Tencent Music Entertainment Group - Earnings Call - Q2 2025

Transcript

Speaker 2

Good evening, good morning, and welcome to Tencent Music Entertainment Group's second quarter 2025 earnings conference call. I'm Millicent Tu, Head of IR. We announced our quarterly financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and via Newswire Services. During today's call, you will 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. Ms. Shirley Hu, our CFO, will address our financial results before we open the call for questions. Before we continue, I'll refer you to the safe harbor statements in our earnings release, which applies to this call as we'll make forward-looking statements.

Please note that we'll discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under IFRS in our earnings release and filings with the SEC. All participants are muted at this time. After management's remarks, there will be a Q&A session, and please be advised that today's call is being recorded. With that, I'm very pleased to turn the call over to Cussion, Executive Chairman of TME. Cussion, please.

Speaker 0

Thank you, Millicent. Hello everyone, and thank you for joining our call today. We delivered high-quality growth in the second quarter, with solid year-over-year increases in both revenue and profitability. On one hand, our music subscription business remains a core growth driver and continues to gain traction. On the other hand, we are also seeing impressive results from our expanding suite of music-related services. Key initiatives like advertising, concerts, and artist merchandise all achieved rapid growth in the second quarter, and that strong momentum is carrying into the third quarter. By constantly enhancing our content ecosystem, expanding our offerings, and fostering new ways for artist-fan engagement, we are shaping a vibrant all-in-one music service platform. Now, let me share some of the key highlights on the content business. First, we began cooperating with well-known Korean labels like The Black Label and HMusic for the first time.

Further strengthening and differentiating our K-pop offerings, we also extended collaboration with renowned Chinese artist Wang Feng, offering both his classics and latest work on our platform. Secondly, we continue to focus on co-creation and original content production to further enrich and diversify our content offerings. From concept, origination, creation, to production and promotion, we are actively involved in every stage to build a more dynamic and innovative music ecosystem. A prime example is our recent collaboration with SM Entertainment on NCT's "Tangler"—Zhong Tangler, Chinese special EP "Lucid"—"Tan". Our integrated promotions across music festivals, debut concerts, and variety shows attracted a large audience. 10,000 music lovers participated in a sing-along at the music festival and variety show. Clips generated over 1 million likes, highlighting the power of the end-to-end industry collaboration across borders and cultural exchange through music.

We also work closely with artists to develop original pieces, like the theme song for the acclaimed film "The Light She Rose"—"长安的绿枝"—with Chen Chuxun. This song topped multiple music charts and garnered extensive praise from national media. Additionally, our strategic partnership with Zhejiang Satellite TV has further supplemented our music copyright portfolio of popular variety shows such as "The Treasure of the Voice," "天气的声音," "Shining Summer," and "闪光的夏天," and opened new opportunities for collaboration in content co-creation, musician promotion, and more. We have also shown strong capabilities in staging artists and connecting them with the users through other music-related service offerings. These efforts have further energized our ecosystem, boosted user loyalty, and cultivated content creation, all together reinforcing our platform's unique position in the evolving music industry.

A few examples: First, we successfully hosted leading Korean artist G-Dragon's first major tour since 2017 in Macau, which attracted over 36,000 attendees to immerse in the captivating atmosphere, and the event's merchandise was quickly sold out. This marked our first large-scale international concert production, significantly pushing our industry reputation. Following a strong kickoff, we are scheduled to expand the tour into other regions this year. Additionally, we organized a series of stadium concerts for Fiona Sit, Xue Kaiqi, Tia Wei, Yuan Yaowei, and rapper Guy, helping them to reach a broader, younger audience. Due to the overwhelming demand, we quickly responded and worked with Tia Wei to schedule additional shows to accommodate fan interest. Second, we have become an important partner for staging and curating live performances for emerging talents.

In the first half of the year, we leveraged our proprietary IPs, CityLive and BuffLive, to host over 300 offline shows for nearly 100 Tencent musicians. Our cross-platform promotions also boosted a number of works into trending hits, connecting them with a broader audience of music lovers. For instance, after we promoted Zhang Sisi's first "Why Not Wait for the Wind"—"步入旧掌风来"—on short video platforms, it quickly went viral, sparking a wave of user-generated content on social media and surprising 20 million streams on our platform. Third, we created more opportunities for music lovers to meet and interact with artists, both online and offline. For example, buyers of Jason Zhangjie's physical album "Not Bad" (Youder) could win opportunities to attend his offline signing events. Such privileges not only deepened fans' engagement but also helped drive the album's outstanding performance.

In late June, we partnered with Diyu, a global fan communication platform company, to launch the interactive community Bubble on QQ Music. Bubble enables users to engage directly with hundreds of K-pop artists from labels such as SM Entertainment, JYP, and Cube Entertainment, providing artists an avenue to share members-only content. To cater to a wider audience, we also plan to invite some popular Chinese artists to the community, allowing them to foster deeper and more personal connections with their fans. Finally, reflecting on our commitment to serving the music industry and supporting its healthy growth, we hosted the third Wave Music Awards, which was designed to honor the most outstanding Chinese music works of 2024. Fifteen top-tier music creators, including Wu Jianfeng, Li Haiying, and Xiao Ke, presented the awards. The chart's professionalism earned industry-wide acclaim and endorsements, amassing over 200 million social media views.

This quarter, we also cooperated with professional institutions, music labels, and artists, leveraging AI technology to unlock the social value and healing power of music. For example, we launched the "Healing Guizhou" project, featuring natural soundscapes to enhance sleep quality. In summary, our dedication to diversifying music services and delivering well-rounded music entertainment has set the stage for long-term sustainability growth. With a strong foundation in place, we will continue to enhance our content and platform ecosystem, offer richer experiences, and unlock greater opportunities for both music lovers and stakeholders across the music value chain. Now, I would like to turn the call over to Ross for more details on our overall platform development. Ross, please go ahead. Thank you.

