Good day. Welcome to the NetEase 2019 third quarter earnings conference call. Today's conference is being recorded. At this time, I will pass the conference over to Margaret Shi, IR Director of NetEase. Please go ahead.
Thank you, operator. Please note that the discussion today will contain forward-looking statements relating to the future performance of the company and are intended to qualify for the safe harbor from liability as established by the US Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect NetEase business and financial results is included in certain filings for the company with the Securities and Exchange Commission, including its annual report on Form 20-F. The company does not undertake any obligation to update its forward-looking information except as required by law.
During today's call, management will also discuss the non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the 2019 third quarter financial results news release issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the NetEase corporate website at ir.netease.com. Joining us today on the call from NetEase senior management is Mr. William Ding, Chief Executive Officer, and Mr. Charles Yang, Chief Financial Officer. I will now turn the call over to Charles, who will read the prepared remarks on behalf of William.
Thank you, Margaret, and thank you, everyone, for participating in today's call. Before we begin, I would like to remind everyone that all percentages are based on renminbi. Firstly, to assist better understanding and analysis of our quarterly results, I would like to remind everyone that based on the changes in this quarter, including the sale of Kaola and the NYSE listing of Youdao, we will now be reporting segment reports as online games, Youdao, and interactive businesses and others, which include now Yanxuan, NetEase Cloud Music, Internet media, CC live streaming, and others. Kaola's financial results have been deconsolidated and listed as discontinued operations. This applies to the current quarter as well as the historical comparative periods. This quarter, our total net revenue represents both year-over-year and quarter-over-quarter growth. You can also refer to Youdao's earnings release for more details about its quarterly results.
I will now read the prepared remarks on behalf of William. We have had quite an eventful third quarter with a number of strategic moves made across our business lines. Those moves allow us to realign our resources and sharpen our strengths in areas where we see the most potential for our sustainable long-term growth. During this quarter, we continued to grow our online games business with steady performances from existing titles and further expanded our overseas presence. We are pleased to have achieved another quarter of strong financial performance, with total net revenues increasing by 11% and non-GAAP net income from continuing operations increased by 74% year-over-year. For games, our online games revenue continued to exceed CNY 10 billion for the sixth consecutive quarter, driven primarily by the steady performance of the long-running titles in our games portfolio.
Our flagship Fantasy Westward Journey series and Westward Journey series continue to perform strongly. As two of the longest and largest running game IPs in China, those games continue to attract a loyal crowd. Fantasy Westward Journey Online achieved another record high quarter of gross billing since its debut in 2003, 16 years ago. While the mobile version also reached its highest quarter of gross billing in the last two years. For the Westward Journey series, we introduced a brand-new dragon character in conjunction with an expansion pack in August for both the PC and mobile games, which quickly gained popularity within fans. Westward Journey Online also peaked in gross billings this quarter, reaching the highest level we've seen since 2015. Other games launched in more recent years are also enjoying impressive popularity with highly active core user bases.
Invincible had another quarter of record revenue, with continued growth in active users. In October, with its fourth year anniversary, Invincible reached number two on China's iOS top grossing chart. Onmyoji also celebrated its third anniversary this quarter and topped China's iOS grossing chart for the third time this year in September. In addition, other games in our portfolio, including our new Ghost series, Identity V, A Dream of Jianghu, which previously known as CLX, and LifeAfter, are also enjoying a sizable and steady run rate with their respective large bases of loyal fans. Two weeks ago, we launched an updated version of LifeAfter. The update came with an overhaul of the game, introducing a series of new themes and innovative gameplay, leading to a strong growth in the number of active users and gross billings. These games span different genres, targets different user profiles, and last a long time horizon.
This is how we achieve sustainable revenue base for our existing portfolio of games, continuously add more and more game titles to this expanding game portfolio. The fans that these games have accumulated over the years and the reach of their influence have turned each of them into valuable IP, giving rise to the possibility of more renditions of these popular characters and storylines. Most recently in October, we launched Xuan-Yuan Sword: Dragon Upon the Cloud, a Chinese style turn-based MMORPG, which topped the iOS download chart soon after its launch. For Bloom & Blade, a new MMORPG we just launched last Friday, is also trending well. This game is designed to target female game players and was featured by the iOS App Store. Our joint venture with Blizzard Entertainment has also had a good quarter.
