Tencent Music Entertainment Group - Q1 2024
May 13, 2024
Transcript
Millicent Tu (Head of Investor Relations)
Good evening, good morning, and welcome to Tencent Music Entertainment Group's Q1 2024 earnings conference call. I'm Millicent Tu, Head of IR. We announced our quarterly financial results today before the US market opened, and earnings release is now available on our IR website and via Newswire Services. Today, you'll hear from Mr. Cussion Pang, our Executive Chairman, and Mr. Ross Liang, our CEO, who will share an overview of our company strategies and business updates. Then Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I refer you to our safe harbor statement in our earnings release, which applies to this call, as we may forward-looking statements.
Please note that the company will discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under IFRS in the company's earnings release and filings with the SEC. At this time, all participants are muted. After management's remarks, there will be a Q&A. Please be advised that today's call is being recorded. With that, I'm pleased to turn the call over to Cussion, Executive Chairman of TME. Cussion?
Cussion Kar Shun Pang (Executive Chairman)
Thank you, Millicent. Hello, everyone, and thank you for joining our call today. 2024 is off to a great start. Strong execution of our dual engine, content and platform strategy is yielding impressive results and pushing vitality industry-wide. In the Q1, the number of music-paying users increased to 113.5 million, propelling 43% year-over-year growth in online music revenues. Our high-quality growth strategy also drove a robust net profit margin expansion. Subscriber growth in this quarter significantly exceeded our expectations, reaching a quarterly historic high of 6.8 million net adds. What's more, we maintained the ARPU at a healthy level. Both achievements demonstrate our keen understanding of users' needs and our knack for anticipating and meeting their demands operationally.
As you have seen in our earnings release, supported by our strong fundamentals, we are very pleased to announce an annual cash dividend policy and $210 million in cash dividends for the year of 2023. On top of our ongoing buyback program, this reflects our confidence in future growth and commitment to sharing our success with shareholders. Next, I would like to share an overview of this quarter's content development efforts. Through a balanced combination of copyright music and original content, we enable users to discover the latest and trendiest content and enjoy a superior experience on our platform. Let me go over a few highlights. First, we renewed and reinforced the partnership with record labels to broaden our music library's comprehensiveness and popularity.
Our innovative value-added privileges, features, and promotion services extend far beyond mere licensing, further unlocking the value of music content industry-wide. We renewed our cooperation with Time FengJun Entertainment, Shidai Fengjun, featuring 30-day headstart benefits on new songs and adding Dolby Atmos upgrades for popular groups like TFBOYS and Teens in Times, Shi Dai Shao Nian Tuan. We also expanded our agreement with HIM International Music, Huayan Guoji, incorporating an industry-first component authorizing TME to use licensed AI feature to promote HIM's iconic C-pop content. This will ensure the authentic and responsible use of AI, showcasing TME's commitment to protecting artists' rights and interests in the AIGC era. Artists benefit from TME's tech-powered promotions and copyright protection, while users enjoy the latest in interactive features, which is a win-win. Yoga Lin's, Lin Youjia, new album, Love Lord, is one recent success.
For its premiere on our platform, we connected our AI Sing-Along feature and TME Live offline concerts, spurring fan interaction within new scenarios. We enriched our K-pop content and related offerings with various artist fan activities, digital albums, and artist merchandise for new generation groups like ILLIT, BABYMONSTER, and RIIZE. In the Q1, K-pop user engagement and streams both grew year-over-year. Next, we expanded our original content, a key differentiator to attract users and enhance engagement. Based on our keen grasp of trends, we delivered an array of hits catering to users' ever-changing taste this quarter. We produced the original soundtracks for hit TV dramas, The Legend of Shen Li, Yu Feng Xing, and In Blossom, Hua Jian Ling, including 17 songs and 38 scores, featuring top tracks by TME strategic partner artists such as Jess Lee, Li Jiawei, and Wang Jingwen.
