Q3 2019 Earnings Call
Ladies and gentlemen, good evening and good morning, and thank you for standing by welcome to the Tencent Music Entertainment Group 2019 third quarter earnings call.
Today, you will hear discussion from the management team I've Tencent Music Entertainment group, followed by a question and answer session. Please be advised to this conference is being recorded today now I will turn the conference over to your speaker hosts today Ms. Heather de Wille. Please go ahead man.
Thank you operator, Hello, everyone. Thank you all for joining us on todays call guests a music and now its quarterly financial results today after the market close.
Our earnings release now available on our IR website at <unk> Dot Tulsa music comp as well at the end use wire services.
Today, you will hear from Mr. caution pot.
Oh, well start a call with an overview, whereas most of our gross ducky well be followed by Mr., Tony Oh, we see ourselves well for more detail on our operation and basketball.
Lastly, that's truly our CFO will address our financial results before we open the call for questions.
Before we proceed. Please note that this call may contain forward looking statements made pursuant to the safe Harbor provision.
Private Securities Litigation Reform Act 19 Nike.
These forward looking statements are based on management's current expectations and observation that involve known and unknown risks uncertainties and other factors not under the company's control, which may cause actual results.
Or a cheating that's off the call them to be materially different from with or without football match or expectations implied by these forward looking statement.
All forward looking statements are expressly qualified in their entirety Vida cautionary statement [laughter] factors details of the company's filings with the FCC. The company that's not a field any obligation for we bought or asking any forward looking statement as a result have new information.
Sure that chunkiness in market condition, that's where otherwise except as required by law.
Also note that the company will discuss no I F. R. S matters that we.
We try to work more thoroughly black and they are reconciled to the most comparable Madras reported under international financial reporting standards in the company earnings release and filings with the FCC. Your reminder, that's actually no I for Este Lauder should now be it in isolation were asked them alternates today.
Well, then I up our Este Lauder well other now I R. S matters are doing for ladies why like all companies like what would be those indistinct industry with that I'm now pleased to turn over to call to Mr. caution called the Oh, that's amazing passion.
Thank you Adam Hello, everyone and thank you for joining our call today.
[laughter] E. B P. S. You step back Oh this is Raj.
If I recently shared at the recent matters annual conference held in Singapore, PBS with a sense content technology and services, which illustrate our commitment you and reaching our content offering.
<unk> proprietary technologies to improve usually either.
And providing comprehensive stuff assisted partners are teas and juices.
50, P.S., our core driving force in the third quartile Plenti 19, GMI achieved a solid financial performance.
Revenue, increasing 31% year over year, which was attributable to say, we're ready to go online music subscription and solid gold from social and if he wants to says.
One of the most recognizable achievements in the third quarter wants to come continued Saturday that goal.
Our online music status.
In terms of both being usage and subscription based on news.
<unk> online music paying uses we [laughter] 35.4 median growing 42% year over year I speak at all at once told me into end of third quarter picking up but has formed a strong additional 2.6 million in the second quarter and 1.4 million in this does quota of 29.
More importantly, the high quality off the school demonstrated by the L.P. do expansion, all 3.5 to send quarter over quarter.
Greenway show wish that 5.4%.
On the puts them in the last quarter and bolt on Threep ascending dose Philadelphia.
Achieving an increase of over one percentage point within less than a year demonstrates our strong execution and popped away well long term sustainable role.
Impression.
It's impressive performance was primarily.
Notable to continuous improvement in our usually retention rates and a significant increase the number being used is driven by people screaming as the willingness of users to pay for our premiums will take step is improved substantially.
I see no you Chinas online music industry.
We have been closely researching use that demands trends, particularly among the youngest demographic who show and increasing the willingness to consume premium content.
We extended our network penetration Oxys younger used.
Hi, covering some just universities and higher education institutions.
We also launched a pocket programs for students such as the subscription pen promotional event doing some holiday and the screaming program called to sum up and appreciation silent on that GE in leaving a inviting to I do see beta.
The most then appreciation we said special edition of our self produced that new song, we leasing bands, which live streamed AACIS leasing events. It boost that the lumber all video playback, both new solidly leasing defense to 280 median endeavor, but also.