In line with our successful 10-year partnership operating Blizzard's World of Warcraft in mainland China, the popular franchise continues to provide new thrilling game experiences to players across the world. August 27 marks the official launch in China of Blizzard's World of Warcraft Classic, an inventive revitalization of WoW as the world's renowned MMORPG. Calling on the nostalgia of a generation of old players and intriguing new players alike, this latest release increased both revenue contribution and total number of subscribers for the game. In terms of overseas revenues, we delivered a record quarter. We now have two blockbuster games in Japan, Knives Out and Identity V, both of which gained top positions on Japan's iOS grossing chart. LifeAfter, our newer release, is also ramping up well in Japan.
With the success of Knives Out, we gained a better and deeper understanding of users in Japan in terms of their interests, social behavior, and preferences in style, aesthetics, and gameplay. We passed this successful experience and knowledge onto the design of other NetEase games, enhancing our ability to deliver popular titles to Japanese users. Identity V topped Japan's iOS top grossing chart for the first time in September, while Knives Out remains a household name in Japan amongst the gamers. To further support our game's growth in Japan and stimulate player enthusiasm, we hosted Knives Out Championship, our first-ever esport championship tournament in Japan from May to August, with more than 500,000 players participating. In terms of our pipeline of games, we are pleased to have received license for FWJ3D, which is currently undergoing the final round of beta testing and is scheduled for launch in December.
We are excited to announce plans to release Harry Potter: Magic Awakened, a card game featuring a blend of strategic role-play elements that invites players to experience the magical wizarding world. Other games included in our lineup include Onmyoji: The Card Game, MARVEL Super War, Onmyoji: Yokai Koya, EVE Echoes, Ghost World Chronicle, Diablo Immortal, and Pokémon Quest. Our existing games are expected to sustain our online games revenue at a high level, the abundant pipeline titles represent opportunities to further fuel the revenue growth for our online games. Turning to our education business. We have completed Youdao's public listing on the New York Stock Exchange in October. This marks our first-ever carve-out IPO under the NetEase umbrella and the beginning of a new journey for Youdao to lead our efforts in revolutionizing the way that people learn and receive education.
Following the IPO, NetEase remains Youdao's majority shareholder and will continue to support Youdao's future growth that propels their mission to empower the people of China on their lifelong learning journey. Over the past 13 years, Youdao has become a strong contender in the online education space, with clear advantages in Internet-native, path-driven content offerings. The Internet has disrupted many industries in the world, but so far it has had a minimum impact on the education space in China. This offers tremendous opportunity for Youdao. Led by Dr. Zhou, Youdao's senior management team is comprised mostly of computer science graduates and doctorates from top universities who are best suited to lead the transformation in the online learning space, enabled by the application of technologies. Both Youdao and NetEase are fully committed to investing in technology and content creation in order to bring to our users more effective and technology-driven education experience.
Moving on to innovative businesses and others. For NetEase Cloud Music, we continue to deliver a highly differentiated music product with the mission to help tens of thousands of talented Chinese independent musicians create indigenous content that resonates with Chinese listeners. We strive to provide our users with the most intimate, interactive, and high-quality music experience. As we continue to amass more and more of what we call Cloud Villagers, we know we are on track. NetEase Cloud Music continues to ramp up its monetization efforts, reaching new record high revenues in the third quarter. Revenue growth has been strong across the board in subscription, advertising, and live streaming, leading to continued improvement in our financials. We entered into a definitive agreement with Alibaba and Yunfeng for approximately $700 million in September.
With our new strategic partners, we are able to explore more innovative forms of monetization for this highly engaging music platform. For Yanxuan, the focus continues to be about operating efficiency. During the third quarter, we continued to optimize our supply chain management to reduce our inventory and to deepen our relationships with choice manufacturing partners. We help our manufacturing partners better understand the consumer metrics and provide them with better visibility and ultimately better sales figures. Looking ahead, Yanxuan will continue to focus more on quality control and bring high-quality products to our consumers. In September, we completed the sale of our cross-border e-commerce business, Kaola, and we are pleased to have found a strategic fit for Kaola within Alibaba's extensive ecosystem. In summary, we had a busy quarter being more focused and realizing value for each of our core business areas.
