang, CEO of Tencent Music. Cussion.
Thank you, Millicent. 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 the 12th, 2018, we successfully completed our initial public offering on the New York Stock Exchange. The IPO has launched us onto the international stage, elevated the 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 role 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 profits attributable to equity shareholders increased by 119% year-over-year. Online music services paying users increased by 39% to 27 million, and social entertainment services paying users increased by 23% to 10.2 million during the fourth quarter 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 relentless efforts to innovate our product, launch new app features to engage users, and increase the breadth and depth of our content offering to satisfy the ever-evolving demands of the music fans in China.
We have introduced innovative user cases and product features to make the interaction between the artists and performers and their followers and friends more engaging to promote social connectivity, resulting in a boost to our user stickiness. Leveraging our platforms and viral popularity, we continue to attract an increasing number of content partners and talents, 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, have 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 a 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, product, and technology. Going into 2019, we will continue executing relentlessly our mission to use technology to elevate the role of music in people's lives.
We are confident that as we continuously develop and promote high-quality content across our platforms, 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, Cussion. Hello, everyone. During the fourth quarter of 2018, our operations continued to show substantial growth across both online music services and social entertainment services. In online music services, our paying users increased by 39% to RMB 27 million. We added RMB 2.1 million paying users sequentially, which is substantially higher than RMB 1.1 million for the same period last year. Mobile MAU increased by 7% to RMB 644 million from RMB 603 million 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. First, 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, 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 add a 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 lock in a strategic partnership with the top-ranked performing band called the Rocket Girls, and we contributed to their rapid rise in popularity.
As of December 2018, over 2 million copies of Rocket Girls' 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-stream 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, 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 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 billion total streams on our platform in 2018. Turning to our social entertainment services. During the fourth quarter of 2018, paying users increased by 23% to 10.2 million. 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 million from 209 million 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 WeSing, we focused on expanding the breadth and depth of its business operations in 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 sounds during performances, including both one-button correction to maximize convenience or targeted individual fragment correction to optimize performance. We rolled out offline mini karaoke booths as well as WeSing television editions 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 to enable users to easily produce short videos using the music they love. WeSing'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 continued 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 mini 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. 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 fourth quarter and a full year results for 2018. For the fourth quarter of 2018, revenues increased by 51% year-over-year to RMB 5.4 billion. The increase was driven by the robust growth from both our online music services and social entertainment services. Revenues from online music services increased by 45% year-over-year to RMB 1.5 billion. The growth mainly comes from subscriptions, sublicensing, and the sales of digital music albums. Subscriptions revenue was RMB 695 million, up 38% year-over-year. In the fourth quarter, we continued to offer promotional subscription packages with automatic renewal and more users enrolled in this program. Revenues from social entertainment services increased by 53% year-over-year to RMB 3.9 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. Both our paying user base and user spending expanded in the quarter. Cost of revenues increased by 63% year-over-year to RMB 3.6 billion in the fourth 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 RMB 1.4 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 RMB 917 million in the fourth quarter, mostly due to one-off RMB 1.5 billion share-based accounting charge from the share issuance to Sony Music and Warner Music in October 2018. Excluding this one-off charge, operating profit would be RMB 5 49 million. Non-IFRS net profit attributable to equity holders of the company increased by 37% year-over-year to RMB 916 million. As of December 31st, 2018, cash and cash equivalents were RMB 17.4 billion, compared to RMB 5.2 billion as of December 31st, 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 RMB 1.9 billion in the fourth quarter and RMB 5.6 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 content offering. We plan to accelerate our investment in content to meet users' demand for more diverse forms of music-related entertainment. Such investments may put downward pressure on our margins in the short term. They are vital 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. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. We ask that you please limit yourself to one question. If you have further questions, you may re-enter the question queue. At this time, we will pause momentarily to assemble our roster. Our first question comes from Wendy Chen of Goldman Sachs. Please go ahead.
Hi. Thanks, management, for taking my question. My one question is regarding the other online music revenue. We see in the fourth quarter, the other online music revenue, including sublicense and digital album sales, remain at a high level above RMB 800 million, the same as last quarter. 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 includes sublicense revenue and digital albums and advertising. In Q4, sublicense revenue is decreased because in Q3, we have some one-off revenue booked. We expect the sublicense revenue will keep steady growth in next year. No more one-off effective on next year. For digital sales of each album, we also expect that the growth will be steady, and for advertising amount 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 Min mentioned that in 2019, we would step up our investment in content. Could you talk a little bit about the content genres that we would be increasing our investment, given we think most of the pop music record labels are already working with us, wondering what type of content we would be investing in. Given the investment in content, how should we think about the music paying ratio going forward? Finally, just a quick housekeeping question. Could you remind us how much of the IPO-related professional service fees we accounted under our G&A in the fourth quarter? Thank you.
