TME - Earnings call transcript Q2 2021 | Tencent Music Entertainment Group

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Operator

Ladies and gentlemen, good evening, and good morning, and thank you for standing by. Welcome to the Tencent Music Entertainment Group 2020 Second Quarter Earnings Conference Call. Today, you will hear discussions from the management team of Tencent Music Entertainment Group, followed by a question-and-answer session. Please be advised that this conference is being recorded today.

Now, I'll turn the conference over to your speaker host today, Ms. T. Millicent ma'am. ahead, go Please

Millicent T.

by earnings you, an via Chairman, Mr. operator. joining its overview and you for ir.tencentmusic.com Yip, close. and Pang, product financial our available Cussion IR thoughts developments. website services. Hello, start will on today's business Today, everyone, at An market us the Mr. will announced CEO; well who be Liang, on and our He Ross today thank Executive followed our is our call. Mr. of our call now results will from on as all recent as CSO, after Thank release our updates. Newswire Tencent quarterly with hear offer operations Music the Tony you'll strategies, who additional

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Cussion Pang

everyone, our Hello, thank call you Millicent. and you, today. for Thank joining

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We of report songs diverse for coverage movies, ancient full we by coverage a of verticals, hip-hop, including particularly consistently hits, shows Chinese television comprehensive have shows. hip-hop demonstrated gaming, and been in and style, are variety pleased breakthroughs to music new music programs that making and variety

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closely value create more working broadening produce other copyrighted chain, we and While also of our upstream and artists have partners offering music, differentiated with to been our content.

across For example, multiple Tencent we with extensively businesses. to began work

with co-produced over partnered film, quarters, [indiscernible] songs Jiang we dozen across chart-topping G.E.M., and as Over categories. literature Angela past comic Zhang, the and two prominent artists, such and few Xiaohan, gaming,

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promotion focus performance new Finally, bring monetization. continues TME brand with on the to and to omni-channel opportunities our company, online-merge-offline a Live, strategic

we user On VIP concepts such holistic top monthly privileges, for for live performances. to artists to new more immersive interacts online host merchandise site, monetization, and online experience a the and create include as ticketing,

Beijing offline key Live live TME as cities, daily the local such collaboration including Tencent performances industry. its Shanghai On the with expanding footprint is tourism with side, initiatives, and the Musician in offline and pent a launch and to Platform

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Ross Liang

serve focus been community in I building. socialization April, Thank yield strengthening and by CEO my our you, on and Hello videolization, Cussion. became source has everyone. ways competitiveness finding platform’s Since term, to new

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like Tony, highlights ahead. and important to of to to business over would I turn call focus. area discuss Now the go Tony please the

Tony Yip

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new forward, of would cross-platform turn financials. like to opportunities. successful for closer call With over to we our plan CFO, replicate a our the events to I Moving the Shirley, into that, review

Shirley Hu

everyone. Thank you, Tony. Hello,

our perspective. discuss just results from Let’s financial

QX in and music year-over-year for services, particularly in advertisings. were growth music by XX% XXXX subscriptions RMBX revenue total driven Our online up billion, strong

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are for field to initiative volume revenue trust also We services. steady revamping entertainment social field and maintain the in diversified its more

to growth. revenue will advertising Additionally, year-over-year contribute the on music platform

was strengthen increased such to as audio. well racing XXXX product was rate as nearly XX.X% by the the and slowing by QX above. platforms, long-form margin reached Gross also sharing as However, X% down new increased business for discussed in the was in regulator new revenue growth the at guidance of impacted reserve to offerings, active investments our year-over-year resources content for due as

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and million million. margin RMBXXX RMBX.XX the was to RMBXXX and net profit equity profit holders was profit company the was XX.X%. holders Non-IFRS to net Non-IFRS billion. net of attributable non-IFRS of attributable profit net Our the was net was profit company billion equity RMBX.XX