Speaker 3

Thank you, Cussion. Hello everyone. In the second quarter, our platform demonstrated robust growth, driven by our commitment to continuous product improvement and operational excellence. Online music recorded strong performance, supported by a sustained expansion in both our subscriber base and ARPPU. This positive trajectory was underpinned by our innovations across product features, artist merchandise, and artist-fan interactions, which has further strengthened our appeal among SVP members. Overall, user average time spent reached a record high, and SVP subscribers exceeded 15 million, a new milestone that reflects the deep trust and loyalty within our user community. To enhance the SVP experience, we introduced a range of new and upgraded features during this quarter. Here are some key highlights. First, high-quality sound quality remains the most popular SVP membership benefit. This is effective in fulfilling users' robust demand for more premium and immersive listening experiences.

In the second quarter, Kugou Music pioneered viper Hi-Fi sound quality and one-click audio enhancement 2.0. By delivering stereo audio fidelity and louder speaker volumes, we let users easily transform their smartphones into portable speakers. We also upgraded voice extraction technologies with the industry-first AI call-out function. Users can now plug in a live concert, seeing a live experience anytime and anywhere without the user's path. Second, to further drive SVP adoption, artist-centric privileges became increasingly effective. Such achievements are powered by our deeper collaborations with libraries and artists that unlock a wide range of compelling benefits for our users. Digital albums are a great example. Recently, we premiered Gigi Lin's "Lin Junjie" and Lin's new digital single "Hold Me Close" in the U.S. We also launched Zhao Lingzhi and Zhao Yilin's new album "Pleasure" by integrating these albums as SVP sign-up privileges, which significantly boosted SVP conversions.

Another example is priority access to concert tickets for in-demand events. This quarter, SVP users had the opportunity to secure tickets for G-Dragon and Blackpink's concert tours in advance on our platform, sparking significant buzz among music fans. We also cooperated with both domestic and international artists, including GCT Tan Jianci, Silent One, Wang Sulong, and iSwan, to release multi-star car series. These initiatives successfully met users' growing demand for collectibles. Third, we elevated users' engagement by introducing new ways for artists and fans to connect. For example, beyond launching Bubble in May, we partnered with TF Entertainment's Xi Fengjun to live-stream Teens' In-Time Xi Xiang Yan Tuan and transform Project's Top Top Dongle Shining Songs to concerts. These events garnered over 33 million viewers, with Super VIP members enjoying dedicated access to solo camera angles, bringing fans even closer to the artists.

We also upgraded our virtual fan community, Penguin Island, introducing special avatar outfits and gestures for Super VIP members to make online meetups more personalized. During last Huang Zihong fan's birthday and song releases, we hosted fun team-building activities and live voice calls with him, attracting over 100,000 users to his Island page. Next, as our in-car music service gained recognition from Super VIP members, we broadened our alliance with prominent automakers. For instance, this quarter, we formed a comprehensive partnership with Geely and collaborated with Xiaomi on its first SUV, the U7 model. These partnerships integrated Dolby Atmos and the premium series sound effects, elevating users' music listening experience. We also built an AI-powered music cabin for Great Wall Motor, offering personalized on-demand features like AI vocal extraction and a healing music playlist to facilitate a more enjoyable journey.

Alongside the success of our Super VIP offerings, the power of our platform and innovative ad formats led to accelerated advertising growth, both quarter over quarter and year over year. In particular, we optimized interactive tasks and enriched redemption benefits, significantly boosting users' engagement and receiving positive feedback from advertisers. Lastly, our initial pilot on an ad-based membership gained positive momentum. It gave us more room to provide tailored solutions to advertisers and users with various needs. Looking ahead, we see great potential in the music entertainment space and are committed to investing in new initiatives that create lasting value and impact on music creation and consumption. Along this journey, we will continue to push boundaries, innovate, and enhance user experiences to deliver more premium and immersive experiences to all of our users.

With that, I would like to turn the call over to Shirley, our CFO, for a deep dive into our financials.

Speaker 4

Thank you, Ross, and greetings to everyone. Let me now turn to our financial results in Q2 2025. Our total revenues hit a record high of RMB 8.4 billion, up by 18% year over year, successfully overcoming the challenges from adjustments in social entertainment services in recent years. This was driven by continued strong growth in music subscription and advertising services, as well as robust growth from artist-related merchandise sales and offline performances. Online music revenues grew 26% year on year to RMB 6.9 billion. Music subscription revenues grew 17% year on year to RMB 4.4 billion in Q2 2025, driven by continued expansion in subscriber base and monthly ARPPU. Monthly ARPPU reached RMB 11.7 this year, compared to RMB 10.7 in the same period of last year, primarily driven by expansion in Super VIP subscribers and ARPPU.

As discussed earlier, to enhance the Super VIP members' experience, we continued to broaden and strengthen Super VIP benefits, including enhanced sound quality and effects, artist-centric privileges such as free shipping for our merchandise, priority access to concert tickets, and artist-related merchandise. These efforts effectively have helped us enhance our Super VIP membership base and achieve higher monthly ARPPU this quarter. Advertising revenue continued its strong growth trajectory on both year-on-year and quarter-on-quarter basis, primarily driven by the following: First, our innovative ad formats, such as ad-supported model, kept gaining traction and significantly contributed to our advertising revenue growth. Second, the 618 SHOWKING festivals provided a great opportunity to showcase our recent product optimization results, leading to increased number of advertisers, higher entrance rates, and ECPM. Third, sponsorship advertising also had strong growth this quarter, which benefited from increased number of offline events and performances.

Additionally, artist-related merchandise sales and offline performance delivered robust results this quarter and further contributed to overall revenue growth in music services. The shipping for the physical album of Xiao Zhan this quarter, together with the offerings of artist-related merchandise such as Zhu Liang's physical albums and G-Dragon's offshore light seats, significantly enhanced the revenues from artist-related merchandise sales in Q2. Meanwhile, we continued our strategic initiatives in the offline performance market. This quarter, leading Korean artist G-Dragon started his first major tour since 2017, and we successfully hosted his concerts in Macau in Q2, with more locations to come in Q3. We also hosted other high-profile concerts for artists such as Will Pan this quarter. Social entertainment services and artist revenues were RMB 1.6 billion, down by 9% year on year.

