DouYu International - Q1 2022

Transcript

Operator (participant)

Good morning and good evening, ladies and gentlemen. Thank you and welcome to DouYu International Holdings Limited's first quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. We will be hosting a question and answer session after management's prepared remarks. Please note today's event is being recorded. I would now like to turn the call over to the first speaker today, Miss Lingling Kong, IR Director at DouYu. Please go ahead, ma'am.

Lingling Kong (Investor Relations Director)

Thank you. Hello, everyone. Welcome to our fourth quarter 2022 earnings call. Joining us today are Mr. Shaojie Chen, Chairman and Chief Executive Officer, Mr. Mingming Su, Chief Strategy Officer, and Mr. Hao Cao, Vice President of Finance. You can refer to our fourth quarter 2022 financial results on our IR website at ir.douyu.com. You can also check a replay of this call when it becomes available in a few hours on our IR website. Before we start, please know that this call may contain forward-looking statements made pursuant to 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 are qualified in their entirety by the cautionary statement, risk factors and details of the company's filings with SEC. The company undertakes no duty to revise or update any forward-looking statement for selected events or circumstances as the date of this conference call. I will now speak on behalf of our Chairman and CEO, Mr. Shaojie Chen. During the fourth quarter, we continued the steady development of our overall business while adjusting our business operations and executing on our selective copyright procurement strategy. Mobile MAUs for the quarter were 55.1 million.

Total net revenues were CNY 1.8 billion and quarterly average paying user count reached 6.4 million. Gross margin increased to 13.6%, demonstrating the effectiveness of our selective copyright procurement strategy. In addition, our successful implementation of a series of cost control measures has increased our operating efficiency, driving our adjusted net loss down to CNY 52.5 million. During the quarter, our average MAUs decreased by 6.8% year-over-year to 55.1 million, a change that is within our expectations. We believe that there are two factors at work. First, as we strive to improve operating efficiency by executing on our selective copyright procurement strategy, we have ceased acquiring overpriced content rights for esports tournaments, which has negatively affected our MAU.

However, the level of the decrease was in fact better than our expectation, and MAU has stabilized and stayed within a narrow band. Additionally, our data analysis shows that high quality content from streamers and self-produced tournaments in different game segments successfully attracted new users regardless of the absence of content from selected esports tournaments. Second, the new games that were launched on our platform in 2021 enabled us to continuously increase our MAU, partially offsetting the impact of terminating content rights for selected esports tournaments. Despite the slow pace of the launch of new games last year, we were able to attract and retain new users by offering them high quality gaming content, deepening our collaboration with game developers and refining our customized operations for each game. Turning to our content updates.

In the fourth quarter, we maintained our effective execution, our strategy of building a game-centric, comprehensive content platform. We further refined our content offerings, integrating live streaming, videos, graphics and interactive communities for both esports and non-esports categories, while enhancing collaboration and investment in self-produced content. Furthermore, we extended our collaboration with game developers and distributors to secure our advantage in high quality content and gaming operations by enhancing the customized and refined operations of different game segments. During the quarter, we increased investment in self-produced content and produced close to 160 esports tournaments. We consistently strive to enhance the value of our self-produced tournaments by developing a standardized production and management process and establishing a diversified tournament content system. By hosting LOL Teamfight Tactics, our official collaboration tournament with Tencent, we have discovered many new gaming talents who eventually became professional players.

Among all the major new games launched last year, our self-produced tournament for Naraka: Bladepoint was selected by NetEase as one of its official tournaments. With LOL Wild Rift Master Legends series was also incorporated into Tencent official professional tournament system. Meanwhile, our self-produced tournaments enabled us to support and cultivate our streamers by providing them with elevated levels of exposure and engagement. As we improved our recruitment and training system for streamers, we are able to not only offer our streamers greater career development opportunities on our platform, but also refer our high potential streamers to professional e-sports teams. In addition to our advanced system for in-house tournaments, we engaged our content variety through producing customized entertainment tournaments and shows based on the features of individual game segments and streamers playing style during holidays, major events, and new game version launches.