XX, payment Cash XXXX, billion equivalents, a combined billion, by RMBX our decrease had deposits XXXX, the representing activities June for balances RMBXX primarily operating stock investments of from on repurchase. driven As a and from of positive balances. impact QX were short-term generated combined cash, cash term of

we new as to and our call remarks. production, invested prepared participants we long-form the our will questions. for growth. This of music industry. innovation ready and and products audio concludes open Operator, music, revamping so but are for our Along investment long-term foster contract future that our on for product with Program existing sales, we the forward, for keep spend the such focusing multi-development online Looking Musician Tencent our in streaming

Operator

you. Thank

from begin Yap first session. come go And with will the Alicia now Instructions] [Operator question We the Citigroup. Please ahead. question-and-answer will

Alicia Yap

to I Hi, your Would be follow-up in to minimize of expecting the potential? is that or paying on higher more future questions. that good operation or subscription sign. possible more management. you’re be offsetting management Thanks it impact? to model revenues the morning, measured are regulatory premium that posts what business difficulty for wonder you with on potential on it push And you Thank remarks more kind mind more on expecting Would you. taking my trend that the to the plan regarding convert online the the have user? ad done impact

Tony Yip

the add. then for answer take question. perhaps management Thank and your can others first you I’ll the for part of

earlier I to innovation, which things, we’ll was regulatory it business the be noting the know through the we’ll to strengthening there end on the days on have our committed we’ll serving fostering users. date our also on musicians available continue to the an been authorities, better decision. while position think exclusive licensing of will music that in manner, focus within the music Cussion implement And operations decision available whole. our arrangements has and music worth elaborated have at rectification a that and all on. complying development fully other that the music focus And an as to timely as on healthy product July, is on decision a and focus to regulatory a you by of of – are to recent industry the accept in terminate pursuant has will accordance platform to the from requirements, platform with that users the Ross penalty among also plan on XX copyright which with all We’ve the requirements we impact

Let there things and me pause add. others see has in to others management if

Ross Liang

committed to like us means flywheels competitive you would think the dual create that, is make of is strategies, which develop TME continue edge a again, content the we mentioned have And – while platform, just healthy will development values to add I one of which music questions. be that we users. agreed to our the that you is Yes. it, long-term and in for not key we but just thank ecosystem, I as to the also implied more

we will our And position timely – seeing our definitely, in As operations, impact a that and operation frankly impact we example, on to you going that much mentioned subscriptions. the regulators are complied will have driving also on we is to manner. some follow the I we it it by too don’t think that online have for our, day-to-day but be our speaking, on

still the music we really I see because they see, they willing of really we think you pay as and momentum, content value a for them. As are in music long and with users been are the are high has to good providing quality educated as

for So music mentioned, footprint to be we still the content creation content and our have the working not manner. services, a continue you on healthy partners, that, in together will driving in like new different our online I but industry regular just users. And which production, also, we online especially with videos concerts, side as the upstream expand more more online also some the music offline this and concerts. with but not the we organizing are also interaction just are And for and and doing have content is downstream, the creativities we the

strategy flywheels will create us to think user in long-term. dual to continue valuable obviously I help a that So

Cussion Pang

with also of everyone in we in to next cooperate That’s progress work joint a quarter. update Tencent we’ll [Foreign and Video Yes, the Language] in area discussion subscription. the in

Millicent T.

you. Thank

Next question?

Operator

come The Stanley. go Poon ahead. next with question will Please Morgan Alex from

Alex Poon

by acquisition, my is to we much new from to And attract will paywall we’ll percentage trend new behind first – question question. moment won’t how volume makes music EC, less My and is discounts Thank what and on, at for That Thank how this we’re independent My is much such on expect change regarding from roughly spend Do question. musicians roughly much. have marketing, user my licensed acquisition spending first the we users? exclusive content? acquiring time? very And now because right now where apart we have exclusive overall driven future. regarding the will more user do more have second users is and ARPU just we how taking Could on that management is from how over it increase the and contents. content. you for question share exclusive management streaming in you