The year-on-year decrease was mainly due to the adjustments to certain live streaming, interactive functions, and more stringent compliance procedures frameworks implemented. Our gross margin rose by 2.4 percentage points year on year to 44.4%, primarily driven by the following factors: First, strong growth in music subscription and advertising revenues, together with improved cost efficiency thanks to our longstanding win-win relationships with labels and artists, have benefited our gross margin. Second, as the market landscape evolves, we successfully lowered our revenue sharing ratio with social entertainment services, without materially impacting revenues. Meanwhile, the growth in revenues from artist merchandise and offline performances, which require higher investment, had offset gross margin increase. Moving on to operating expenses, sales and marketing expenses as a percentage of revenues were 3.6%, down from 3.9% in the same period of last year.

General and administrative expenses as a percentage of revenues were 11.1%, down from 30.1% in the same period of last year. Reflecting our strong operating efficiency, the majority of our sales and marketing spending have been in the category of content promotion and channel spending. We will keep monitoring market conditions and increase spending as needed with financial discipline. Our effective tax rate for Q2 2025 was 17.3%, compared to 19.4% in the same period of 2024. We accrued withholding income tax of RMB 118 million in the second quarter of 2025. In Q2 2025, our net profit increased by 38% to RMB 2.5 billion, and the net profit attributable to active holders of the company increased by 43% to RMB 2.4 billion.

Non-IFRS net profit increased by 33% to RMB 2.6 billion, reaching a historical high, and the non-IFRS net profit attributable to active holders of the company increased by 37% to RMB 2.6 billion. Our diluted earnings per ADS this quarter was RMB 1.55, up by 45% year over year, and the non-IFRS diluted earnings per ADS was RMB 1.66, up by 39% year on year. These results underscore our effective monetization, enhanced operating efficiency, and the benefit from our shared purchase program. As of Q2 2025, our combined balance of cash, cash equivalents, term deposits, and short-term investment was RMB 34.9 billion, as compared to RMB 37.7 billion as of March 31, 2025. This combined balance was also affected by changes in the exchange rate of RMB to USD at different balance dates.

Going forward, we will keep focusing on expanding our Super VIP membership, introducing more and enhanced Super VIP privileges, such as high-quality content, artist-centric privileges, including early access to artist merchandise and concerts. Meanwhile, we will continue to invest in our products and innovative technologies globally. We remain optimistic in the healthy growth prospects of the music entertainment industry and are confident about the high-quality growth of our business. This concludes our prepared remarks. We are ready to open the call for questions.

Speaker 2

Thank you, Shirley. If you are dialing in by phone, please press 5 to ask a question and then press 6 to unmute yourself. If you are accessing the call from the Tencent Meeting or VoMeeting application, please click the resign button at the bottom left. For the benefit of all participants on today's call, please be reminded to limit yourself to one question. If you have more than one, please re-enter the queue. If you ask your questions in Chinese, please repeat in English. The first question comes to the line from Lincoln from Goldman Sachs. Lincoln, your line is open. Hello, Lincoln. Can you hear us? Yeah, we can hear you. Your line's open, Lincoln.

Okay. Sounds better. Yeah, thank you for taking my question. Congrats on the first quarter. My question is about the outlook. Given that the first half we have a very solid momentum, how should we think about the second half in terms of our revenue and as well as the profit outlook? Thank you.

非常感谢，谢谢管理层来接受我的提问。首先我想恭喜管理层在本季取得了非常强劲的表现。我的问题更多的是关注于公司的一些发展前景。鉴于今年上半年我们整体的业务发展非常强有力，我们应该如何看待接下来下半年的收入和利润的一些展望呢？谢谢。

Speaker 0

Thank you so much, Lincoln, for your questions. We are really encouraged by this quarter's solid and well-rounded performance, with both our top line and also bottom line coming in strong. While our music subscription business remains robust, we will continue to focus on the high-quality growth. As mentioned before, our subscriber base right now has already reached over 124 million, and the pace for the net adds may fluctuate from quarter to quarter, but we do have the confidence that it will continue to have a high-quality growth in a healthy and dynamic manner. For the ARPPU, I think we are seeing a steady upward trend as we continue to enhance our offerings and the value we provide to users. We believe these efforts will further strengthen our value propositions and users' willingness to pay over time.

Besides a good performance in the subscription business, I think the traction that we are seeing in our non-subscription services is also very exciting. On one hand, the advertising continues to be an important growth driver. Innovative formats tailored to different user cohorts are particularly welcomed by the advertisers. On the other hand, as we keep innovating and collaborating with more artists and labels, the new revenue streams from concerts and artist merchandise are becoming more scalable. In the second quarter, revenue will more than double from a year-over-year basis, which really validates our strategy of building a comprehensive music entertainment platform. For the visibilities, as you can probably understand, the concerts, for example, we experienced some short-term quarter-over-quarter fluctuations as they're involving a lot of things like scheduling, venue selections, and other logistical coordinations. Overall, we are really optimistic and focused on driving a sustainable long-term growth.

In a nutshell, for the full year of 2025, I think backed up by the solid performance year to date, we now see the revenue expected to come in higher than our previous expectations. With our focus on the operational efficiencies, we see more room for bottom-line improvement as well. Thank you for your questions.

Speaker 2

Thank you, Cussion. The next question comes from Alicia Yap from Citi. Alicia, please.

Hi. Good evening, management. Thanks for taking my questions. Congrats on the solid results. I have a question on Bubble. Can management share with us the traction of your recently launched Bubble? What is the user feedback and user experience so far for this new product? Can Bubble become a meaningful product in the coming future with potentially decent revenue contribution? Thank you.