For example, we self-produced an all-star tournament for LOL, inviting top streamers and all-comers recruitment tournaments in different game segments, which encouraged streamers and users to participate. Our differentiated offerings of professional tournaments and entertaining game content fulfills the diversified needs of both hardcore and mid-core gamers. Importantly, we also maintained and grew our production of engaging and novel video content. For example, we produced an innovative variety show called All About Games that evaluates new games during their promotional period. The show's content includes fresh coverage of new games, discussion of trending topics, game reviews, and other exclusive features. In addition, we also invited famous streamers and other gaming industry-related guests to participate in the show. Production of this type of content enhanced the community experience as we developed high-quality content to enrich our game segments and boost user engagement.

Moreover, we found that game developers were willing to cover some of the production costs of these shows as a new channel of promotion. As a result, we not only built a brand new collaboration model with game developers, but also optimized ROI for those game segments. Turning to our cooperation with game developers and distributors. We continued to deepen our collaboration on monetization front with game developers and distributors. For instance, we launched a variety of promotional activities with both Tencent and NetEase to bolster user activity and encourage users to make in-game purchase by offering task-based rewards of in-game items. Moreover, we are consistently devising and exploring new methods of collaboration with game developers. Using Dota 2 as an example, we cooperated with game developers to share partial gaming data. Game developers employ this data to develop a number of practical functions.

These functions include real-time display of streamers' performance, gaming data analysis, and multi-screen broadcasting to allow two streamers' performance in the same game to be viewed simultaneously. Enhancing the display function for analyzing streamers' game strategies allowed us to provide an optimized user experience. Looking ahead, we will further improve our operating efficiency by launching attractive distribution algorithms, which directs appropriate levels of exposure to individual streamers based on historical data. As a game-centric platform, we deliver value to our users through consistent production of high-quality content and our exceptional operational capabilities. Building on our advantage in high-quality content and refined operations, we increase ROI by reducing production costs and operating expenses through self-produced content, utilization of partner resources, joint operations, and more. Going forward, we will continue to evaluate and execute on potential optimization while improving our platform's overall operating efficiency by enhancing each game's ROI.

Now, turning to monetization. Our total number of paying users in the fourth quarter was 6.4 million, with an average quarterly ARPU of CNY 270. The year-over-year decrease in both the number of paying users and quarterly ARPU were a result of our in advance operational adjustment and feature updates in anticipation of a tightening regulatory environment. As we continue to develop the paying behavior of our core users and enhance engagement with more casual and new core gamers through sustainable operating strategies and promotional campaigns that are customized based on the preference of different groups of paying users, we are able to sustain a stable paying user base and a healthy range for our ARPU. Meanwhile, we persisted in our exploration and development of new revenue streams.

For example, following our in-depth analysis of the engagement between streamers and users, we upgraded our membership system called Diamond Fans, offering members with more customized privileges and additional functionalities to interact with streamers. Utilizing our self-produced content with such promotional campaigns, we are able to improve the subscription rate of our membership services in certain game segments. Going forward, we will continue to cultivate and expand our membership program as we leverage game's unique features and our individual streamers' distinctive characteristics. In terms of products and technology, we are continuously developing our game-centric community on the product front. To meet our users' growing demand for game tips, guides, and walkthroughs, we recently launched an innovative function called Streamers QA and Demonstration.

For this function, we carried out big data analysis to gather hot topics from our bullet chat and discussion forum, Yuba, and package the topic as a series of demonstration tasks for streamers. Streamers then take the task and record themselves answering the questions and demonstrating the game tactics as they stream. Finally, this recorded content can be edited into show videos that are available for users to view on demand. By leveraging natural language processing technology, we are able to understand and extract relevant content from bullet chats. This then allow us to push related show videos to users who are asking similar questions. This streamer-produced show videos further utilize the streamer-generated content and enhance the engagement between streamers and users. To summarize, we have executed a robust and sustainable operating strategy while maintaining our leading position in the traditional live streaming industry.

Leveraging our outstanding content management team, comprehensive live streaming resources, and our extensive game operation experience, we are able to consistently upgrade our content offerings and optimize our operational innovations. At the same time, we have deepened our collaboration with game developers in multiple dimensions to provide users with content that seamlessly integrates live streaming, video, graphics, and interactive communities. In addition, we continued to augment our user engagement and consumption capabilities while exploring diversified monetization models and improving our financial performance. With that, I will now turn the call over to our Vice President of Finance, Mr. Hao Cao, to go through the details of our financial performance in the quarter.