Hi, a spent that off the first two quarters combined.
On the content friends, we also stepped up our investment pocketing to younger generation by strengthening Sean most including other than the D and E G and Chinese Asian spot.
Chinese engine. So has enjoyed a rising trend all popularity among young people actually combines Chinese.
Hi, this traditional culture popular trends and pull buys the young demographics, a strong sense of cultural identity.
One example of our investment in trending content, we recently signed a strategic agreement businessmen, a cultural media the largest Chinese Asian style music label in China.
Finally during the quarter, we continue to add long form all deal, especially audio books and podcast, including a which my life you all categories.
Leading all deals Noble's talk shows and a diverse set of topics on Trojan education history, and humanity et cetera.
Piece that you see the portion of long form audio uses I'll now pass will be called the healthy growth year over year.
In fact, the September average daily time spent on our platform by old excuse as well over 50% Hyatt and after she was up.
And then the achievement I would like to highlight what's that throughout the third quarter, thanks to our boss user base.
Deep understanding on music fans and use it inside the continued to improve our platform motion, though you talked on this and you much as I'd prefer that destination all Baftas you offend based economy.
With digital albums.
Well I noticed the promotion off their music, regardless of whether they are firing up and tell me.
I wish the domestic or international.
We have a lot of assessed in creating an interactive setting well content consumption, particularly with the younger demographic who are in primary contract mood is in defined based economy.
Well example, rice and emerging Mailman Mendoza elected with a variety show produced by 'cause NBD, all the twog trunk value or the mutual.
Middle Wilson up the tremendous popular rocky showed some deals one the one so the almost 1.5 convenient copies of this first digital album on the first they obviously the.
Another example, showcasing the power of I'll spend operation capabilities. This change house newly released single won't fly so I'll have to cool aside from strong sales more than 12 median Caracas thousand recordings were produced by our leasing usage within 10 days I believe me. These.
The release also generated a massive amounts of social but with more than 417 median age we would reduce on extend those social media by the end all TOBA Monday night.
International artist also enjoying and benefits from our promotional capabilities.
Which allow them to come that music lovers in China.
Casing point the tool to self pay less we have new digital Oldham love up sold at least 6 million copies sweeping wonderful I was on our platform after it release.
Another highlight I'll send based economy on platform, what's the successful live streaming for highly popular boyband called she export.
Yeah, six yeah, and he was the recon so.
This concept called does it feel what's the top five no was the call like stream the concept on TV platform in terms of offense POSIDUR patients.
Like beaten attracted more than 45 million users and generated over 300 million, we will time usually interactions.
Excellent example, demonstrating our unique strength in building a Ben basic economy.
Inspiring content consumption and providing an additional weight offense to ensure that we've idled and socialize with our defense.
In summary, we were piece that with our solid third quarter, we sell our continued innovation and investment to extract identified demographic.
Relentlessly.
Efforts in content expansion and diversifications and no other strengthening efficiencies in operating up and basic economy continue to pay all.
[noise] told me, where you left lay on how we deploy technology as well as other areas of focus which will enable us to continue enhancing overall would you say experience.
I truly believe as integrating music into every aspect of People's lives. Tony. Please go ahead.
Thank you Kushan.
Hello, everyone.
In addition to the strong results Hello online music services, our social Entertainment services also maintained steady momentum in the third quarter with a nearly 33% year over year topline growth.
As is paying users and ARPU grew over 23% and 7% year over year, respectively.
Our healthy third quarter financial results were driven by a combination of concerted efforts focused on product enhancement and improving user experience. So it's a pie Terry technology.
First on product enhancement and innovation.
As you may recall during the second quarter, we mentioned, we pioneered a product innovation by adding short videos on TV Kugel music streaming page.
Which has enabled users to watch short videos, while listening to music.
And since then I'll short video Library has expanded to include a wide range of professionally generated and user generated videos.
Such an innovation has proven to be popular with average daily streams of short videos up almost 40% compared to previous quarter.