Tony Yip

can We to answer percentages I’ll part regarding relating exact the historically content. ARPU, of types not the various of subscription question platform have costs the and streaming as of also we acquisition part and exclusive Hi. that. content, share But the Shirley of disclosed the first in have on then address plan. do historically the

platform, Although there with of regards share steadily is indie fair that over the time. musicians we over plan to streaming to are more we’re development. time to noting that growing and it’s that within musician a and also more as to has joined music them musicians and join new more platform together. talent our a that to subscription worth more as to to And supporting with of create and the then specifically, able and committed closely promising intend Tencent also the we jointly continue been able discover work content And amount grow non-exclusive to be

content across as a industry. we affects years the having our of new development And in been creation the important is to model a believe educated standpoint, music users fairly keen well. how then model brings that long that overall monetization over also note long-term service. think is for number of regulators from regulatory part that. a opportunities music over think it’s to to I a important viable the the consistent a And subscribers, the in the area terms subscribe us I of the healthy it industry are It have So to of and period, an and promote monetization

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Cussion Pang

program. thanks I Yes. will bit questions. let regarding little musician your you color more the I’ll for add And Alex a Tencent

I think we in a Tencent the we have program since back been really good work launched XXXX. Music doing

remarkable I platform. of not that or that of four through So in of been results. the very that terms the just think we seeing have achieved we there’s songs after hard years of issued have number work, And our songs are quality

think well. do on help distribute we we register and creating try the are And for professional for through also which I not focusing well. Besides we ecosystem other also them irrelative our some Tencent open the outside the can to also users musicians we to musicians, as other musicians music collaboration to really the and channel we the and are they own, and as then rights helping example, creators. IP platform, also between the there Like to their try help TME on their and also us. that distribute protection, have the music value with producers

continue to to bring try we most quality high And of all important the to is thing together. them music. So produce

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that Since is TME like and not online in mention our festivals, online you participate we are continue a of to which in So and I And sharing Tencent and after as event I the have generation younger to our will also reward good but least, music our been hard platform. our make think led the this let in enhance TME And we kind revenue the system, Live have start last progress. work to is our And on also event, well, Live. the a also living this the concerts well. letting have we really continued achieving as also lot. all then musicians to musicians podcast we of to and which offline live

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Ross Liang

acquisition to platform Kuwo continues a user as music perspective, a a Music in Music, to of strategy portfolio be approach terms whereby, Music, WeSing. as addition major Kugou in multiproduct In our three across QQ from well apps the

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please Shirley ahead. Now, go

Shirley Hu

balance Yes. we will Part can and our factor stable performance in campaigns subscribers, compared third will be promotion subscriber quarter. that our rapid we very music and services our numbers to good that the have in expand QX the we quarter growth expect of of that

Alex Poon

picture. management for Thank sharing you the Thank you. full

Operator

Eddie The Bank question will next Please with ahead. America. come from of Leung go

Eddie Leung

morning. Good

gross gross the in margins. a We Just slight on question dip margin. noticed a

there we So a few that could content. expanding you reasons, for example, understand be guys

streaming has also that in some hosts content. live could know be that audio other industry we form increasing. live to sharing companies also In long then addition been we the revenue there more finally, And understand streaming from ratio

your the give a about should So, color we upcoming and it couple think quarters? you. they Thank margin few more us gross factors affect in you of bit how on how could

Shirley Hu

audio About gross the will next such also margin, ratio quarter, and revenue you be increased. why offerings for sharing margin the said products decreased investment be reasons expect gross that as and the in in continually we content QX, the long-form new the and increased leasing the our

the prospect. our entertainment this is So will social be we the pressure. one under second, And expect

think label in is trenches drive gross that so very short-term the industry we the margin to generally license on impact on have operational. clearly business random for our not shift social also we and copy be that this to structure course to higher the margin to our some cost So because cost mix time there also impact to a the of and will gross negative and need music from

will So gross minimum in high the to stable term. cost be near on be structure of positive we margin. think guarantee changed that our will believe the Actually we long-term, in cost music from structure

gross margin conclude, next believe quarters, the be the in in will pressure. we our on So