These catchy OSTs create a massive social media buzz that boosted streams and viewerships. Their outstanding performance showcases our ability to spot and set content trends while maximizing the value of content. Our OST for The Legend of Shen Li, produced by Tencent Video, also highlighted the power of collaboration within the Tencent ecosystem. It smashed the records with over 150 million streams within 30 days of release, making it the number one OST debut so far this year. We also partnered with strategic artists and indie musicians on music production and promotion to build our platform's quality music offering. Our self-produced song, River Flow, Lu He, by Tia Ray, Yuan Yawei, and What I Anticipate Is Not Snow, Wo Qi Dai De Bu Shi Xue, by Zhang Miaoge, became the top-rated hits on social media this quarter. Moving on to our commitment to social responsibility.
We cooperated with Tencent Charity for a third consecutive year on our theme program to drive autism awareness. If music has a shape, this year, Fiona Sit, Xue Kai Qi, performed the project's theme song, Do You Understand What's Left of Me? Sheng Xia De, Ni Ting Dong Wo Ma? More than 60 other renowned artists and groups, including Jay Chou, Zhou Jielun, Joker Xue, Xue,Zhiqian, and NewJeans, also shared songs in support of children with autism. We then host an arts exhibition featuring artwork by children with autism inspired by these musical works, leveraging multimedia to amplify our caring message and boost music's social value. In conclusion, by expanding content and introducing more tailored platform offers that resonate deeply with users, we continue strengthening our vibrancy to drive industry development.
We are confident that our powerful content and platform dual engines and ever-deepening understanding of content will propel our sustainable growth in 2024 and beyond. Now, I would like to turn the call over to Ross for more color on our platform development. Ross, please go ahead.
Ross Liang (CEO)
Thank you, Cussion. Hello, everyone. Strong execution once again resulted in solid online music growth. Record high net subscriber adds, steady ARPU, and high online music MAUs all reflect this robust performance. Our efforts to attract and retain users were the driving force behind it. Utilizing our extensive industry experience and peerless insights into users and content, we are laser focused on anticipating and meeting users' needs with enhanced experiences and trending musical journeys. First, I want to talk about user retention. We have taken a multi-pronged approach to engaging users through constant innovation of trend-setting features. I will walk you through a few examples. Our new AIGC applications make music discovery more fun, engaging, and convenient. In the Q1, we launched a large audio model that increases promotion accuracy, helping users discover more high-quality music content.
Initial results shows that streaming share of promoted songs increased notable following the model's release. We also tested an AI assistant that supports text and voice chatting for more customized search experiences, as well as an AI playlist assistant to curate playlists, a key personal music assets that strengthens users stickiness. Recently, we introduced an interactive rewards program. Users can exchange the points they earn for benefits such as trial subscription, digital albums, and personalized privileges. We are enhancing user experience. The program also opens new avenues for commercialization for the future. Ongoing platform upgrades continue to reinforce our products appear. This quarter, we introduced a light listening mode,[Foreign language], to facilitate a smooth listening experience in low-bandwidth environments. Our enhancements allowing greater interface customization are driving increased user adoption of our platform's players.
Beyond the listening experience, we captivated users with a variety of interactive activities, including same song guess contests, subscriber budgets, and more. These interactive features not only boosted the song streaming volumes, but also boosted more artist follows and additions to favorites. As users' personal music assets on our platform grow, so does their loyalty to TME. Moving now to user acquisition. Our focus here is on discovering and cultivating users with long-term paying potential through refined marketing and operations. During Chinese New Year, riding on the favorable seasonality, we utilized our deep understanding of users across various demographics to roll out a series of effective promotion activities. Our targeted multi-channel promotions with e-commerce, telecom operators, and the long-form video platforms contributed to a stronger than expected subscriber growth in the Q1.