We are very confident in the future prospects of the sectors we choose to be in, and we have developed and will continue to strengthen our distinct product offerings in each of these markets. We will persist in our pursuit of excellence across all of our business lines, and the needs of our users always remain at the heart of our business strategy. As we advance each of our businesses and create value, we are always looking for ways to increase returns to our shareholders. This quarter, in addition to our regular dividend representing a 30% payout ratio, we will also be distributing a special dividend of US$3.45 per ADS this quarter in consideration of the sale of Kaola business. As always, we appreciate and value the long-term support from our shareholders, and we are always devoted to maximizing the interest of our shareholders. This concludes William's comments.
I will now provide a brief review of our third quarter 2019 financial results. Given the limited time on today's call, I will be presenting some abbreviated financial highlights. We encourage you to read through our press release issued earlier today for further details. Our total net revenues for the third quarter were RMB 14.6 billion, or $2 billion, representing a year-over-year increase of approximately 11%. Again, let me remind everyone that the revenue has taken into the consideration that we have deconsolidated Kaola results in the current quarter as well as the historical comparative period. Net revenues from online game services were RMB 11.5 billion, up 11% year-over-year. The year-over-year increase was primarily driven by LifeAfter, which was launched at the end of last year, as well as continued strong performances from Invincible and Identity V.
Mobile games accounted for approximately 71% of net revenues from our online games in the third quarter. Net revenues from Youdao nearly doubled year-over-year to CNY 346 million, primarily due to increased net revenues from Youdao premium courses driven by higher paid student enrollment and average selling price. Net revenues from innovative businesses and others were CNY 2.8 billion, up 4% year-over-year due to mainly the increased monetization from Cloud Music, partially offset by decreased revenue from online advertising businesses due to macro environment. Overall gross margin was 53.8% in the third quarter. Gross margin for our online game services for this quarter was 63.8%. Our gross margin for online games is generally stable, fluctuating quarter-to-quarter within a narrow band based on the revenue mix of mobile PC, as well as self-developed and licensed games.
Youdao's gross margin was 25.8%, an improvement from 23.3% in the prior year period due to increased net revenues from Youdao premium courses, and down from 32.9% in the previous quarter. Gross margin for innovative businesses and others for the quarter was 15.2% compared to 15.5% and 17% for the previous quarter and prior year period, respectively. The year-over-year decrease was primarily due to decreased net revenues from advertising services. For the third quarter, total operating expenses were RMB 4.5 billion. Our selling and marketing expenses as a percentage of our net revenue were 11.1%, compared with 8.9% in the second quarter. The quarter-over-quarter increase was mainly due to increased marketing expenditures related to online game services, as well as the summer promotion of Youdao, which is typical in the online education space. R&D expenses remain steady at around RMB 2.2 billion.
We remain committed to investing in content creation and product development, which is what defines us as a technology company. Non-GAAP net income from continuing operations attributable to our shareholders for the third quarter of 2019 totaled RMB 4.7 billion, or USD 661 million, representing an increase of 21% quarter-over-quarter and 74% year-over-year. Our non-GAAP diluted earnings per ADS from continuing operations were RMB 36.31 or USD 5.08 for the third quarter. Our cash position remains strong. As of September 30th, our total cash and cash equivalents, current and non-current time deposits, and short-term investment balance totaled RMB 61.4 billion, compared with RMB 49.7 billion as of the year-end last year. As William mentioned in his remarks, we are pleased to report that our board of directors have approved a dividend of USD 7.59 per ADS.
This includes a regular quarterly dividend of $4.14 per ADS, equivalent to approximately 30% of our net income attributable to the shareholder, plus a special dividend of $3.45 per ADS. Thank you for your attention. We would like now to open the call to your questions. Operator, please go ahead to the Q&A.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. For the benefit of all participants on today's call, if you wish to ask a question in Chinese, please immediately repeat your question in English. Please ask one question each time. If you have more questions, please join the queue again. We'll take our first question from Natalie Wu from CICC. Your line is open. Please go ahead.
Hi. Good morning. Thanks for taking my question. I have a question on the upcoming FWJ 3D. Just wondering if management can give us some color on your expectation for that game. Do we need to worry that game could have the possibility of cannibalizing your current FWJ mobile growth if that FWJ 3D could be the next hit game? Thank you.