Ross Liang

well. add that bit behind as I’ll little more Perhaps Yes. a context

see music the I XX%. currently to outlook continue with XXXX, music. leverage think in coming And expect the revenue year we for for terms be growth to online full total XX% online approximately the healthy operating through of year-over-growth rate we revenue around

I business grow continues think, online to it the very within nicely. So, music

While weakness reinvestments year basis year-over-year entertainment in as on on well to revenue streaming social that as flat Shirley’s hand other is roughly the talked live for the full to be margin the due the expected a about.

a on subscription user we paying RMBX Now for year-over-year to RMBX quarter. also of between revenue the regulatory And performers we’re be mentioned social then prepared entertainment is rate strong result to macroeconomic the of paying business also expected to growth and and it’s is that experience. result competition combination continuing expect by within expected revenue million And in we due to is impact launch online with growth, behavior to users improve than see net to in short for music, while platforms app users at of to hand, impacted as adjustments. conservative weakness remarks, continue with then streaming to off guidance per million ad strong a a the pace the live order seeing previously the other growth for within relating to on video expected is user spending lower in continue

making And think, in second terms in operations all of with cost streaming revenues a margin directions know also business comply products. streaming have account investment of we regulatory result in of as tipping in past, the in revenue taking terms this and to the into and that half see content, into live therefore, pressure weakness of the to performance, and the the I a to We you the areas behavior. to safety are we do expect sharing margin margin the higher a pressure what a of – in new live further

Operator

will The from next go question come Thomas Chong Please with Jefferies. ahead.

Thomas Chong

our tax picking still side? then morning. – half, rates question Thank preferential seeing and the about expect as Thanks softness my terms impacts do And net issues also questions. the given business? question long-term coming second comment target? for about in think subscribers we to point good And we’ll that the expect we is you our as about protection mentioned data I second apps My management we are trend, my that bring of long-term margin do from business the on Hi, well is privacy about in to in that need to any we our that you. need our advertising on about music taxation

Ross Liang

of about address first terms committed relevant all, to privacy, that Well, of we, data tax. bit in with then protection. we are of data Shirley and requirements a little data and complying of the regulatory most question areas I’ll the can in talk protection

And between about improve RMBX compliant. of think of subscript and some also being that and the ads million back we’re growth the to content expect I – the the that’s subscription think strategy, to continue we an streaming, which coming I to quarter net in our per And of continues, the that for With So, within confident as our then long-term business content important a worthwhile weakness respect terms long-term dual build live we flywheels the long-term and of platform, the it’s continue RMBX trend short-term confident music to comprehensive is million we priority our specifically mentioned of because content and that’s I trend operations of the despite spectrum our to was the company most offering. business. covering plan goal in the audio relating that broad we to ecosystem, continue to execute to on. to

Tencent their And we’ll our hand, to Tencent upstream Tencent And Tencent with content music video, better elaborate in lot partners, literature foster partner while artists broaden I self so development pictures, the other content has content library. IPs. corporation the of with continue content continue even partners to we’ll to And indie expand our to about. content. together Group the content our on with there, or of fourthly, with as co-produce deepen musicians. the to talked enhance we’ll thirdly indie And games, produced like area capture and Cussion to the differentiated a won't and one value differentiated co-produce label full cooperation existing hand, we’ll musicians of production China with then partner we’ll businesses also on

[indiscernible]. in literature, co-produced dozens from IPs, In games, [indiscernible] fact, prepared songs we've of song the already And TME. mentioned incorporation prominent to a is as with theme also two production movie movies, we popular chart-topping relating of a the artists as comic, such remarks,

their status using feature listening enhance taste. we aim allow there a new we'll content continue specifically, that's Ross as think to also I launched music And with social and experience, would our music use video features And the number to users that example, to that the features deepen within Putong on we launched update of we'll then areas, the ecosystem Weixin across launched as in continue that music, QQ So a And an comprehensive to users four main mentioned visualization strategy competence continue we platforms. planet, are Weixin one as of they're music, video we a that social platform community the to feed. of Accounts. as second with cooperation building. to. connects within example songs then And and audio, And strengthen video the an social pursue. a our example, form emphasize common And an full around core screen all Video QQ immersive feed secondly,