We also came up with all the auto companies to launch holiday-themed playlists and common share promotions. This organically broadened our reach to new users and increased the user activity, contributing positively to the sequential MAU recovery in our online music services. On partnerships, we recently forged the pre-installation partnership with the Xiaomi SU7. We also enhanced our collaboration with rideshare leader, Cao Cao Mobility. Our new self-service, real-time music selection filters, offers rideshare passengers an easy to navigate music consumption, further extending our reach. Our trendsetting annual QQ Music Dianfeng Awards, QQ Music Dianfeng Shengdian, for the first time, included online merge offline offerings. Participation in interactive online filters rewarded fans with tickets to artist meet and greets, artist merchandise, and more. Thanks to a line-up of popular artists and inspired performance, this event reinforced our appeal among our core young user base.
In short, our rich content and unparalleled product offerings continue to fuel users' acquisition and engagement. With users' needs at the heart of everything we do, we remain committed to creating a music platform that users cherish. With that, I will turn the call over to Shirley, our CFO, for a deep dive into our financials.
Shirley Hu (CFO)
Thank you, Ross, and greetings to everyone. I will now turn to our financial results. Our success in effective monetization for music services and operational efficiency management continued to lead to strong financial results in the Q1 of 2024. Our net profit increased by 28% year over year to RMB 1.5 billion, and the non-IFRS net profit rose by 24% to RMB 1.8 billion. Our total revenues were RMB 6.8 billion, down by 3% year over year. Our online music services achieved significant revenue growth, which largely offset the decline in revenue from social entertainment and other services. In the Q1 of 2024, our online music revenues increased by 43% to RMB 5 billion on a year-over-year basis.
This surge was driven by the strong expansion of our music subscription and growth in advertising business, supplemented by an increase in revenues from offline performances. Music subscription revenues in the Q1 reached RMB 3.6 billion, marking a 39% increase year-over-year, and a 6% rise sequentially. Our refined operation and effective pricing strategy enabled us to achieve higher than expected growth in music subscribers, while maintaining a healthy monthly ARPU. Monthly ARPU was 10.6, up from 9.2 in the same period last year. Taking the difference in number of days into consideration, our monthly ARPU would have remained relatively stable sequentially. The number of online music paying users were 113.5 million, representing a 20% increase year-over-year, and a record-breaking quarterly net adds of 6.8 million users.
Our enriched content offerings and enhanced member privileges, such as Dolby Atmos upgrades, have made our products more attractive and improved user stickiness. The advertising revenue also had a strong year-over-year growth, primarily due to the growth in ad-supported advertising. We upgraded our incentive ad experience and provide more attractive interactive features to our users, which helped the improvement in entrance rate. We continue to innovate and diversify our product suite and advertising formats. Social entertainment services and other revenues were RMB 1.8 billion, down by 15% year-over-year. This was mainly due to adjustments in certain live streaming interactive functions and more stringent compliance procedures as we implemented several service enhancements and risk control measures since the Q2 of 2023. As these adjustments and procedures are largely completed, we expect our social entertainment services to remain relatively stable.
Our gross margin for Q1 reached 40.9%, marking an increase of 7.8% points year-over-year due to a few factors. First, growth of revenues in online music subscription and advertising has generated the benefits of economies of scale. Over the years, we have made significant efforts and investments in the music industry and have built win-win relationships with labels and artists, and now these efforts and investments started bearing fruits. Additionally, the ramping up of our own content continued to impact our margin favorably. Lastly, we have optimized revenue sharing ratio for live streaming and also improved the monetization in WeSing membership and advertising, which also benefit our gross margin. All above factors have collectively enabled us to move to a healthy margin model. Moving on to operating expenses.
In the Q1 of 2024, they amounted to RMB 1.1 billion, representing 16.8% of our total revenues, compared with 70.5% in the same period to last year. Selling and marketing expenses were RMB 187 million, down by 2% year over year. We will continue to spend in areas such as online music with long-term growth perspective, as well as content promotions. General and administrative expenses were RMB 949 million, down by 7% year over year, primarily driven by lower employee-related expenses. Our effective tax rate for Q1 was 19.9%, compared to 12.2% in the same period of 2023.