Okay. Thank you, Natalie. I will translate that question for William. I'll provide a brief translation of William's response. FWJ 3D is currently scheduled to launch in the first half of December
We are quite excited about this game, because this game represents accumulation of over a decade long of R&D experience, both from the PC version as well as the mobile version of WWJ. We can assure to the users and the investor community that you're going to see a lot of innovation in this game. We are hoping that this game can attract many enthusiastic fans about the Westward Journey franchise. Given all these games are in-house developed by NetEase, we are not overly concerned about any internal cannibalization to our existing WWJ PC and WWJ mobile.
Next up, we have Alex Ng from Morgan Stanley. Your line is open, please go ahead.
丁总，Charles，Morgan Stanley。非常恭喜你们很好的业绩。第一个问题想问一下音乐这边，你刚才提到会有一些创新的货币化的计划，可不可以分享一下这方面的一些计划？然后这个内容成本的控制方面，未来一年会有什么计划？然后我们能不能希望明年看到，比如说gross margin毛利率可以转正的一个趋势。还有你也提到会有一个IPO timeline，想问一下你想看到什么的进展，你觉得这个asset就会比较ready。第二个问题想问一下在海外的游戏方面，你们一直都有投入很多的海外的studio，请问一下，比如说明年开始会不会有一个加速的更多游戏在海外会开始发行？谢谢。
首先音乐这个内容的成本应该不会增加得特别厉害，应该确切地说，可能我们还希望能减一点。网易会在自制的内容方面来增强音乐的内容，还包括UGC的内容在云音乐这个平台上。那第二个在流量变现方面，我们正在非常积极地尝试和开拓各种收入的模式，除了以前的广告会员，现在有的直播，那未来我们还会有一些上次我提到的比较社交类型的收入来源。管理层对云音乐的变现是有充分的信心，还有对网易云音乐的内容我们也有充分的信心。我们对中国音乐市场未来的发展是非常看好的。第二个游戏方面，我们投资和收购的海外的游戏工作室，我想最重要的目的是这些工作室是有非常好的过去的研发的基础和经验，对网易来说可以学习。当然我们自己过去将近20年的开发也积累了很多经验，可以跟这些工作室共同来打造优质的作品，开拓海外的市场。所以我们在海外的市场开拓方面，目前是在不停地进行各种尝试的。我们在日本已经取得了不错的成绩，那么希望未来在欧美市场上也能取得优秀的成绩。
谢谢老板。
Thank you, Alex. I'll provide a brief translation of William's comments for the audience. Firstly, on music. In short, yes, we are very actively exploring different opportunities in terms of monetization that will be reflected in the upcoming quarters as we continue to explore strengthening existing monetization channels as well as to apply some innovative brainstorming on new features, for instance social aspect etc., that we mentioned previously. In terms of cost control, NetEase as a whole, not only as NetEase music, we are very prudent and practical in terms of cost control. We think that in order to differentiate our music business from the competition, we are going to further strengthen self-production UGC independent musicians as a differentiated content. As a result, we do not see any material increase in terms of music content acquisition cost.
Overall, we are very confident about the prospect of monetization, which will lead the path to profitability. We do not have any definitive timetable for breaking even or IPO, but I think as long as we progress on track towards the mission, both will come just naturally. To your second question on the overseas game strategy. As you have mentioned, we've been also quite active in exploring overseas opportunities. The various overseas investments that we made in those studios are mostly valuing their R&D expertise, which we think can supplement to our in-house R&D capability. Equally, our NetEase R&D expertise is something that attracts those business partners to collaborate with us.
Today, we have achieved a small milestone in Japanese market. We are hopeful that with more new game launches on the global stage, step by step, we are also going to have a more promising future in terms of the U.S. and European Western market.
Next up, we have Hillman Chan from Citi. Your line is open. Please go ahead.
Hello, William, Charles and Margaret. Thank you very much for taking my question. My first question is to follow up on the FWJ 3D mobile. During the final beta testing for Android, do we have the sense of the percentage of participants coming from those currently playing mobile FWJ? Also could you share more observation from the beta testing as well? Another question is on the MARVEL Super War. Could you share more on the development status and launch timetable, and what other game genres for the Marvel IP are under development and the status, please? Thank you very much.
Okay.