Sure. I'll take the first part of your questions, then I'll let Shirley take the IPO fee-related question. Our content investments are comprised of a couple of areas. The first area is continue to expand our label partnerships through both domestically and internationally. For example, genres that would include ACG, 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&B and hip-hop. Today, we already have the largest content library in China. We cover almost all popular genres. Increasingly, we see the trend of more and more niche genres coming up, both domestically and internationally. There is still going to be more investment 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-produce Produce 101, 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 are talk shows with artists or talk shows that help to promote music. We also extend into long-form audio shows.
That includes, for example, book reading, as well as just the ordinary radio-type talk shows around music. 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. I'll let Shirley take the question about the IPO fee.
The last question. We book the IPO fees in Q4 around US dollar, $10 million-$15 million.
$10 million-$15 million US dollars.
Got that.
Okay.
Okay. Next question, please, operator.
Our next question comes from Alex Yao of JP Morgan. Please go ahead.
Hi. Good morning, management. Thank you for taking my question. I would like to follow up with Eddie's question a little bit more. You guys mentioned investment in original music content such as music-centric variety show, et cetera. Is this a big trend that you are seeing for your future content investment strategy? 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 the Tencent Video's investment strategy in original content? 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, then I'll let Shirley take the margin part of your question. We see there could be ample synergies between the music variety show investment and our platform. For example, these music variety show genres are increasingly popular. If the popularity of these shows can actually help promote and carry the popularity into our apps. 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. So the popularity of the two feeds 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. So, very often the top performers that come off those shows, we would strategically partner and work with them to continue to help them produce even more music that is available and distributed through our platform, and that becomes a unique content attraction. 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 dissected into short video clips, which is also very complementary to our audio-based content library. All of this means that we see a lot of synergies between the music variety shows, which is why in the fourth quarter, as well as in 2019, we'll be looking to make more investment in this area.
One more point that I would like to add regarding to Alex's questions is, from TME point of view, we are much more focusing on the music-centric variety shows. Compared to when we are talking about Tencent Video or other video platform, they will be more focusing on the more general approach. Since that we have the expertise and the professionalism in doing the music content. Also we understand the music users really well, so it also make us to be the preferred partner of choice. That's the reason why 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-centric variety shows. I let Shirley to quickly go through the-
About gross margin.
Yes.
About gross margin, we don't quote rather the specific guideline for the next year. In the Q4, our gross margin is decreased. That's mainly because, first, our subscriptions revenue is decreased compared to Q3. In the revenue structure, the social entertainment revenue is increased. The sharing base fee to host increased. The other important reason is that we continued to invest in content, such as in-house self-made content. Our gross margin is decreased in Q4. We will continue invest more in content, like Cussion and Tony mentioned. Our strategy don't change. I think our IPO, just 3 months ago, our business outlook have no materially changed.
Thank you, guys. Very helpful.
Okay.
Can I follow up a little bit? 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 a 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. I wouldn't exactly categorize us as a semi-distributor type model. I think that is still very much our core business, is distribution and promotion and helping user discover music content. Our venture into more original content is really quite complementary to that core business. We're doing it in a way that does not compete directly with our label partners. They continue to be good partners with us, and we continue to work very closely with them. We're only doing things where our label partners do not do, 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.
Furthermore, from a Tencent Musician Program perspective, that serves a very massive long-tail market that has traditionally been underserved. The conventional labels focus on the top artists, whereas the Tencent Musician Program focus on the long-tail artists. We help them with uploading their songs, distributing their songs throughout our platforms, distribution is still the core part of that strategy. We provide the independent artists with the data that helps them produce better music. There's a production element that also feeds back into enriching our content offering. These data analytics also help them identify what kind of music they ought to be producing. We also give them a lot of exposure through our online resources and offline resources, some of which I talked about earlier.
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.
As a reminder, if you would like to ask a question, we ask that you please limit yourself to one question only in the interest of time. Our next question will come from Song Jun 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? 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.
Right. Well, obviously, we cannot comment on market rumors and speculation, any market rumors or speculation. 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.
Next question, please.
Our next question comes from Wendy Huang of Macquarie. Please go ahead.
Hey, Wendy, we're having a difficult time hearing you.
Is it better?
Much better.
My question is about the user traffic. The online music MAU, I noticed declined by 11 million sequentially this quarter. What's the reason behind that? Should we expect the resume of the growth into 2019? 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 growth slightly in the fourth quarter. How should we think about the reason behind the fluctuation and also the trending to 2019? Thank you.
Sure. 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 million year-over-year, despite the already very large user base. 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, 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 Room, which we talked about. We also broaden 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 editions as well as mini karaoke booths. While these investments may not immediately translate into MAU or paying user numbers, these investments will most definitely translate into higher engagement and stickiness over time, which is the more important focus of our business. 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.
Next question, please.
Our next question comes from Thomas Chong of Credit Suisse. Please go ahead.