This increase was primarily attributable to the accrual of withholding tax of RMB 107 million related to earnings to be remitted by our PRC subsidiaries to offshore entities. Additionally, changes in proportional tax rates for certain entities also impacted our effective tax rate. For Q1 2024, our net profit and net profit attributable to equity holders of the company were RMB 1.5 billion and RMB 1.4 billion, respectively. Non-IFRS net profit and non-IFRS net profit attributable to equity holders of the company were RMB 1.8 billion and RMB 1.7 billion, respectively. Our diluted earnings per ADS reached a record high this quarter at RMB 0.91, up 25% year-over-year. Non-IFRS diluted earnings per ADS increased to RMB 1.1, up 23% year-over-year.
These results underscored our robust financial performance, enhanced operating efficiency, and the beneficial impact of our share repurchase program. As of March 31, 2024, our combined balances of cash, cash equivalents, and term deposits were RMB 34.2 billion, as compared with RMB 32.2 billion as of December 31, 2023. This combined balance was also affected by changes in the exchange rate of RMB to USD at different balance sheet dates. On the share repurchase program announced in March 2023, as of March 31, 2024, we had repurchased 32.2 million ADS from the open market for total cash consideration of $235.5 million, of which approximately $61 million were repurchased in the Q1.
Looking forward, we will continue to invest in high-quality contents and original content productions, as well as new products and technologies such as AIGC. We remain confident in the prospects of music industry and our music subscription and advertising business. This concludes our prepared remarks. We are now open to taking your questions.
Millicent Tu (Head of Investor Relations)
Thank you, Shirley. If you are dialing in by phone, please press five to ask a question and then six to unmute yourself. If you are accessing from the Tencent Meeting or Zoom meeting application, please hit the Raise Hand button at the bottom left. For the benefit of all participants on today's call, please limit yourself to one question, and if you have additional one, please re-enter. If you ask your questions in Chinese, please repeat in English. The first question comes from the line of Alicia Yap from Citigroup. Alicia, please.
Alicia Yap (Managing Director and Senior Equity Analyst)
...Hi, thank you, Millicent. Good evening, management. Thanks for taking my questions. Congratulations on solid result. I'm going to ask in Chinese first, and I will translate myself.
[Foreign language] My questions is for 2024 outlook.
After achieving strong set of results, especially with record high quarterly net add, what should we be expecting for the net add trend for the Q2, and also the ARPU trend for the Q2 and also the rest of the year? Any comment on the overall growth rate expectation for the total online music revenue? Thank you.
Cussion Kar Shun Pang (Executive Chairman)
Okay. Thank you so much, Alicia, for your questions. For the full year of 2024, our online music and subscription revenue are well on track, and the profitability is also expected to be slightly better than the previously anticipated. So for the subscription side, I think that we are pleased to see that the Q1, the net add is really quickly exceeding our expectation. So, it really give us a really strong start for this year, and therefore, we are confident that the total net adds for the 2024 will exceed our initial projections, and indicating to be a total greater than the year of 2022, and yet slightly slower than last year, which is 2023.
But on the other hand, we remained really committed in a healthy long-term growth of our business. So on a full year ARPPU side, we expect it to continue to expand year-over-year. Although at the moment, I think a more modest growth rate compared to 2023. And to recap, I think the last year's rapid year-over-year growth was primarily due to the scale back of the discounts. So based on the last year, healthy ARPPU level and benefits of some of the operational optimization to be introduced throughout this year, we expect a slightly ARPPU growth in the second half of this year when compared to the first half.
However, we will remain unchanged and confident in long-term ARPPU expansion potential, supported by our experience in user education and also a variety of operational strategies. A couple of points that I would like to add: we have a better than expected Q1 net adds, which is primarily due to a couple of reasons. First of all, I think Q1 is typically the peak season for the entire year, especially due to the Chinese New Year, so users are more willing to pay for the entertainment. And secondly, we are also expanding the effective promotional activities, which attract more high-potential users. So, we through the multi-channel promotions across different areas, and we significantly drive the good growth of our user base.