Okay. Thank you, Hillman, for your first question on FWJ 3D. As you know, we've started the beta testing as early as in the summer. So far, the testing results has been very promising, which leads to our confidence in launching this game, in the first half of next month. For your second question on Marvel IP, as we have revealed the overall partnership with Marvel on our May 20th game day , there will be multiple games that's going to be developed by NetEase for Marvel IP. MARVEL Super War is one of them. I think MARVEL Super War is well on track from a development perspective. This game could be expected in the near term. Obviously, for Chinese market, this is after all subject to the license approval. Several of these Marvel games are targeting both the Chinese market as well as international market.
Next up, we have Kenneth Fong from Credit Suisse. Your line is open. Please go ahead.
I have a couple of questions related to the overseas business. First, what is overseas game revenue as a % of our total game revenue? Second, among our game pipeline, which one of you see great potential for the overseas market next year? Third is, how do you see the competitive landscapes for the overseas game development? Especially, I noticed that there's a lot of Chinese game developers also very active in publishing overseas. Thank you.
市场的开拓，我们会用什么产品，这个肯定我们有计划。我们各方面也准备了好久，但我们就不公开去阐述了。海外的市场肯定是我们也比较重视的，毕竟我们积累了那么多年的经验，也取得了成绩，所以我们不会在会议上重点讲什么样的作品，怎么样准备的，这个都不是特别方便，希望多包容。
Kenneth, to translate William's response and also to add a few more color. In terms of the overseas game revenue, consistently above 10% of our overall game revenues, we see great potential in terms of further enhancing both the absolute CNY of my overseas game revenue as well as this percentage ratio. To your second question, in terms of game specific product lineups for the various international markets, apologies for your understanding that we would not be able to elaborate the details here. There is a solid plan where we say that we are confident to increase the overseas game revenue as well as the percentage. It is actually bottom-up. It is supported by a very extensive study of the overseas market as well as our product lineup.
For your third part of the question, in terms of the competitive landscapes of the overseas market, I think that's a good question, because when we are launching our products to the overseas market, we realize that in more developed markets like Japan and U.S., users are actually a lot more sophisticated. The only way to impress, to retain, to attract these users is through product innovation and game quality. That is something that NetEase is proud of our competitiveness, and with that confidence, I think it represents actually a very, very optimistic upside of the overall NetEase games in the market beyond China.
[Foreign language] Thank you.
Up next we have Jialong Shi from Nomura. Your line is open. Please go ahead.
Good morning, management. Thanks for taking my call and congratulations on the solid quarter.
让我先用中文问我的问题。我这边有两个问题，第一个问题就是想问一下我们的《Harry Potter》这款游戏大概什么时候能够正式地上线？然后我们在三季度对于这两款老的游戏《FWJ》和《WWJ2》是有一些什么样的一些活动，还是说资料片，才使得这两款游戏都分别能够创下一个cash revenue的新高？这是第一个问题。然后第二个问题的话是想问一下我们的云音乐的问题。首先也是恭喜我们云音乐又刚刚完成一轮新的融资。然后我们从一些媒体上有听到，好像是国家的监管层现在正在调查海外的音乐版权公司和国内的音乐APP的版权授权行为在进行一个调查。所以就是想听一听管理层对于这样一个调查的一些看法。然后我们比较感兴趣的是想知道说这个调查会给国内的音乐版权市场这个行业能带来一个什么样的影响？然后对于网易云音乐来讲的话，这个调查以及给这个行业可能带来的影响，对于我们网易云音乐来讲是件坏事还是好事？能对我们的这个业务会有什么样的影响？主要是这两个问题。我自己翻译一下。I have two questions.
The first question is about the online gaming business. I was just wondering when company will officially announce the upcoming new mobile game, Harry Potter. I was wondering what company did in Q3 to have helped the two legacy titles, FWJ and WWJ2, to achieve record high growth in Q3 respectively. My second question is about the online music business. We heard from some media that China's regulator is likely launching an investigation into the licensing practice between record labels and the music streaming companies. I was wondering if management can provide some colors on this ongoing investigation and specifically what potential changes this investigation may bring to the music streaming industry, and related to that, what potential impacts these changes may have on NetEase Cloud Music business. Thank you.