非常感谢，谢谢管理层，也非常感谢管理层接受我的问题。那首先恭喜公司在本季度取得了非常亮眼的成绩。我这边有一个问题是和 Bubble 平台所相关的，是否可以请管理层简单和我们分享一下最近一段时间公司推出的 Bubble 的一个平台的基本表现？到目前为止，这款新的产品用户的反馈和用户的体验如何？它是否能够在未来成为一款真正有意义的产品，能够为公司带来可观的收入贡献？谢谢。

对, 我们首先非常高兴在我们这个应该说在这个季度我们跟 Diyu 去紧密合作, 我们发布了 Bubble 这样的一个产品。

Thank you very much. Thanks for your question. First of all, the company has been very happy that we worked with Diyu in this quarter to release a product named Bubble.

实际上我们为什么要做这个事情，其实我们也是从整个用户的反馈中也看到了，其实有大量的这样的粉丝群体，实际上他们是比较在之前是比较难的去开通 Bubble 的服务，然后和他所关注的这些明星们去交流了。

Talking about the reason why we launched these services, the reason is because we have the feedback from the entire user group. There are some of the fan groups right before Bubble. It would be very challenging for them to communicate with the artists they follow.

我们基本上在 QQ Music，因为一粉这部分仍然是 QQ Music 中的一个优势，我们在里面去通过这样的紧密合作，在这个季度推出了这样的一个结合的版本。

Within QQ Music, we still would like to continue to enhance the user experience. That's the reason we continue to strengthen our cooperation with Diyu of launching such a service in this quarter.

我们在这次上线以后, 我们继续持续优化了更多 Bubble 的记录体验, 尤其是在韩国韩语跟中文的这个翻译能力上, 是我们能够提供了在目前的用户反馈测来看是提高了用户是非常承认的这样一个效果。

Once the Bubble community is being launched, we continue to optimize its basic experience to the user, especially the translation and the language proficiencies within the South Korean language and Chinese. This is a feature that we do see very wide recognition from the user feedback.

Chinese artists that users like.

As Cussion stated in his statement, besides the South Korean artists from the three labels we're working now, in the near future, we're also going to introduce the Chinese artists to the Bubble community.

这样的话其实我们就相当于是能够去在中国这样一个大的区域去提供相比于之前 Bubble 里面更深度的和更广度的这样的用户体验，这也是我们的合作方他们所期待的。

In that way, we will be able in the Greater China region of providing the user experience that is within the human touch and the broad coverage that Bubble used to have. This is also the expectation from our partner.

同时因为我们也做了单独的这个 Bubble 包月以及 Super VIP 的一个绑定的服务，所以其实这也是未来我们也认为我们也希望 Bubble 这样的一个服务能够成为我们 Super VIP 后续的一个很强劲的一个增长的驱动力。

At the same time, we also have the bundled service for Bubble and subscription and SVP business, and we do hope such a bundled service would become a key growth driver for the future SVP growth.

future user growth and commercialization prospects.

According to the existing user profile, we can see many of the pay-to-grow users are still the young users. In the near future, they also demonstrate very high activity, and this trend also allows us to build more confidence for future user growth and commercialization.

实际上 Bubble 因为在海外已经是一个比较成功的社交产品，所以我们相信对于我们与 Bubble 的合作是为了能够为我们未来 QQ 音乐包括 TME 去推进在音乐领域里面的社交化的这样产品能够提供一个非常坚定的一个基础。

As many of you may notice, indeed, Bubble is a well-established social product in the overseas market, and we surely believe having Bubble on board will help us to continue to consolidate our QQ Music and help Tencent Music Entertainment Group to continue to launch socialized apps and the service in our existing music business.

our entire subscription service.

I surely believe as we continue to introduce Chinese artists into the Bubble community, we're also going to add additional features, for example, like live streaming. In that way, we will be able to provide a richer commercialization opportunity to our entire subscription business in the near future.

Entertainment Group 来说, 对于社交领域中一个非常重要的一步。我们相信在社交这个领域中所看到的用户诉求跟商业机会都是非常庞大的。

I also would like to emphasize for Bubble to TME, a very important step for us to embrace the social entertainment, because we do notice the customer needs such a service, and we do believe it has a great potential for its future commercialization.

Thank you. The next question comes from Thomas Chong from Jefferies. Thomas, please.

Hi, good evening. Thanks to management for taking my questions and congratulations on a very strong set of results. My question is about our recent deal with Ximalaya. Can management comment about the synergies with Ximalaya, such as cost optimization, enhancement in product offerings, and any areas that we can benefit the Super VIP offerings as well? Thank you.

非常感谢，谢谢管理层，感谢管理层接受我的提问。那首先我想恭喜公司在本季度取得了非常优秀的和亮眼的成绩。我的问题是最近一段时间和喜马拉雅交易所相关的一些内容，能不能请管理层简单的介绍一下目前和喜马拉雅项目的一些进展？我们如何做到进一步的双方优化，以及包括在产品的提供以及包括产品的一个权益方面目前的一个进展是什么？我们的 Super VIP 的一个业务是否能够从喜马拉雅的产品和服务当中来进行盈利？谢谢。

comments on these questions.

Regarding our deal with Ximalaya, according to the regulation in China, we're still waiting for further approval from the regulatory authorities. It would be very difficult for us to make any corresponding comment.

我们实际上也可以看到，我们之所以做这个交易，也是因为我们长音频本身就是我们一直对我们管理层来说非常重视的一个领域。

The reason why we go for the Ximalaya deal is because for the management team and for the whole company, we always believe in the value of long-form audio content.

所以长音频作为我们现在一个重要的内容形式啊, 已经能够成为跟音乐相一个互补的一个形态。

Long-form audio content is a very important content form. To us, it already plays a complementary role to our existing music business.

从我们自己的实践来看，无论是在懒人听书上的独立会员和广告，以及在我们各个音乐 APP 里面的长音频的内容，我们在用户规模跟商业化上面都取得了很好的一个进展。

At least from our own perspective, for the book listening, the individual members, as well as the advertising services, and also the long-form audio content in different music apps, we do see that nice progress being made on the subscriber base as well as commercialization.