For our social Entertainment services, we added new interactive features to build a rich and diverse landscape by bolstering, our social and young attributes.
We upgraded universal too wet feature one level, let's hope in September .
Which allows listeners to sing a duet much more easily and therefore further lowest a barrier for anticipation.
This has led to an almost 50% increase in the lumber of Jewett disciplines in October compared to September .
With nearly half of these new users with half with nearly half of them being new users of that U.S. feature.
In addition.
For the music centric social and gamification features we added new functions within that same rooms to facilitate social connections among users.
Further in an effort to cater to the younger demographics preferences, we introduced we save lives House Chen mean acre.
Yes.
Allowing users to integrate their offline stage singing experience with online social interaction.
With all these features we strive to provide a common destination for users of similar interests H a location together and interact virtually all in person in order to create tighter user community and improved user time spent on up last quarter.
Another highlight during this quarter was a leasings partnership with CCTV and 10 cents to launch a singing campaign in conjunction with a celebration of China's 70th National day.
The campaign attracted over 10 million participants.
With more than 1 million leasing users up loading their own power ocular recording of a national day celebration solved through Leasings quick saying feature.
This feature and lowest a barrier for campaign participants and improved user engagement.
The success of this campaign is a testament to our broad user base, demonstrating our ability to make online karaoke more engaging and entertaining.
And lastly on leasing.
International expansion, we mentioned last quarter continues to show encouraging results.
EMEA you continuing to grow at a rapid pace of over 30% quarter over quarter.
In the third quarter, we think consistently ranked number one among music related apps on Google play store in the Philippines.
And achieved top two ranking in Indonesia, Thailand and Malaysia.
We will continue to pull actively exploring new opportunities to bring our products or services to a larger user base outside China.
Next I would like to discuss how improved data analytics and the deployment of proprietary technology allow us to offer a superior experience to users.
Aided by leading smart tagging and while the analytics technology, we have greatly improved efficiency in concentration and personalized recommendation.
In addition to listening habit based recommendation.
By analyzing audio features with deep learning and by using data mining to screen solids in our library, we can better curated content for different target user groups.
Such efforts have resulted in improved user experience.
In the third quarter average daily streams from personalized recommendations doubled from the same period last year.
Furthermore, the percentage of solid sales driven by personalized recommendation also showed meaningful improvement.
And other reflection of the increasing effectiveness of our recommendations.
Similarly on we say.
Millions of content generated by our users every day.
And our algorithms screen through new and existing content to create content most suitable for different user groups.
The improved content duration and personalized recommendations have led to a 20% increase in both the streaming volume of UGC curated by algorithms as well as the number of user to follow up conversion for these UGC creators.
We also made advancements in deploying data to help live streaming performers improve their ability to reach a broader audience for example.
We developed a machine, scoring algorithm, which helps high quality performers differentiate their ranking.
And as a result has helped more users discover these performance and increase user time spent.
In addition, with our pairing algorithm were able to fight and match more much more relevant and compatible live streaming performance.
Still attaining these performance to perform together or engage in a single off to make the live streaming session more engaging which in turn got us more appreciation and virtual gifts from users.
We are always on the lookout for innovative ways to improve user experience and meet all types of user needs to further strengthen our ecosystem.
For example.
Our solid recognition application called floating rate up full full late.
Enables users to within seconds to recognize solves embedded aim external short videos that they're watching in third party short video apps.
And serves as a gateway to attract incremental users back to the t. any platform to listen to the full saw when they're consuming short videos elsewhere.
Since the official launch of floating rate.
Back in June 2018.
We're pleased to say that it is gaining momentum as a very useful music tools.
In summary, we delivered strong execution for both our online music and social entertainment services by focusing on product enhancement and improved user experience through the pie Terry technology.
Persistent focus on this type of overall deployment and improvement will be key to our sustainability to grow both platforms popularity and financial performance.
With that I'd like to turn it over its our CFO Shirley closer review of our financials.
Thank you Tony Hello, everyone.
You may want to strong financial performance in the third quarter with our top earn growth of 31%.
Along with a solid operating margin and cash flow.