But I think that, as we communicate and seen in the 2023 pattern, I think rolling off the strong seasonality, the net adds should return to more normalized and sustainable levels over the next few quarters. So, besides the subscription business, I think that, for the non-subscription business, we will also have a strong start in Q1 this year, and we expect growth to be solid in the remaining of this year as we continue to innovate the advertising products and expand the merchandise sales with labels and artists as well.
Operator (participant)
Thank you. The next question comes from the line of Alex Poon from Morgan Stanley.
Alex Poon (VP and Equity Research Analyst)
Congratulations, management, on the very strong quarter. My question is related to gross margin. In Q1, while we have negative seasonality for both advertising and social entertainment, we still expanded gross margin significantly, sequentially, from 38% to almost 41%. Can management share how the revenue and cost structure has changed on sequential basis, and how should we think about gross margin in rest of 2024? Thank you very much.
Speaker 11
[Foreign language]
Shirley Hu (CFO)
[Foreign language], gross margin is 14.9% in Q1, increased by 7.8% year-over-year, and increased to 0.6% quarter-over-quarter. There are several reasons as follows. The first, music subscription revenues and advertising revenues have significant growth. Second, we have made significant efforts and investments in the music industry and have built winning relationships with labels and artists.
... Additionally, we focused on ROC to manage our content costs more efficiently. Our online music revenues growth ratio was higher than net growth ratio of content cost. The third, we gradually ramp up our self-owned content, which is a positive impact on our gross margin. Fourth, even the live streaming revenue decrease, we optimized the live streaming revenue sharing strategy. The live streaming revenue sharing ratio decreased, and the VIP revenue and advertisement revenue on WeSing platform increased. All above, benefit our gross margin. Our gross margin has improved for eight consecutive quarters. Looking forward to Q2, we expect subscription revenue and advertisement revenue will continue to be healthy growth. On the cost side, we expect our in-house made content will have positive impact on gross margin continually, and we will continue to increase our operational efficiency and monitor each cost items for ROC model.
We expect our Gross Margin will be increased in Q2 continually. Look forward in the second half of 2024, we think we expect our Gross Margin will also be increased.
Millicent Tu (Head of Investor Relations)
Thank you. And the next question comes from Goldman Sachs, Lincoln Kong. Lincoln, please.
Lincoln Kong (Research Analyst)
Thank you, management, for taking my question. Congrats on that very strong quarter. My question is about the online music services, specifically advertising. Could management comment on what we have seen in terms of advertising trend in theQ1 and into the Q2 and split by the different formats. What are the sort of new advertising format company are thinking to implement? And any of the trends of those sponsorship ads or premium member ads, if you might want to share. Thank you.
Speaker 11
[Foreign language]
Cussion Kar Shun Pang (Executive Chairman)
[Forign language]
Speaker 11
Thank you very much. Thanks for the question. Indeed, for the advertisement service in Q1, we have a very strong growth, and I think in Q2 we're going to maintain such a strong growth.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
you can say that we see the traffic from the non-subscribers continue to go down because we are now having more subscribers. That is a reason for us. We need to continue to optimize the solution we provided to the advertisers, and making sure we can also provide a very attractive interest package to continue to operate and optimize the traffic operation. We can say that, start from the year of 2023, we already registered a very good performance regarding the advertisement business. Well, regarding what we're going to do for this year, I think for this year, we're also going to maintain a very stable growth for the advertisement business.
At least from what I can see from Q4 of the Q1 of this year, we have a very strong growth. Especially, we have the key revenue contributor coming from the e-commerce, the gaming industry, the content information, and the faster consumption industry. And especially due to the e-commerce, they are launching the large-scale promotional activities during the Chinese New Year. So we're going to say that in Q1 of this year, we also have a very good growth coming from the e-commerce channel regarding the advertisement business. We're talking about the Q2 of 2024. I think the key event we're going to have in Q2 would be the 618 shopping festival online. In that way, we're going to leverage this great occasion to serve our e-commerce advertisers.