同时我们也看到长音频的消费实际上在 SVP 里面的这样一个渗透率也是在稳步提升的。

We also see that consumption of the long-form audio and its penetration ratio with Super VIP continues to go up.

如果我们未来我们的交易能顺利推进的话，我们相信我们无论是从收入角度，包月收入跟广告这个角度，以及我们在用户规模上的互相合作方面，应该都有非常大的空间。

If the deal goes smoothly in the near future, I surely believe no matter for the subscription revenues or the ad revenue, we will have every opportunity to continue to grow our user base.

所以如果后续有进一步的进展的话, 我们也会及时向市场去披露相关的信息。

If there's any further progress regarding this deal, we will also disclose the information to the market in due time.

Thank you. The next question comes from Morgan Stanley Yang Liu. Yang, your line is open.

Thank you. Congratulations for the very strong results. I have a question on the other music revenue. Does management believe that in the long run, this part of the business will account for a bigger part of the total revenue? What will be the impact to the gross margin? We understand that advertising is a very high-margin business, but how about offline performance, concert, and merchandise, the overall impact to gross margin? Thank you.

非常感谢，谢谢管理层。首先恭喜管理层在本季度取得了非常优异的业绩。我这边有个问题是针对于其他音乐收入的，就管理层来说，如果从长远角度来看，其他音乐收入是否会在我们的营收比重当中持续走高？它对于我们的毛利会带来什么样的影响？因为我们都知道广告它其实是高利润的业务，但是从线下表演、演唱会以及包括其他的一些周边的角度来说，他们对我们的毛利率会带来如何的整体的影响？谢谢。

关于其他的收入这一块, 因为我们现在是整体在内容加平台一体两, 所以整体在发展。关于线下的演唱会和粉丝经济这一块, 其实也是我们未来发展的重点, 它也是我们的一些战略业务。从长期来看, 这一块应该是我们未来发展的一个重点吧。

Thank you very much. The company is adopting the strategy of having content and a platform at the same time. It is an all-in-one development. Regarding the air flight concept, as well as the fans economy, I think it's going to be a very important direction for us to go in the near future. It is also part of our strategic business. In the long run, the arts of music is going to be a key for our future development.

对于像粉丝经济这种业务来讲，它其实跟这个明星的排期和跟我们的发货的节奏其实是相关的，所以在收入上它的整体趋势是往上增长的，但是它可能在季节之间会有些波动。那么演唱会其实也是同样的一些情况，演唱会可能受制于明星的排期和有场地、场地规模等的一些影响，它也是属于会在季节性有些波动。

Let's talk about the fans economy. As you may see, it is actually subjected to the schedulings of the artists as well as the merchandise shipment. From the revenue perspective, fans economy, the revenue continues to ramp up, but it will have some fluctuation. I mean the seasonal fluctuation, the same as the air flight concept and events. Due to the artist scheduling as well as the venue selection, there might be some seasonal fluctuations.

对于毛利率来讲，确实粉丝经济和演唱会的毛利率是比较低的，所以它对我们整体的毛利的增长是有一定的影响的。

Regarding the gross margin, I have to admit for fans economy and the air flight concept, indeed, both gross margins are relatively low. It will have some impact on the overall gross margin of the company.

一方面呢，就是说我们整体的毛利率还是会有所提升，比如说我们的会员收入的增加，Super VIP的扩大和我们广告收入的增加，包括我们的社交分层的下降，那么整体而言对于毛利来讲是有不错的利好。

Generally speaking, on one side, we will continue still to ramp up the gross margin. For example, we have ever-increased subscriber base, and we also have more revenue from the advertising business, and we embrace the social entertainment. At the same time, all those factors are indeed blessing our gross margin.

在目前我们可见的粉丝经济和演唱会的规模的增长的情况下，跟相对而言，它对于我们现在本身的在线音乐的包月也好，广告收入也好，它的比例其实是比较小的。

Generally speaking, according to our existing observation of the fans economy and the air flight concept, I have to say that compared with our existing online music, no matter for the subscription business or advertisement business, the revenue contribution from the fans economy and the air flight concept is relatively small.

对, 那目前来看对我们的毛利率的影响也是呃有限的。

As its revenue contribution is relatively small, its impact over the gross margin is also small.

对, 不过刚刚谈到说这两项主要的收入的季节性, 在某些季节的这个收入比较, 这两项收入比较高的季节, 那么对毛利来讲会有些波动, 但整体我们对未来来看, 我们的毛利率还是向上的。

I also mentioned about the revenue seasonalities for the fans economy and the air flight concept. In certain reasons, when the revenue from both services is relatively high, it will surely fluctuate the overall GP margin. Overall speaking, we're still very confident on the uprising trend of our GP margin.

我稍微补充一下哈，就除了刚才 Shirley 讲到的层面，我们其实从来都把我们刚才讲到的一个线下演出、粉丝经济，还有刚才讲到的一些周边的生意，我们都不会单独把它当成是一个独立的一个业务，我们更多是把它成为一个可以反哺到我们平台线上的业务的一个非常重要的能力吧。

I also would like to make a comment on Cussion. Besides what has been mentioned by Shirley, I have to say that we never take the offline concerts concept or even the fans economy and the artist merchandise as a separate business. We take it as a business that can be complementary to our existing online business.

我们随着做这些新的业务创造出来的这些特权，最终会帮助我们在线音乐的一个继续的健康的发展。对于 Tencent Music Entertainment Group 来讲呢，我们这个内容跟平台确实是一体两翼的，这个战略最终会给我们带来更多在商业里面的更多的可能性跟竞争的优势。

We actually leverage the privileges generated from the air flight business to continue to support the healthy growth of our online music business. To Tencent Music Entertainment Group, as we have already mentioned, we have the content and the platform, the two in one body strategy, and we hope that in the near future, such strategy will help us to explore more possibilities and a competitive edge.