Hao Cao (VP of Finance)

Thank you, Lingling. Hello, everyone. During the first quarter, we have been focusing on improving our operating efficiency through ROI enhancement and cost controls, and achieved encouraging results. The company's gross margin improved and adjusted net loss narrowed significantly on a year-over-year basis. Total net revenues in the first quarter of 2022 decreased by 16.6% year-over-year to CNY 1.8 billion. Live streaming revenues were CNY 1.73 billion, a decrease of 13.6% from CNY 2 billion in the same period of 2021. The decrease was due to the implementation of prudent operating strategies, such as adjustments to certain interactive features and the related operational efforts. Considering the tightening regulatory environment, we have been making operational adjustments and feature updates in advance to comply with regulatory requirements for the long-term development of our platform.

As a result of these adjustments, virtual gifting interactions were partially impaired, which caused decreases in both the number of paying users with lower ARPU and quarterly ARPU. Our quarterly ARPU was CNY 270, a 5.5% decrease from CNY 286 in the same period last year. Based on analysis, the size of our core paying users largely remained stable, and we continue to stabilize the paying habit of our core users and cultivate the paying willingness of mid to long-tail paying users. Advertising and other revenues were CNY 68.4 million, compared with CNY 154.1 million in the same period of 2021.

The year-over-year decrease was primarily attributable to the continued exploration of new commercialization models by using a portion of advertising traffic that could have been directly monetized, as well as the soft demand for advertising caused by macro challenges and regulations aimed at gaming industry. Cost of revenues in the first quarter of 2022 was CNY 1.55 billion, a decrease of 18% compared with CNY 1.89 billion in the same period of 2021. Revenue share fees and the content costs decreased 19.2% to CNY 1.34 billion from CNY 1.66 billion in the same period of 2021. The decrease was mainly due to the decrease in revenue share fees, which is in line with the decreased live streaming revenues and the significant decrease in the cost of broadcasting rights as we ceased acquiring overpriced content rights for esports tournaments and our selective copyright procurement strategy.

Other content costs also show a year-over-year decline as we continue to optimize in-house content production efficiency. Bandwidth costs in the first quarter of 2022 decreased by 11.8% to CNY 151.9 million from CNY 172.1 million in the same period of 2021. The decrease was mainly due to the year-over-year reduction in peak bandwidth usage in absence of purchased esports tournament copyright, given our bandwidth costs are generally billed based on peak bandwidth usage. Meanwhile, the lower per unit bandwidth costs, which benefited from our improved procurement efficiency with major suppliers, also contributed to the decrease in bandwidth costs. Gross profit in the first quarter of 2022 was CNY 243.8 million, compared with CNY 260.2 million in the same period of 2021.

Gross margin in the first quarter of 2022 improved to 13.6% from 12.1% in the same period of 2021. This margin improvement was primarily due to the significant decrease in the cost of broadcasting rights as a percentage of revenues as we ceased acquiring overpriced content rights for esports tournaments. Sales and marketing expenses in the first quarter of 2022 were CNY 186.4 million, a decrease of 11.2% from CNY 209.9 million in the same period of 2021, which was mainly attributable to the decreased personnel-related expenses and branding expenses. Research and development expenses in the first quarter of 2022 were CNY 116.3 million, representing an increase of 4.5% from CNY 111.3 million in the same period of 2021.

The increase was primarily attributable to additional investment in technical personnel as the company continues to invest in product upgrades to support its game-centric content strategy. General and administrative expenses in the first quarter of 2022 were CNY 90.1 million, increasing by 2.3% from CNY 88.1 million in the same period of 2021. Adjusted operating loss in the first quarter of 2022, which adds back share-based compensation expenses, was CNY 68 million, compared with CNY 91.8 million in the same period of 2021. Net loss in the first quarter of 2022 was CNY 86.9 million, compared with CNY 101.8 million in the same period of 2021. Adjusted net loss in the first quarter of 2022, which excludes share-based compensation expenses, share of loss in equity method investments and impairment loss of investments, was CNY 52.5 million, compared with CNY 70.7 million in the same period of 2021.

For the first quarter of 2022, basic and diluted net loss per ADS were CNY 0.27 and CNY 0.27 respectively.