...Because we hope that by serving that, we will be able to have a very, very good growth compared with last year. We also prepared many of the good solutions to, in order to continue to serve the e-commerce advertisers.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
You know that besides that, we are also leveraging the very enriched and diversified music ecosystem of TME, continue to roll out more diversified formats of advertising and advertising, advertising business models.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
For example, for the investment advertising, it could also be well combined with our offline performance and concepts.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
As I mentioned, in Q1 of this year, we also launched the incentive based advertisement format that is based upon the coin. By launching this new model, we hope that we will be able to continue to improve the user retention, while at the same time to start a new stream of the revenue for the advertising business.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
You can say that based upon the three business models regarding the price competition, the contracted advertising and investment advertising, we do have a full portfolio of the advertisement solution. In that way, we will be able to leverage this full mix of the product to continue to grow our advertising business in-house and sustainable approach.
Lincoln Kong (Research Analyst)
OK。
Millicent Tu (Head of Investor Relations)
Thank you. The next question from Lei Zhang, Bank of America Merrill Lynch. Lei Zhang, please.
Lei Zhang (Research Analyst)
[Foreign language] Thanks, management, for taking my question. My question is mainly regarding the margin trend, especially the sales and marketing trend. Consider we have a Q-on-Q control on the sales and marketing expense that maintain the MAU sequentially largely stable. So how should we look at the driver and the overall sales and marketing and the margin trend in the following quarter? Thank you.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
Thank you very much. Thanks for your question. Just now in our previous answer, we also mentioned about the GP margin. Actually, for our GP margin, we registered a significant growth no matter on YOY or MOM basis. That should be lay a very solid baseline for our performance. I do believe in the near future, we're going to continue to grow this number. And in Q1 of this year, talking about the marketing expenses, it was ever going down on YOY and the MOM basis.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
We're talking about the seasonality of the marketing expenses. Q1 of each year are traditionally been considered as a low season of the marketing events, because the majority of the brand promotions and the promotion activities being conducted in Q4 of each year. So in other words, in Q1, we launched less marketing events.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
I can say that our platform, or should I say, the monetization of our music platform continue to be improved, and also with the well-established ROI management method in place, we do expect we're going to spend more marketing expenses in order to regain the traffic for our channels.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
Where at the same time, we're also going to reduce the marketing expenses in the channel of live streaming.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
...Well, my second point is regarding the content, especially the self-commissioned or self-developed content. This is going to serve as a key driver for our future business, so we're going to make good investment for the content promotion.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
So we foresee in Q2 of this year, the marketing expenses will rise. But overly speaking, the marketing expenses for 2024, the full year, will be in line with what we saw last year in 2023.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
So coming next, let me comment on G&A expenses and especially the investment we made on the team. Actually, for the past one year, we have already adopted the cost initiative and continue to downsize the team.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
Where at the same time, we're also going to continue the investment in new technologies and the new product, for example, like AIGC.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
Generally speaking, regarding G&A, we do believe the total G&A expenses in 2024 would be in line with 2023.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
So overall speaking, as you can see, we continue to grow the GP margin and also we foresee the revenue in H2 of this year also going to go up, while at the same time we also stabilize the promotion expenses and the G&A expenses. So I do believe for the full year, the net profit rate and the net profit will be improved.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
Well, coming next, please allow me to talk about ERT, the effective tax rates.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
Regarding the effective tax rate and in Q1 of this year, it has been risen to 90.9%. The key reason is because the dividend payout need to be made from the onshore company to the offshore company. So we're going to pay for the withholding tax. So that's the reason in Q1 2024, the effective tax rate in Q1 being on the upward.
Shirley Hu (CFO)
[Foreign language]
Speaker 11
Generally speaking, the sum is quite small and it's not going to impact the net profit and the net profit rate that much. Overall speaking, I do foresee for net profit and the net profit in 2024, it's going to keep a rising momentum.
Millicent Tu (Head of Investor Relations)
Thank you. And the next question from Macquarie, Alice Cai.