Hi. Good morning. Thanks management for taking my questions. I have a relatively big picture about the 2019 outlook. Can management briefly talk about how we should think about the revenue as well as the margin trend? I think just now we talk about there's no material difference from what it is in the IPO. 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. 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. Since the IPO, our strategy and the way we view our business direction remains the same. 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 still has enormous potential. 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.
Good morning management team. Thank you for taking my questions. I'd like to dig into more on the social entertainment in the first quarter. Can you provide any color around the segment regarding the financial or operational performance for Kugou live streaming versus the WeSing? 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. Again, I think in the fourth quarter, we're pleased with the fourth quarter performance of our social entertainment services, that includes both WeSing online karaoke as well as live streaming. The revenue growth are driven by both increasing paying users as well as ARPU growth. In WeSing, we've achieved a lot. 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. 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 allowed one user to sing.
Now more than one person can sing together in singing rooms, 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. 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 booth offline, as well as singing karaoke through televisions additions at home. All of these efforts all translated into a very healthy growth in our WeSing business.
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 their 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.
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, 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. All these are a good effort within our live streaming business that we continue to make investments in. As a result, we've also seen very pleasing results in the fourth quarter.
Next question, please.
Our next question comes from Binnie Wong of HSBC. Please go ahead.
Thank you. This is Binnie here. Thank you for taking my questions. Good morning here. If we look at the overall, the paying ratio, we have seen a steady increase, right? We just want to understand that, if we look back at this, do you think that because there is some softness, right, in MAU too, and we also see a steady increase in the paying users. Going forward into 2019, I think management in the opening remark talk a lot about enriching our content and personalizations and how we can drive up the step-up in the paying users. How could we think of that into 2019? Is there any update on the strategies?
Any more examples or maybe, as you said, like in terms of variety shows or self-production content, can you give us more color into helping us understand how should we think about the paying users increase in 2019? 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. Can we understand the reason why 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 in 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 our users, I think that these are very important. These are ongoing and gradually developing process. 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. 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 also spending a lot of efforts in educating our users that music do have a value. 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. Which means that our user only need to pay in order to listen it to the content or download it, or even enjoy other privileges through streaming.
What we are doing right now, I think, is we are still trying to look came forward to our ongoing process. We don't want to do it too rushedly. We just want to make sure that it's not going to have too much effect to our user experience. This is the way that we are working on. For the second question that 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 million users, the active users on a monthly basis. Most of them are from the WeSing platform, and they do not have a spending habit before.
After a whole year of even some educations and hard work of our team, we have created a lot of things that help our users to start enjoying the business through paying. We are seeing that there's a lot of even more people who started to pay through the WeSing platform. 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, it 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. Curious what you think about that.
Sure. We 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'll 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 long-form audio content tends to have a higher time spent as well as a better, higher retention rate. Again, I think it's still early stage for us. Audio content naturally is quite complementary to music content on our service. I think it's still early days. I think for us, we'll continue to make progress and to assist direction.
Okay. Next question, please.
Our next question comes from Gary Yu of Morgan Stanley. Please go ahead.
Hi. Thank you, Morgan management, for the opportunity to ask questions. My questions is regarding our ultimate 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 these progress to take place in the next one to two years? Thanks.
We have already begun to lay the foundation for a gradual transition to pay for streaming. 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 Cussion mentioned, add a little bit at a time, step-by-step, some of the content behind the pay for streaming paywall. So far, it is still early days, but so far the signs are encouraging. It is going to be an ongoing and gradual process, we must stress. It's a long-term evolution rather than a short-term switch. 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.
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 pay for 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. Have some follow-up questions on the online music service revenue. Should we expect a subscription as a percentage of this revenue line will continue in proportions of the concentration going forward? I think a follow-up on Shirley, just to clarify, when you mention advertising and sublicensing revenue, when you say steady, do you mean steady growth or is it flat on the absolute RMB terms? Thank you.
Yeah. In terms of the music growth, again, while we don't provide specific guidance in terms of figures, we expect both our music service and our social entertainment service revenue to grow at a healthy pace. In terms of the non-subscription music revenue, we expect that to be steady in terms of absolute growth.
Yeah. About subscription revenue, that is the most part of our online music service revenue. Okay. For sublicensing revenue and advertising revenue, I said it's steady growth, not very fast, just steady growth for next quarter.
Yeah. Also in the future, we should consider about all of 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. Frankly speaking, we have no rush in pushing for this revenue stream, but they are the low-hanging fruits. For example, if we have developed 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. We will keep our mind and also our eyes open. Once all of these opportunity 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 take the next question before we wrapping 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 Kugou. We learned that Kugou has made a significant UI update in Q3. Could you please talk about the performance of Kugou since then and in both paid subscription in music and live streaming? Thank you.
Sure. The new interface design at Kugou are seeing very good results. 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.
Number 4, given the feed is a much more visual format of engagement, it also lays the foundation for future advertising monetization in the future. 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 Millicent 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.tencentmusic.com. This concludes the call, and we look forward to speaking with you again next quarter. Goodbye.
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