While adjusted basic and diluted net loss per ADS were CNY 0.16 and CNY 0.16 respectively. As of March 31, 2022, the company had cash and cash equivalents, restricted cash, short-term and long-term bank deposits of CNY 6,315 million compared with CNY 6,643 million as of December 31, 2021. We would also like to provide an update on execution of our share repurchase program announced on August 30, 2021, in which the company may repurchase up to $100 million of its shares until August 2022. As of March 31, 2022, the company had repurchased an aggregate of $33.9 million worth of its ADS under this program.

Going forward, we will continue to increase operating efficiency as our top priority in order to reach non-GAAP break-even by narrowing losses through cost optimization and improvement of monetization efficiency. Along with the continued improvement of our overall ROIs, we will continue enhancing our monetization capabilities to explore sustainable development of our platform. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator (participant)

Thank you. We will now conduct a question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speaker phone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Lei Zhang with Bank of America Merrill Lynch. Please go ahead.

Lei Zhang (Equity Research Analyst)

Hi,

Mingming Su (Chief Strategy Officer)

Let me answer your question. There is ongoing development of regulatory guidelines for the live streaming industry. Encouraging industry players to promptly implement measures and refine operations to comply with regulatory requirements. As of today, there is no specific tipping limit, mentioned in the recently announced regulatory notice. Despite that, we have been making operational adjustments and feature updates. This year we are adopting a more prudent operational standard and a stricter internal review policy to improve our platform's community building and to promote the long-term development of our platform. In addition, in late April and early May, we implemented a series of measures on our platform to promote rational consumption of our users. These measures include setting up a tipping limit for single transaction on virtual gifts and pop-ups requesting a second confirmation for each transaction.

We have projected the financial impact of such adjustments in our 2022 forecast. The policies regarding the live streaming industry announced in March were a restatement of previous policies. The policies are related to unlicensed games, gaming content, rules that streamers need to follow, and protection of minors. We have been adjusting our operations accordingly on this front. Take unlicensed games, for example. We have been gradually redirecting traffic and streamers to licensed games of similar genres since the third quarter of 2021 to ensure proper traffic allocation between different game segments and to maintain streamer income levels and their willingness to stream. The impact of this adjustment was reflected in our past quarters' performance.

Regarding appropriate creator content and minor protection, we have a content review system, streamer management system, and a teenager mode that are continuously evolving as the industry develops. We are carefully monitoring any regulatory changes and maintain close communications with regulatory departments. We will be able to react properly in the event of any changes. Thank you.

Lei Zhang (Equity Research Analyst)

Yeah, thank you. Very helpful.

Operator (participant)

Thank you. Our next question today comes from Thomas Chong at Jefferies. Please go ahead.

Thomas Chong (Regional Head of Internet and Media)

晚上好，谢谢管理层接受我的提问。我的问题是关于我们的版权采购的，咱们就是我们在做了这个战略的调整之后，我们会不会对我们平台的运营、我们的竞争优势有所影响呢？我的第二个问题也是关于版权那边的，就是如果对我们的平台的主播的纪元那边会影响到那个稳定性吗？非常感谢。

Shaojie Chen (Chairman and CEO)

这个问题由我这边来回答。首先，我们对于版权采购策略调整的一个原因，也是因为目前基于游戏直播整个行业的变化，做出一个相应的调整。我们现在面对的游戏直播目前的情况，是已经从游戏直播这个内容里面，要过渡到整个游戏内容的整体竞争中去。在用户观看选择越来越多的情况下，我们目前认为这种差异化的内容竞争和一些精细化的运营是平台稳定的很关键的一个点。在内容方面，我们原先是以直播为主要形式，现在在直播上面我们也扩展了视频和社区的一些新的形式，来满足用户多元化的需求。我们虽然目前放弃了部分高价版权赛事的采购，但是我们仍然在和赛事方采购相关的、性价比比较高的，更注重性价比的这方面的考虑。对于已经购买的版权，比如说赛事，我们也围绕着这些赛事进行了关于直播还有视频内容和图文信息的社区讨论等相应的多种联动，让整体提升这个赛事的整体活跃度，也吸引来了部分的新用户。我们以王者荣耀的KPL赛事为例，我们也围绕KPL进行了多款自制节目的打造，也在和厂商探索更多、更积极的这种商业化的合作，来改善赛事版权的投资回报率。同时，我们也加大了对于自制内容的投入。针对传统的电竞游戏，我们也在积极打造这种职业类的赛事和一些业余性的玩家赛事的内容，保证我们平台的内容能持续有内容这样的供给，也促进了游戏用户的一些回流。针对一些新游戏，我们还是持续在招募和培养大量的新主播，来保证内容的供给，同样也在补充和丰富其他这种PGC和UGC的相关内容，使得直播和视频、社区内容进行联动，通过多元化的内容来吸引更多的用户。另外一个就是我们在运营侧面也是强调与开发商和发行商进行深入合作，也就是我们合作的不仅仅在内容打造方面，还会涉及到一些游戏发行商确定的游戏推广策略，帮助游戏厂商进行游戏的预约，经常打造一些新的模式，比如说像游戏道具的售卖，还有一些数据互通，来改善用户的观看体验。比如说我们最近在做的拳头的新游戏英雄联盟电竞经理，与这个游戏发行商一起策划了一些新游戏的预约活动，在这款游戏还没有上线前，就已经取得了很高的预约。