Thank you so much, management, for taking my question and congrats on the great results. It's been very great to see the improvements in our music paying conversion. So if you compare the existing users versus the newly acquired users, just wondering, can management shed some light on the average pricing gaps between these two cohorts? Also, during the opening remark, management shared some very exciting AI-empowered initiatives that have been driving better user engagement. Just wondering, anything you can share on the recent trends for the next month retention and whether there could be more operating leverage for higher customer kind of lifetime value down the road? Thank you.
Speaker 11
[Foreign Language]
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
Thank you very much. Thanks for the question. Regarding the existing customer, yes, indeed, for the existing customer or the user, we do have a very high retention rate, and because many of them are our long-term user, and, if we're going to convert them, that means they just continue to renew our service. So originally speaking, the conversion rate of our existing user would be very high. Where for the newly acquired users, as we mentioned just now, in order to engage those users, we provide some discount and some of the promotional activities, even if we're already scaling back the discounts. But actually, the conversion rate of the new users will go in line with our promotional activities, and sometimes it's subject to the change of the promotional activity timeline.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
The second part of the question is regarding how AI can empower the company's user retention. I have to say that, like AI large model indeed help to grow the retention. But let's be clear first, for the music platform, the recommendation system was based upon the neural network model, and it is different from the large language model we're talking about today. But generally speaking, I do believe as we are having those great models and by introducing a large set of parameters into our existing platform, we will be able to continue to improve the recommendation capacity and search capacity. And you can see from our actual operations, that can help us to continue to grow and optimize the user retention. So indeed, by leveraging those cutting-edge technologies, our overall retention rate is being improved.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
Actually, we talk about Large Language Model and generative technology. In Q1 of this year, we also launched the open source of our self-developed Mini cam video model drive, which has already received very positive feedback from the open community.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
Something that we are truly proud of is that we also newly introduced a large model, we call it audio model. This audio model can help to distinguish the correlations between two notes and the songs based on the characteristics of the audio. And this is also a very good result that is being harvested from the cutting-edge technology.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
Well, regarding the content creation, we have already received very good results from artificial intelligence-generated vocals. No matter from the user scale or from the revenue of the users, we are all seeing very good progress being made. In that way, it can actually facilitate the users of identifying new lyrics and new songs, and the new contents.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
Another milestone I'd like to mention in Q1 of this year was we are working with Tencent AI Lab and introduced the first music generation model for the folk music, and it is through this model, we're working with Shanghai National Orchestra to organize the ever first AI-empowered concert in China.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
Besides that, we are also keeping an eye on those leading models in the industry. One is Suno and another one is Udio, and we're exploring those new models to see how they can fit into our platform.
Millicent Tu (Head of Investor Relations)
Thank you. The next question comes from Wei Fang from Mizuho. Wei Fang, please. Are you with us, Wei Fang? Okay, let's
Wei Fang (Director and Senior Equity Analyst)
Hello?
Operator (participant)
Yes, Wei Fang, we can hear you. Go ahead, please.
Wei Fang (Director and Senior Equity Analyst)
Okay. Thank you. Sorry about that. Yeah, thank you for taking the question. So I want to double click on the offline concerts, right? So we see pretty good coming back last year and so far this year. Just wondering if management can help remind us your position and your strategy for this segment?
... and also, what's the business models there other than sponsored advertising? Thank you.
Cussion Kar Shun Pang (Executive Chairman)
Okay, thank you so much for your questions.
Speaker 11
[Foreign language]
Cussion Kar Shun Pang (Executive Chairman)
Thank you so much for your questions, and, basically, I think, 2023 is a big year for the live performance businesses. And, we are also seeing that it will continue to trend in this year, but, definitely it's going to be normalized and will not have such a big growth when compared to, last year's, performances. I think from TME point of view, we have different, different pillars of strategy to in order to support our overall strategies. First of all, we are committed, to build our own IP, for example, like the TMEA music festivals and also the award ceremony.