对, 另外我最后补充一下, 就是我们现在正在做, 正在准备, 可能在这个季度会推出基于商城周边的 SVP 的年卡会员, 其中会提供商城的商品的打折这样一个服务, 这个其实也是跟目前电商会员的逻辑是一样的。通过这样一个举措, 我们也能够去提升我们在周边这边的一个利润率。

I also like to make a comment on Bros, and I think in this quarter we plan to launch the Super VIP annual membership card for the shopping malls, especially for the artist merchandise product. In other words, provide a discounted offering of the artist merchandise we have in our shopping malls. Fundamentally speaking, it is within the same nature as the e-commerce membership card. We hope by initiating such a great strategy to continue to improve the profitability of the artist merchandise.

Thank you. The next question comes from Alex Yao from JP Morgan. Alex, please.

Thank you, management, for taking my question and congrats on a solid quarter. Just want to follow up with this fans economy development. As you guys expand from online music distribution into the broader fans economy, including artist merchandise, offline performance, connectivity between artists and fans, etc., etc., where do you see as the biggest opportunity and what do you see as the biggest challenge, let's say, on a one to two years view? Thank you.

非常感谢，谢谢管理层接受我的提问。首先恭喜公司在本季度取得了非常优异的表现。那我这边有个根据性的问题想来问一下粉丝经济的发展，因为公司从整体服务的角度已经从传统的在线音乐进一步的扩展到了更加广泛维度的一个粉丝经济，包括艺人的相关周边，以及包括线下的演唱会表演，以及包括我们的艺人和粉丝之间的一些互动的平台。那就公司管理层而言，你们认为未来发展，特别是在接下来的一到两年，最大的机会点在哪里，而最大的挑战又是什么？谢谢。

最大的机会点主要还是我们仍然就像Cussion Pang提到的，我们实际上还是要去建立一个就是你的版权内容和周边也好，周边包括权益里面一个综合的一个服务。实际上粉丝经济并不是我们认为是单独的一个单独的一个业务形态。

Talking about the biggest opportunity, as Cussion has already mentioned, fundamentally speaking, the company is still committed to building a comprehensive service platform, including the copyright content, the artist merchandise, as well as the privilege. We believe that fans economy is not something separate, it's already within our system.

对于我们来说，我们更关注的仍然是我们的这样的一个周边，包括演唱会如何跟我们的线上的平台有一个更紧密的联动，同时去推进我们的用户规模，这个其实是我们更加在意的。

At least for the company, what we truly care about is leveraging the artist merchandise as well as the offline concert concept to continue to forge a deep bond between the offline concert and online platform. In that way, we will be able to continue to grow our subscriber base. This is something the company is really confident on.

如果说机会来说，就是我们目前来看，通过我们在版权合作方面的优势，能够让我们期待其实是延展开，其实我们现在等于是在能够让我们从版权上，比如说从国际化的行以及内地的版权的优势，能够延展到我们现在目前的综合性的这样的一个音乐服务。

We do enjoy a great advantage on copyright, but what we do is trying to further expand our advantage in copyright in both China and internationally. We hope what we could be is a comprehensive music entertainment service to our users.

content and rights below.

Regarding the challenge, I think to some extent, we really need to make sure the size and development of the platform can help us to make sure we have integrated development for both content and the privileges.

那么另外一个最大的一个机会，就相当于这次我们做 GD，实际上我们是相当于在境外，那未来可能还有其他的东南亚地区，那所以基本上我们的周边跟我们演唱会这些综合的服务啊，我们认为可能在后面国际化这部分应该有一个比较在未来几年之内应该有一个比较也有一个我们期待的发展。

Another opportunity I do note is that for this quarter, we organized the concert for G-Dragon. It was staged in overseas countries and very likely to have extra stations in Southeast Asia markets. At the same time, besides providing the air flight concert, we also have the merchandise as a comprehensive service. This will help us to continue our international expansion.

Thank you. The next question comes from Macquarie. Ellie, please.

Good evening, management. Thank you for taking my question and congrats on a strong result. We are very encouraged to see all of these exciting developments and initiatives. My question is really on our long-term positioning. Could management share how we foresee our longer-term revenue mix and how this could further evolve, especially it seems like we are expanding into more diversified kind of music offerings and also taking a much longer-term view? How do you see TME positioned on the entire entertainment value chain? Thank you.

非常感谢，谢谢管理层。晚上好，非常感谢接受我的问题。首先恭喜公司在本季度取得了亮眼的成绩。我们作为投资人也非常高兴能够看到公司所采取的各种发展的举措和相关的项目。我的这个问题更多是关于公司的一个长期定位，管理层是否能够帮助我们分享一下，从长期角度来说，公司的一个收入构成会是怎么样的，未来的进一步发展会是怎样的，特别是看到目前我们在音乐产品，就包括我们的服务上实现了更多的多样化。那从更加长远的角度来说，公司如何看待我们整个集团，就包括业务在娱乐价值链上整体的一个定位是怎样？谢谢。

to keep moving forward.

Regarding the overall positioning of the company as Office, we are still going to leverage our one body two wing strategies. That is the platform plus the content ecosystem to continue to advance our strategy.

随着我们之前在音乐流媒体平台里面的业务稳定发展，我们未来的主要收入以及利润的来源也会主要来源于我们的在线音乐的部分。

As we have a very steady development for the live streaming music platform business, I do believe in the near future, the key source of the revenue and profit are coming from our online music business.

广告业务的过去的增长, 也是一个非常亮丽亮眼的一个亮点了。我们未来的增长速度来讲, 广告业务的收入的增长速度会稍微比我们的在线音乐的快一点点, 但他们都是我们当前的在线音乐里面一个重点增长的两大 driver。

Regarding the advertising business, it is also another highlight of our overall business. In the longer run, I believe the advertising revenue growth is even going to be kind of faster than the online music revenue growth. Indeed, both are all very important growth drivers with our online music revenue.