Lingling Kong (Investor Relations Director)

Okay, thank you. I will first.

Shaojie Chen (Chairman and CEO)

。

Lingling Kong (Investor Relations Director)

I will first translate a comment question. Sorry, can you hear me?

Operator (participant)

Yes.

Lingling Kong (Investor Relations Director)

Great. I will first translate Thomas Chong's question. Thomas Chong's question is regarding the changes in our copyright procurement strategy. What will happen after the change of procurement strategy in the absence of a large-scale esports tournament, how the company will adjust its operations to ensure the advantages in content as well as in operations. The second question is, will the shift in the copyright procurement strategy have an impact on the sustainability of our platform streamers' resources. I will first address the first question from Mr. Chen. First, we adjusted our strategy to selectively purchase copyrights, not only because some of the content is overpriced, but also as an operational adjustment in reaction to the changes in the game live streaming industry.

Our industry has already transitioned from competition in game live streaming to gaming content, while users face more and more varying options. We believe differentiated content and refined operations are the key to our platform's healthy and sustainable growth. On the content front, we extended our offerings from live streaming to videos and communities integrating various content to meet our users' diverse needs. Although we decide not to obtain selected overpriced content rights, we continue to purchase cost-effective content rights for certain tournaments. For the purchased content, we are integrating official tournaments with our live streaming videos, graphics, operating activities, and community discussion to increase user engagement and attract users. For example, we have launched multiple self-produced shows for the purchased KPL tournament, and we are actively exploring more collaborations with game developers to enhance the ROI for this content right. Meanwhile, we increased our investment in self-produced content.

For traditional esports games, we have been hosting tournaments for professionals and amateurs and are able to ensure a consistent supply of high-quality content, while maintaining the stability of our platform traffic and increasing users' retention rate. For new games, on one hand, we recruit and cultivate large quantities of new streamers to ensure content supply. On the other hand, we enrich our content offerings by producing more diverse PGC and UGC content. Leveraging our integration of live streaming video content and community interactions, we are able to attract more users with our diverse content offerings. On the operation front, we are deepening our collaboration with game developers and distributors beyond content production.

Our collaboration includes assisting game distributors to find appropriate marketing strategies, discovering professional game players for both game developers and distributors, developing new sales models for in-game items, leveraging data sharing between games and our platform to improve our user live streaming experience, and more. For example, for the upcoming game LoL Esports Manager developed by Riot Games, we actually partner with game developers to promote the game pre-registration and lead to a high number of pre-registrations before the game is officially released. Thank you. That's it for question.

Hao Cao (VP of Finance)

As to second question about the stabilization of the streamer resources. We have further stabilized and enhanced our streamer resources by signing long-term and exclusive collaboration agreements with our premium streamers, followed by support from game developers and distributors. These agreements bind top streamers to our platform and prevent them from switching between different platforms, helping us to build and maintain a competitive edge. Second, the MAUs impacted by our copyright strategy adjustment was generated by users who mainly view official tournaments other than streamers' live streaming content. Therefore, traffic generated by streamers was not significantly impacted by our selective copyright procurement strategy. I'd like to emphasize that our relationship with streamers is not limited to cooperation agreements. We also deepened our collaboration with streamers and enhanced operations in the following ways.