This year is going to be the fifth years of us, and we have already received a lot of very good results, and from our partnerships as well. And we are focusing on not just just bringing the local artists, but also the international artists to our stage as well. Besides the our own IP music festival and awards, we also came up and also helped to organize and produce top-tier artists live tour as well, in China and also in Southeast Asia, that we have successfully launched it out in year 2023, and we are continuing to doing that. And the last one, which is we will continue, besides the top-tier artists, we will be focusing on building some of the smaller stages.
For example, like the Live House event for the Tencent musicians, which will help us to incubate a lot of younger generation of musicians in order to continue to improve through the live performance events. Besides the strategies, the different types of concerts that we are organizing, we will have different business model as well. First of all, we have the ticketing. We can also have the advertising sponsorship model, and as what we have mentioned before, we are also working on the fans-based economy, like the merchandise and all these kind of things that we are working on. We will also continue to collaborate our live event, not just offline, but together with online, with different privileges, with our super VIP plan as well.
We have an exciting journey that we are looking forward, and we will continue to pull in more resources in order to grow the live performance business in TME.
Millicent Tu (Head of Investor Relations)
Okay, in the interest of time, we take the last question from Thomas Chong, Jefferies, please. Thomas?
Thomas Chong (Managing Director)
Hi, good evening. Thanks management for taking my question. My question is about our new initiative, such as long-form audio, IoT. Can management comments about our thoughts about the outlook in these areas? My second question is about our long-term target. Given we have talked about our 2024 outlook on the top line and the bottom line, can management comments how we should envision TME in a 3-5 years time down the road? Thank you.
Speaker 11
[Foreign language]
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
Thank you very much. Thanks for your question. Regarding the long-form audio, from the business strategy perspective, it's going to complement to our existing online music service. It will help us to cater the needs of the diversified customer base, especially including the user from different age groups. So that's the reason we are now continuing to introduce the top content and the new content in the market. Essentially, we do see some very good performance in the children-related music market.
Cussion Kar Shun Pang (Executive Chairman)
[Foreign language]
Speaker 11
The second point is that we are going to keep a very close collaboration with Tencent Group, especially with Yuewen. I do believe in Q2 of this year, the key event we're going to see is a rollout or release of *Qing Yu Nian* second phase. If that were to be successfully rollout, I do believe, and it, it's also going to help us to continue to improve the user retention for the long-form audio.
Thomas Chong (Managing Director)
Thank you. Long-form audio. [Foreign language]
Cussion Kar Shun Pang (Executive Chairman)
I think for the entire overall strategy of an entire company, I think that we are right now on a really good pace in driving the online music services in a really good form. So we will do it going to be one by one, for example, to continue to improve our overall subscribers and also our ARPU as well. But at the same time, this is the core, the most of our company, I think is very, very important is we have to continue to build our content ecosystem, which ensuring that we will have a good coverage of all of the music libraries that we should have. And also, we will continue to pull in more resources in doing content co-productions.
And besides that, we will also extend our footprint, not just locally, but we also can doing some of the international development. For example, according to not just the business side, the platform side, but also the content side as well. So I think that is definitely going to be a lot of interesting and exciting projects ahead. I think from our company point of view, I think we definitely is not just doing a 100-meter sprint, we are doing a marathon. So I think that we should strike the balance. At the same time, we continue to have a quarter-by-quarter growth, but at the end of the day, we will be focusing on a long-term sustainable development of the entire group.
And we are ensuring that we are going to have to ensure to drive a good investors' returns to all of our investors as well. So we would like to share our success, not just doing the business well, but also ensuring that we have a good dividend policy, and also some of continue to have our share buyback program at the right moment. Okay, I think that's it for today.
Speaker 11
Thank you.
Millicent Tu (Head of Investor Relations)
Thank you everyone for joining us today. If you have any further questions, please feel free to contact our IR team, and this concludes today's call. And thank you so much again, and look forward to speaking to you next quarter.
Cussion Kar Shun Pang (Executive Chairman)
Okay, thank you very much. Thank you.
Shirley Hu (CFO)
Thank you.
Millicent Tu (Head of Investor Relations)
Bye.
Speaker 11
Bye.