complementary industry. So in Weixin that's deepen social our is thirdly, and cooperation overall the and actual increase were have product segment competitors a across – synergies a the differentiated that stickiness operational is and we results, in community. which of users. platforms and our more of And seen think extract platform and service time strategy, to across building. and then provide multi in covers that there's portfolio strong within multi and – the that very the unique R&D to leadership middleware content to to very actually I to attractive also in in efficiencies we And the the the its a we'll music has each providing spend has more architecture long an a as the continue that increase product continue the unique we content a users extract us sharpen this area audio finally, audio, opportunity both and help highly will content through audio to music the for compared past positioning platform attractive operate music across have – a from the And user other brand

we think that's on intend the to committed pursue that. we're I strategy that executing overall to and So

Shirley Hu

rate of on because the will tax impact ETR the companies rates we not the application until approved, our into that to our will is the do net About so that in be think tax Yes. rate, we and we no calculating and believe consideration tax our margin. quarters, are stable next be when case professional effective take entitled

Thomas Chong

it. you. Thank Got

Operator

The will Mubayi with from come Piyush ahead. Sachs. Please go next Goldman question

Piyush Mubayi

be structure with into when Thank versus the talked competitive likely you about ARPU how move you just the represent that so to my you positioned you the go that? other about that second, Thank yours. taking evolve? MSGs the would company a speak about for first how away generally you That's you. question. social was would Shirley, my about exploit Does current That was on if opportunity this contract you how are labels. for perspective account taking talked how to the Then you company Could looking and a question. significantly that great. from and public, other is they

Ross Liang

first. contrast Yes, about I’ll talk the

that licensed into contract – we in we all, reiterate month. a a would – within you of with piece, follow contract in change the simply like to our exclusive and of non-exclusive to content a First directional partners renegotiate the contract will continue and our

And with details also now are of the to some the the it this So we discuss in will on involve discussion as them. regarding detail progress term. we note,

other want to And to progress the in off talking also the partners and of to the the a in talk because about we contract do we of the are other way content other in them with other we is, some with also not the exclusive before, manner. some contract timely that details a they have are really settle we platform. So have

we our quality of music also produce productions content with our music and terms committed have in the in optical co-production of margin. and bring in side, the margin we produce the we So continue partners. and our that side, of or expand think best to And committed will business are self licensing in I be superior terms a will more users. fully doing the self for to library our contents, Besides

from back. us So our this help is lower pass content costs continue to to also will

So to want Shirley, the mention you time? about second

Shirley Hu

Okay.

Ross Liang

The social entertainment…

Ross Liang

Yes.

– social on by pressure future the we tired adjustment will be we expected because We do is believe ourselves some be in So because think regulator automatically this entertainment quarters will that we under up. part. the

we future. So this more make operational building change message closely will our in the and

our increase nature we come up have if natural. like – raising we expand and platforms if users room the a can of okay, next chance positive our social fact such kind believe in – to we our can year. entertainment and in of – entertainment platform So issue be our We social

and okay platforms think as many this we can we revenue such path. and we to [indiscernible] more increase also public build use many, cook. performance in – this kind our patch platform on can many such [indiscernible] And we and we our of So as order have methods have

with increase. good Yes, So can can we we stable revenues can a and have entertainment little year believe and revenue performance in social be be a next stable.