第一个就是网易目前的游戏肯定不只这个梦幻西游或者未来的梦幻西游3D。我们整个产品的矩阵是很丰富的，作品的质量也很优质的。所以大家可以不用只把目光停留在已有的一些作品上。同样对《哈利波特》这一类基于著名IP改编的游戏，我们也是抱着巨大的信心在做尝试和创新。第二个就是关于对音乐市场的版权的监管的问题，我们也有听说，但我们也一直认同一个良好竞争的市场，需要一个良好的监管的环境，让每一个企业都有机会在这个市场里面，通过创新和运营来发挥各自的特色，最终是满足推动和繁荣整个中国华语音乐市场的繁荣和发展。这是我的两个观点。
Thank you, Jialong. I'll translate William's response for the audience. Firstly, given that we have a bounty lineup for the game pipeline, William is actually encouraging people try not to focus too much on individual titles, whether it is existing FWJ, WWJ, or the upcoming FWJ3D or Harry Potter. All of these are high quality games that we self-developed, we are very confident about their performance, longevity. We have a lot more than just those couple of names that we quoted. For the past summer, yes, FWJ and WWJ both have delivered a record quarter stimulated mostly by expansion packs in the summer. Harry Potter is also scheduled for launch. We don't have a concrete timetable yet, but it should be planned for next year.
On your second question, Jialong, on the music, we've also learned from the media about potential regulatory investigations and queries into that. Our general attitude is that for any sort of industry growth, a conducive environment from the players and from the regulators are ultimately longer-term beneficial to serious and long-term players. Our mission ultimately is to ensure that the industry as well as the passionate Chinese online music users, benefit from the healthy and diversified growth of the industry. Overall, we think an appropriate and conducive environment is going to be long-term beneficial to all the players in this sector.
谢谢。
Next up, we have Daniel Chang from JPMorgan . Your line is open. Please go ahead.
早上好，管理层，恭喜业绩很强劲。然后我第一个问题是关于PC游戏的。我们最近有看到一些经典的游戏，比如说《魔兽世界》怀旧服，还有《梦幻》的PC版，其实都取了一个新高的成绩。想问一下管理层怎么看PC游戏行业未来几年的展望？然后我们这边看到主要的机会会在哪里呢？我第二个问题是关于一些新的技术趋势的，就想请William能不能谈一下一些趋势，比如说云游戏，包括像5G等的看法，还有就是网易在这方面的布局。I will translate myself. I'm asking on behalf of Alex Yao. So my question is, first one is related to PC games. We noticed some of our top PC games such as World of Warcraft Classic and Fantasy Westward Journey, actually performance is very resilient. So could management talk about the PC game market outlook in next few years, and what are the key growth areas?
Second question is related to some of the new innovative trends. Could management talk about NetEase strategy in these new innovative trends such as 5G and cloud gaming? Thank you.
我想最近你看到这个现象非常好，这还是回到用户对游戏的认知是不会只基于不同的终端，会基于优质的内容。所以只要PC上或者console上有这些优质的内容，用户自然会去用脚投票，会选择PC这个平台。所以我长期认为，这个市场不是说手机游戏在夺取PC游戏的这个空间，而是说大家都是手机移动端和非移动端，非移动端，比如说PC、console，都是非移动端，是谁的内容做得好，用户就会去哪里。PC游戏有不可取代的魅力在这里头。第二个就是你提到的新的一些游戏的平台，比如说5G或者云游戏。我想云游戏其实是对游戏这个平台的一种补充。云游戏有自己的优势，但是会不会成为一种主流？我们还是有一个比较保守的观点。那5G也是，5G只是说速度比4G快了一点，但这个速度是不是游戏的核心体验呢？这个大家都可以去思考，包括你说5G会不会改变视频，是不是改变音乐？其实视频、音乐、游戏都是内容产业，用户选择的核心还是内容，跟速度的关系并没有特别大的影响。所以这方面我们还是要回到自身的基本功上来，把内容的创作和创新做好是最关键的一个事情。
OK, thank you. I will translate William's response and also add on to your first question. Your second question, William commented that's a great question that the industry is noticing these new features. First of all, William thinks that the user recognition of game titles or any sort of content is ultimately attractive to the content less so on the different screens or media. Ultimately it is the best quality content for the different factor of users that dictates who is the winner. Cloud gaming as well as 5G, all these are great features to supplement to this content creation industry. Whether they are going to be a mainstream feature or whether that's going to be disruptive to the overall user experiences, those are all good questions to fund and to be further observed. Overall, we think as long as it's a content industry, whether it's education, whether it's music, whether it's games, ultimately content is the king. The one who has the capability of developing the highest quality content would always be the ultimate winner. For your first question on the PC games, we have recorded a great quarter in terms of PC games of our portfolio, with symbols FWJ, WWJ PC as well as WoW Classic delivering quite strong quarterly results. Overall, we think obviously we can't speak for the entire industry, but as for us, we are fairly confident about the steady performance of our PC games into 2020.