First of all, in terms of our overall operating strategies for streamers, we continued to offer high-quality content and opportunities for users to interact with streamers while maintaining or improving both the level of engagement and streamers' willingness to stream. For example, we collaborated with Tencent Video to hold the League of Legends Gala. We invited top-tier streamers to watch the gala and interact with users in our self-produced shows, thus creating a second layer of promotion on the platform. As a result, the level of engagement in the LOL game segment was boosted significantly, as evidenced by the increases in the viewing hours of top streamers' live streaming sessions and interactions on related topics in our community channel. Meanwhile, we further explored streamer commercialization opportunities.

For example, we recently upgraded our membership system, Diamond Fans, offering users with more customized privileges and additional functionalities to interact with streamers. As a result, interactions between streamers and the users increased, and streamers gained more diverse source of income, further deepening their bond to the platform. Second, we leverage big data analysis to refine and enhance our operations. For example, we motivated mid-tier and long-tail streamers to remain active by directing appropriate traffic to them, and increased their involvement and exposure on our platform by engaging them in our self-produced tournaments. Therefore, our mid-tier and long-tail streamers are able to earn a competitive income. We believe those streamers are highly sticky to our platform and expect to attract more talented and high-potential streamers to live stream our platform.

All in all, our platform streamers are the foundation of our high quality content. We have a comprehensive streamer resources management system, which includes recruitment, training, management, and collaborations. Our system increases streamers' willingness to stream and ensures that they receive a reasonable income. Meanwhile, as we have continued to refine our operations, we have deepened our relationships with our streamers. Thank you.

Operator (participant)

Our next question today comes from Yiwen Zhang with China Renaissance. Please go ahead.

Yiwen Zhang (Lead Analyst on Global Internet)

Thank you very much for taking my question. I have two questions. In the prepared remarks, you mentioned that 2021 newly released titles have successfully attracted and retained new users. Can you elaborate more on the operational results? I want to check the game license approval resumption, what's the impact on our operations? You mentioned that we are exploring a more diversified monetization model. Can you discuss more about the direction we are exploring? What's the progress and our expectation for the future? Thank you.

Mingming Su (Chief Strategy Officer)

Let me answer your two questions. For your first question about new games. It's well known that new games were released at a slow pace last year, even with fewer blockbuster games such as Honor of Kings and Peacekeeper Elite, leading to a limited new user growth on our platform. Against this backdrop, we created a rich content system that integrates live streaming, video content and graphics, which underpins our diversified game segment operations. We have also achieved promising results by implementing sophisticated operations strategy and successfully building and developing new game segments. Let me share some of the achievements of the new games launched in 2021.

For Naraka: Bladepoint, launched in July, our user engagement remained robust as a result of our efforts in recruiting and training new streamers and producing related tournaments and shows. Total viewing time for Naraka: Bladepoint was ranked within the top 10 games on our platform for three consecutive quarters, and its traffic ranking also steadily moved up on our platform. For LOL Mobile launched in November, the upgraded membership system, Diamond Fans, targeting our core user base, was well received and contributed to a healthy quarter-over-quarter revenue increase in this game segment. Looking into 2022, we will focus on bettering operating efficiency for each game segment as part of our KPI and evaluate the ROI on a real-time basis, especially for those new game segments to ensure the effective ROI improvement.

At the same time, we were very pleased to see that approvals for new games resumed. We consider this to be a signal that it's not the quantity of games released that is important, it is the quality. This also shows that the gaming industry is trending in the direction of favoring diversity and quality. We believe that this is beneficial for the gaming industry in the long run, and of course for us as well. As a game-centric integrated content platform, high quality games and their users are the most important resources for our content generation and user growth. Based on ongoing trends in the gaming industry, we upgraded our strategy to build a game-centric content platform and refined our operations. We also expanded our coverage of game genres to serve more varied user cohorts.

At the same time, by leveraging our experience of new games operations, we expect to generate more traffic for our platform from more upcoming new game releases. For your second question about commercialization, we are always exploring new commercialization models. Let's take a look at some examples. In terms of advertising models, our previously mentioned smart distribution system is our innovation on traditional direct response advertising and display advertising. Our smart distribution system platform enables game developers to release promotional tasks while connecting streamers to choose their preferred method for promoting games. Our primary aim is to improve the effectiveness of advertising by increasing the number of downloads and activations through this system. Due to the delay in new game approvals, this project is proceeding relatively slowly.