Cussion Pang

[Foreign Language] Okay.

higher, the live think a the leverages that Kugou efficiency. whereas social within historically we lower ARPPU building So actively stream entertainment live so in we sing onto the live are is that two has ARPPU points, we in is sing middleware and – we streaming architecture Kugou historically we capability improve first streaming the ARPPU, could

building increase architecture some should generation. to thereby revenue more the overall and efficiency extract users middleware paying is value add WeSing, we the focus the through to for While on hope the

in for PK live WeSing. pioneered industry platform, we the first and the Secondly, recently time across Kugou stream, across competition live

revamp with product to Specifically audience participate, tap the the users hope social small to environment that the around of platform They're together room that cross streaming pick event is I'll social retention. duet, leasing singer or into gifts time, to a seen room that strengthening our increase we've exposure. live virtual make to performance new within as can main singing add WeSing in they revenues live live attracted result future and to audience, entertainment, group on streaming singing the the in soon like for to in the ever to participate large avatar replicate entertainment new group successful never to as more sing sing the virtual hosted more the interact competition, room, in even as to metaverse room, socially experience along to what, first wider that a that improve And to the streaming thereby audience as setting. in more singer, well streaming also for The to song opportunity engaging. and also sent of features platforms first we suite the perform And and that and to within so those pioneer with into well opportunities. this specifically performance a environment plan view main cross to have singing a and of, the be is is but choose live interaction. would attracting launching a to user enable well as from allow would as we interactions. karaoke virtual core an revamp WeSing’s to and version karaoke the And singing, around competence want participating cater, other where that the a the the of offer the significant June happened upgrading into online the performance, solo we're platform. undergoing major the paying gives audience the singing WeSing allow it fun we'll centered to singing be cross-platform brings And increase

and expand the imaginative like virtual future, more environment and metaverse more interaction interactive provide in we'll opportunities cases experience. to use so richer And this

Piyush Mubayi

Thank you, Tony.

Operator

Alex from comes will ahead. JPMorgan. question Yeo next The go Please with

Alex Yeo

Good morning. my taking And you question. management thank for

I'm key initiative [ph] basis. monetization monetization efforts, PK guys Can across think into couple a or still losing hand times Tony, you we us a on the increasing full entertainment spend the year-over-year users because if Any previous Just as mistaken follow-up you a users and guys you you the outlook weakness for the the server regarding weakness the on the WeSing on revenue hand, are streaming the will not social one, these revenue and for different year one weakness social the platforms, other of understand is entertainment these the social guys helpful. two sites, – on platforms. live the revenue the on core usage monetization questions. the We second are platform. the which into Number number doing moderating their Kuwo? half streaming on are quick be help moderate you mentioned strategies Shirley for half on a losing second half the mentioned usage Kugou, entertainment decline but Thank live on I such will on the mentioned, flat are on implies second And color activities

Tony Yip

plans the our that entertainment for as both competition is the other well perspective such year-over-year From the is live product – and MAU acquire we'll video. acquire short as the traffic. pan coming from decline we've streaming retain talked Sure. platforms, and to a across the social WeSing and as retain users key about be doing better we to the the reason action plan, areas revamp And, we and that

first, from, behavior half a the weakness half. revenue regulatory also threefold conservative secondly we for competition weakness to social on and from specifically And industry video making directions a weakness as of impact, revenue in live second order with – as That's facing in users particular to adjustments spending thirdly, a short relates performance. is of user macro and for overall. entertainment. paying platforms of macroeconomic to also stricter then competition mentioned, result streaming I terms we second relates the live are In comply on continued operations the in in an primarily to that the streaming the The

of have as that competitions, a these impacts talked number and, So revamp new that we new that a entertainment, compensate. think time features within as a such I such measures doing impact impact but bigger of we're the that would these the items social about, the mitigating obviously, take through we're product to cross-platform fully

Operator

are call. turn of conference go approaching I over closing ma'am. the the remarks. would now to for T. We today, call to now speaker Please end like Ms. host your the ahead, Millicent

Millicent T.

for everyone us today. you joining Thank

you feel we This today's goodbye. again. questions, to look If Thank to to you call, and please have team. free forward speaking IR further any you and contact concludes

Ross Liang

Thank you.

Tony Yip

you Thank everyone.

Shirley Hu

you. Thank

Operator

This concludes today's today's for conference call. presentation. attending Thank you

now may disconnect. You

Tencent Music Entertainment (TME) 17 Aug 212021 Q2 Earnings call transcript