社交娱乐的部分, 我们的收入整体已经相对平稳下来了, 然后未来呢, 我们会有新的一个增长点, 就像刚才我跟 Shirley 跟 Ross 跟大家介绍的, 我们在内容还有演出以及艺人经啊粉丝经济周边等等的收入也会持续有一个比较好的一个增长。

Regarding the social entertainment, our revenue has already been stabilized, but in the near future, we will have new growth drivers, as Shirley and Ross has already introduced to you. Besides the content, we also have the performance, air flight concept, fans economy, including the artist merchandise. Those will also continue to contribute revenue to the company with nice growth.

Group 整体集团的发展的导向来讲, 我们会致力于在我们当前的核心商业模式上继续做更好的发展。同时我们也希望可以在未来, 包括有些新的业务来的补偿, 包括了刚才讲到的长音频以及我们海外的一个新的拓展, 都希望能为我们带来更多新的业务增长的机会。

Generally speaking, for TME, we're still going to take a development or retention in the near future. Our key focus is to continue to develop the company based upon our existing model. At the same time, we will also going to keep an eye on the new business, for example, long-form audio, as well as our international business expansion. I surely believe they will also provide extra acceleration for our existing business.

Thank you. The next question comes from Wei Xiong from UBS. Please, your line is open.

Sure. Good evening, management. Thank you for taking my question and congrats on a solid quarter. Earlier, management mentioned the strong advertising revenue growth this year, which was partly helped by a newly launched ad-based membership. Could management share more detail about the revenue and subscriber contribution from this new membership? Was the operational strategy to scale it up and maximize the revenue opportunity here without affecting the conversion to the standardized subscription plan? Thank you.

非常感谢，谢谢管理层，感谢大家来回答我的问题。首先恭喜管理层在本季度取得了非常亮眼的成绩。我也特别听到管理层说，我们看到了非常强劲的广告收入的一个增长，这从某种程度上来说也得益于我们之前推出的网状会员这样的一个模式。有没有可能和我们共同分享一下这样的一个新的网状会员模式之下，它的收入以及包括从订阅角度来说的一些具体的细节。在不影响我们的标准的订阅化转换的一个情况之下，我们如何能够利用这一新的方式或者是新的模式来进一步最大化最大的收入？我们具体的运营策略是什么？谢谢。

首先我们广告收入的进一步今年快速的发展是得益于网状这个模式，并不是网状会员。

Actually, I think the fast growth of the advertising business is coming from the online advertising rather than the ad-based membership growth.

所以在未来广告这边的一个驱动的发展仍然我们认为激励广告这个方式仍然是我们后面这几年里面一个重要的发展方向。

Therefore, in the near future, I think at least for the advertising business, incentive-based advertising is still going to be the key in the next few years.

因为不同于标准的免费广告，网状网状模式是能够针对于全量用户去做对应的一个推进的，因为它是全量用户的一个激励模式。所以我们对这网状广告这部分的收入的进展是比较充满期待的。

Different from the standardized free advertising, the incentive-based advertisement is for all the users. It is a common and general incentives model to all users. We are still confident in the future growth from the incentive-based advertisement business.

那么在这样一个用户规模之下, 在激励广告这样一个用户规模之下, 我们在上上两个月才开始去尝试去做类似于广告会员的这样一个形态。

Actually, with the existing user base of the incentivized ad business, about two months ago, we started to pilot on the advertisement membership format.

对, 就像我刚才提到的, 就是我们这个相对来说, 不是相对比较低的这样一个网状会员, 它是能够去给到不同的这样的用户层提供一个不同的一个差异化的一个解决方案的。

Just now, I have already mentioned for ad-based membership, the RR is relatively low, but it can provide a differentiated solution to different user groups.

我们相信我们对于未来来说，网状会员以及我们的普通会员，加上我们的 Super VIP，我们认为这样一个三级模式能够让我们更加有机会去扩大我们自己的会员规模。

I think in the near future, for ad-based membership plus our standard member as well as Super VIP, it's a three-tier membership system. It can help us to continue to broaden the size of our subscribers and the user.

这是我们比较重要的一个运营的方向吧，这也是在这两个月之内我们在对于平台方面比较关注内容，但是目前确实还处在比较早期，未来我们如果有了更进一步的进展，可以分享给大家。

This is indeed a very important strategic operational direction for us to go. That's the reason for the past two months, we actually attach great importance to the content of the platform. I have to say it's still in the infancy stage. If there's any nice progress being made in the near future, we will surely share it with all of you.

We still have some questions, and we'll take the last two. Roger from Barclays, your line is open. Roger, please? Hello, Roger, can you hear us?

Thank you, management, for taking my question, and congrats on a very solid quarter. My question is on operating expenses. For the last couple of quarters, our bottom line continued to outpace our top line growth, thanks to very successful cost reduction in terms of the marketing expenses and G&A expenses. Should we see this trend continue for the rest of 2025 and 2026, given that we have identified so many growth opportunities? Management has to talk about how should we think about our operating leverage from this point on. Thank you.

非常感谢，谢谢管理层，谢谢管理层接受我的提问。首先恭喜公司在本季度取得了非常亮眼的成绩。我的问题是跟运营费用所相关的，在过去几个季度我们可以看到公司整体的一个利润增长的话，其实是超过了我们的一个收入增长，这主要是得益于公司的成本上的进一步压降。鉴于公司在业务发展过程当中有如此所谓的增长机会，那我想了解一下，目前这样的一个费用以及包括相关的一个利润趋势，能否在2025年全年，以及包括在2026年继续保持同一趋势，我们会如何去考虑我们后期的预算感？谢谢。

对, 目前我们的这个营销费用中间的销售费用这一块, 其实主要投资是在这个内容的宣发和渠道的量的购买上。

Thank you very much. Thanks for your question. Our monthly expenses, especially the sales expense, are actually being used for the promotion of the content as well as traffic gain for the channel.