However, we expect that our smart distribution system will augment our advertising efforts once the release of licenses for new games resumes. Turning to virtual gifting. The traditional tipping model generates revenue from interactions between streamers and users. As part of our development of new commercialization channels, we are currently optimizing our membership system to increase tipping revenue. For this purpose, we have enhanced our membership system and encouraged our users to subscribe to become streamers' Diamond Fans. Under this new system, users can receive more value-added service and gain more opportunities to interact with streamers under diverse gaming scenarios. Streamers will provide exclusive in-game device service and rewards for Diamond Fans users.

In LoL, Honor of Kings, CrossFire, Peacekeeper Elite and other game segments, our Diamond Fans membership service has already achieved promising results. By the end of March, the number of membership subscriptions in these game segments increased by more than 50% from the end of December last year. The revenue we generated from the new membership services also increased significantly quarter-over-quarter. Thank you.

Operator (participant)

Thank you. Our next question today comes from Alex Poon in Morgan Stanley. Please go ahead.

Alex Poon (Equity Research Analyst)

My question is related to content purchasing content strategy change. Can management explain the change, the impact on user scale and their behavior, their engagement so far, and then what should we expect for future? Thank you.

Mingming Su (Chief Strategy Officer)

Uh,

Lingling Kong (Investor Relations Director)

Thank you, Alex. As we mentioned previously, we executed our selective corporate procurement strategy and ceased acquiring overpriced content rights for certain esports tournaments. We anticipate the decrease in MAU under this strategy and devised a series of measures in advance, such as increased investment in self-produced content in order to stabilize our traffic. The results were positive and reflected the effectiveness of our operations. MAU were in fact better than our projections. Also, we kept tracking data and analyzed the impact of our strategy of ceasing acquisition of those overpriced content rights.

Our data show that most of the traffic we lost are those who primarily viewed tournaments on our platform. On the other hand, most of our retained traffic was contributed by users who watched our live streaming content in a long-term, continuous, and stable fashion. This large quantity of high-quality users are characterized by their high retention rate, longer viewing hours, and stickiness to high-quality live streaming content. Having a steady stream of resources has allowed us to stabilize user viewing time and interactions on our platform on a quarter-over-quarter basis. Using our LOL segment as an example, despite the absence of LPL copyright, MAU generated by streamer-generated content and its total viewing hours still increased on a quarter-over-quarter basis.

As we emphasized earlier, terminating our acquisition of all priced copyrights does not imply that we will decrease our investment in content. We actually self-produced close to 160 tournaments during the quarter. For those game segments where we did not purchase copyright of official tournaments, we continue to deliver high quality self-produced and streamer content. Thank you.

Operator (participant)

Thank you. Our next question today comes from Ritchie Sun at HSBC. Please go ahead.

Ritchie Sun (Director of Internet Research)

I'll translate it myself. Can management talk about the cost declined across the lines like revenue sharing, content costs, sales and marketing, these type of lines? Can management explain what will attribute to those declines? How much of the decline comes from license content savings? How should we assess the full year trend in terms of these costs? Thank you.

Hao Cao (VP of Finance)

The decrease in cost of revenues is mainly attributable to a 19.2% year-over-year decrease in revenue share fees and content costs. Our revenue share fees decreased in line with the decrease in live streaming revenues. Our overall revenue share ratio remained stable. The decrease in content costs mainly resulted from lower copyright fees, optimization of streamer payroll, and a reduction in self-produced content costs. The reduction in copyright costs was mainly the result of us ceasing acquisition of selected large-scale tournament content rights, such as LPL. In terms of streamer payroll, we have optimized our streamer resources in certain game segments, leading to a significant year-over-year decrease in the first quarter. On self-produced content front, we have utilized a variety of methods to reduce our costs, such as utilization of partners' resources and joint co-operations.

As a result, we were able to launch more self-produced tournaments while lowering production costs on a year-over-year basis. Looking ahead, we will prudently evaluate our procurement decisions for large-scale tournaments, optimize our streamer payroll structure, and increase our investment in self-produced tournaments and PGC content, for which we will control the related production costs. We expect a degree of decrease in our content costs this year. Overall, we expect our gross margin will improve at a modest pace for the year 2022. Thank you.

Operator (participant)

Thank you. That's all the time we have for questions. I will now turn the call back over to management for closing remarks.

Lingling Kong (Investor Relations Director)

Thank you for joining our call today. We look forward to speaking with everyone next quarter.

Operator (participant)

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You