Thank you.
Next up, we have Thomas Chong from Jefferies. Your line is open. Please go ahead.
Thanks management for taking my questions. I have two questions.
The first question is about our cloud music business. Given that we are going to include more features such as live streaming to the music side, how should we think about the impact of short form video to live streaming? My second question is about the OpEx trend. Given the fact that we are innovating a lot of new business as well as we are also expanding to overseas, how should we think about our R&D headcounts going forward? Are we going to expand our headcounts in overseas? Thank you. [Foreign language] 谢 谢 管 理 层 接 受 我 的 提 问 。 我 的 问 题 是 关 于 我 们 的 音 乐 这 个 板 块 的 ， 最 近 也 看 到 了 在 三 四 线 城 市 ， 短 视 频 其 实 对 音 乐 的 影 响 ， 直 播 那 边 也 受 到 一 些 影 响 。 想 看 一 下 管 理 层 怎 么 看 短 视 频 ， 就 是 快 手 、 抖 音 这 方 面 对 我 们 的 影 响 大 概 是 怎 么 样 的 ？ 另 外 一 个 问 题 是 关 于 费 用 方 面 的 ， 我 们 看 到 我 们 不 同 的 板 块 都 在 发 展 中 ， 然 后 也 想 问 一 下 我 们 的 R&D 研 发 的 费 用 方 面 ， 会 不 会 在 未 来 的 话 ， 从 R&D 的 headcount 的 数 在 海 外 会 继 续 的 扩 张 呢 ？ 谢 谢 你 。
我觉得短视频的发展对音乐的发展是个正向的推动作用。你今天去看，没有一个短视频不配音乐的，每个短视频都要有一个BGM，都要有一个背景音乐。一般一个短视频可能有些是在50秒、1分钟不到，那有些可能是直播业态的会稍微长一点。一般来说，它是对一个音乐作品比较好的一个推广作用。但在网易云音乐里面，我们在未来不仅仅是提供一个用户随时随地可以收听音乐的一个服务，而且我们已经在这上面投入很多的精力去推动和发展中国华语音乐的内容创作。在网易云音乐上，我们有8万个中国的独立音乐人通过这个平台来发表自己的作品，而且这些独立音乐人的数量还在不停地增加。而且从我们的数据来看，用户并没有因为短视频或者视频对收听音乐的时长有所影响。我觉得如果你真要我说什么会影响收听音乐，那这个平台没有好音乐了，大家也不来听了。你要有好音乐。但今天这个平台不仅仅是华语音乐，也是世界音乐。我们通过和全世界各个版权代理商合作，为中国的用户提供全世界的音乐。所以理论上来说，人类过去50年、100年的音乐都在云音乐这个平台上都能听得到，都能点播得到。这是我的一个看法：音乐在中国是刚刚开始，大有可为。
Thank you, Thomas. I'll translate William's remarks. Firstly, he thinks that the short video industry in general is actually a positive catalyst to China's online music industry. Because as you can see, all the presentation of short format video as well as live streaming require some sort of a music element, which actually helps to promote music popularity. For NetEase Cloud Music specifically, we now have over 80,000 Chinese independent musicians that's been nurturing on our platform, and this figure is growing. We think short format video is a very conducive way to promote good music. Based on our data and user statistics, we are not seeing short format video as a distraction or a competition for users' screen time and others. We think ultimately user traffic is attracted by good music, Chinese and global alike. Currently on Cloud Music, we now have almost all the good music of the last couple of decades. Those are the core assets that attracts users. Quickly, before we wrap up this call, for your second question on the OpEx trend, our R&D headcount is steadily increasing. In fact, overall, by the end of the third quarter, especially after the summer recruiting season, our headcount has represented a slight increase comparing to last quarter as well as to the last year end. I think this is a strong factual evidence to dismiss many ungrounded market rumors of so-called massive layoffs about NetEase.
Thank you.
Thank you. I would now like to turn back the conference to our management for any additional or closing remarks.
Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly or TPG Relations. Have a great day.
That concludes today's conference. Thank you everyone for your participation.