这两部分呢，我们会根据市场的竞争情况去做一些调整。目前来看，我们会继续增加对于音乐内容的宣发的投入和音乐渠道推广的投入。

For both, we were going to make an adjustment according to the market competition. As of now, what we do is to continue our investment for the musical content promotion investment as well as the music channel promotion.

然后我们在这个研发费用上呢, 还会持续关注这个技术赋能和积极探索新技术带来的产业创新以及新的机会。

Regarding the R&D expenses, we will always keep an eye on the new technological empowerment to see how the new technology will bring the industrial innovation and new opportunities.

我们预计呢，2025年的整体的运营费用在绝对值上会有所增长，相对于2024年。

We do foresee that compared with 2024, the absolute value of the operational expenses will grow compared with the baseline of 2024.

但是我们会控制这个呃费用的增长比例, 会呃低于这个收入增长的比例。那我们的净利润率和净利润都有一定的这个空间吧。

Speaker 0

The way we'll make sure we control the expenses growth would always be slower than the revenue growth. In other words, we still leave enough growth for the net profit rate and the net profit.

Speaker 3

Okay, in the interest of time, we'll take the last question from Maggie from CLSA. Maggie, please.

Speaker 4

Thanks for taking my question and congrats on the very impressive set of results. My question goes back to online music subscription business. Can you share a bit more on the Super VIP penetration, its uptrend, and the overall retention rate in this quarter and overall? We noticed that many of the drivers behind Super VIP penetration are time-based or event-driven type of activities. Just wondering, how shall we think about the sustainability of such growth? What would be management's top priority in driving a sustainable revenue growth in the superfan economy? Thank you.

Speaker 0

非常感谢管理层接受我的提问。首先，祝贺管理层在本季度取得了非常亮眼的成绩。我的问题又回到在线音乐的包月业务上，能不能请公司简单和我介绍一下目前Super VIP的一个渗透率的基本情况，以及包括它在本季度的一个基本趋势，还有包括它留存率方面的一些情况。我意识到，其实在我们Super VIP渗透率背后的一个主要驱动因素都是一些基于时间或者是事件驱动的一些活动。我想了解这样的一个Super VIP的一个增长是可持续的吗？那公司以及包括管理层是如何通过相应的战略以及包括相应的一些做法能够确保我们的粉丝经济的可持续收入的一个增长？谢谢。

这个首先有些误解啊，我们的首先我们的SVP目前的驱动力不是来自于时间或者是事件，这个仅仅是一个在偶尔有新歌手发的时候他出现的一些可能会出现的一些毛刺的增长。

Thank you very much. First of all, I think there will be some misunderstanding here I need to clear. First of all, the key growth driver of SVIP penetration ratio is not on time or not on any single event. It just happened to be when there's a new sound or new albums being released. There might be some marginal growth from this release.

目前这个渗透率其实在今天这次我们已经公开了，就相当于是我们现在有1,500万的这样SVIP，那我们现在有1.24亿的这样的一个包月用户数，这就是目前的在包月里面的一个渗透率。我们也看到我们发展它的渗透率还会再持续的提升吧，我们整个的up值的变化包括留存率都是在持续的增长，这是我们比较欣喜的看到它是按照我们的一个路径去完成的。

Whereas already been stated in our prepared remarks, we now have 15 million Super VIP members and 124 million subscribers, and you can then calculate the Super VIP penetration ratio, where we also need to see the penetration ratio will continue to go up, including the ARPPU and retention. They are all ramping up, and we're very likely and happy to see the growth trajectory is in line with our expectation.

我们的核心其实Super VIP的驱动力主要还是来自于我们的高等级的音质音效，然后我们之前提到的长音频内容，包括树专。它基本上仍然是在它的体系，就是我们从绿钻标或者我们从普通的会员刚才那里面谈到的去升级成Super VIP，所以它核心的Super VIP的增长主要还是来自于这样的一个基础体系的。

Where actually the key growth driver are still coming from the premier sound quality, as well as the long-form audio content, as well as the digital album. To some extent, we also have the regular members who have been converted into the SVIP. The fundamental logic of SVIP growth are still coming from our well-consolidated business growth.

我们跟你分享一个比较最近今天的有意思像陈奕迅的这样一个专辑，我们其实在SVIP在这张专辑上的一个销售其实已经达到了我们一个预期的一个比例的效果，已经不是像以前这样的一个按条收入，一个非音乐收入的应该说按条收入的这样一个规模了。

For example, let me just share a case with you. For example, the East Central's new album, and the sales of this album with our SVIP is already hitting our expectation. We no longer record it as a single album sales.

VIP应该还是会稳健地去发展。那另外最后你个问题问的你关于这个粉丝经济是否能持续, 我们实际上当然讲了就我们会能我们会预先做更多长时间的半年到一年内的商机的排期, 所以我们力图也是把我们整个跟艺人的这样的一个有关联的这个业务能够做到更稳健的发展。

That's the reason I think our Super VIP will continue to grow in a very robust manner. To the second part of your question regarding whether the fan economy business is going to be sustainable, as I have already mentioned, we did many preparations at least six months to twelve months before the event happened for the scheduling. In that way, we will be able to make sure we will be able to run the artist-related business in a more robust and sustainable manner.

同时我们现在还有更重要的对团队里面更重要的任务，就是在日常没有大事件发生的时候，我们对于我们周边的销售能够保持一个比较稳定增长节奏。目前我们也看到这样一个日常的销售也是在稳步增长的，所以基本上我们都是这样去力图让我们粉丝经济这样的收入能够按照我们的节奏去发展。

One more additional comment to our team is if there's no major offline concert event happens, we're planning to maintain a rapid growth of the merchandise sales. As you may see, we already have a steady growth on fashion. What we're committed to do is to make sure our fan economy revenue will continue to grow as we expect it.

Speaker 3

Thank you, and thank you everyone for joining us today. If you have any further questions, please feel free to reach out to the team. This concludes today's call, and thank you once again. We look forward to speaking to you next quarter. This concludes today's call.

Thank you so much.

Speaker 4

Thank you.

Bye bye.

Bye bye.

Bye bye.