Both online music and social uncommon building a true John growth in the for the quarter growing our revenues of two increased by 31% to get over yet on the six.
On slide feeling.
Despite the decrease in lots of revenues from the music So its company.
I'll now milk affiliate revenue with both the date.
Growth from use the subscription and the sales of digital music album.
Revenues from online music. So it's Dave included 20% year over year to on me 1.8 feeling.
During Q3, Olam I'll Nonmusic subscriber increased by four point well, meaning from two to a record equally plenti 16, well they merged with the MCV.
Revenues from music subscription.
942 merely an increase of 48% from 600 underpinned by mainly in the fourth quarter 2018.
The growth was mainly driven by the addition of premium content on our Paypal streaming model and the continued improvement in subscriber retention rate.
In addition to this is Joe gross subscriber lumber our subscribers opting to you relative to.
8.9 in Q3.
HM claim to speak in Q2 as more supply, but attracted to our premium membership.
During Q3, our revenue from sales due to add more than doubled from Q3 last year.
By Neil and Pete.
Okay, and Fortunately show.
So I'll just touch 19.
Our capital as the go to the nation, we'll talk to you to release digital album.
Thanks.
To support their idle.
Revenues from Osha antennas facility and other increased by 33% year over year to on the four point is favorably.
Karma really driven by revenue growth on then okay and live streaming.
We expanded the paying user base of our search and Tim.
23.2% an increase in Argentina.
7.4% in Q3, 2019, compared with two suite of 28.
Cost of revenue increased by 43% year over year to on me four point just thinking.
The increase.
Attributable to higher revenue showing.
And the content expensing.
The increase in revenues to increase reflected the growth, our social and 10 minutes.
In addition, we introduced the more professionals generates the content into unless those antennas platform. So dependent ATP and the showed a portion of our revenue with the agency.
The increase in content based what many it's a beautiful should increase math right.
And amount lighter.
And the good due to the music content.
Our gross margin was 34% to see plus 19 imported from 32.9% in Q2.
Our overall gross margin decreased year over year, I said, we increased our continuity Lachlan.
They were able to stabilize.
What we face.
In addition, the job growth from our own Nonmusic building or look to increase our gross margin.
Now, let's turn to upgrade the benefit.
We have seen improvement upgrades marriage Ali Neal we get baby.
Our total leasing.
Increased by 26, one mistake, but then.
Yes over year to RMB 1.2 billion.
Great debate.
Doesn't take hold revenue improved to 90% Q3, 2019 from 19 point input has been increasing attention.
We increased spending on growing our user base and the promoting our brand on the content in the for the quarter.
And the market.
Bookings they tend to 19.
On being 117, meaning the presentation. Please.
19.1 percentage over yet.
We continue to expand our wonderful feeling the quota.
Which we believe the decision when you estimates and also.
Then our leading age input box and talk launch.
Yes.
Let me thinking they increased by 32.6% year over year two on.
They were 120 million in Q3, Thank you mentioned that.
Our effective tax rate was 12.2% into Three Q2 019.
We've had to 8.1% interesting 18.
We mainly due to the change into critical ratio, Texas, we've built in something there.
As a result of full going our net proceeds to food approach would be klitschko, Doug accompanying was RMB one beaming.
And our long offer not complete let's build port Grady Hoda company was RMB, one point 24 billion.
I will allow us place and that's what the market.
19% Inc. 2019.
As of September 32019, our combined balance of cash and cash you prevalent some deposit amounted to.
21.1 any.
Please be one once the meetings on the 19.9, meaning as of June 30, Plenti 19.
Grief independently, primarily due to cash flow generated from operations on one point hopefully.
Oh, well to jump growth across our online music and associated Tim.
Well it by the strength of our put that on the premium content offering.
I want to maximize the premium content, that's not only broad sound financial return.
Although still to define the leadership of our platform.
Arming quota, we will they book decent bidding to between our music platform and as those Antamina platform and the continue to invest in long term growth at least thank you.
Thanks comfortable.
Our prepared remarks, operator, I ready to open the call for questions.
Thank you. Thank we will now begin to come out and then and fashion to ask a question you May Press star one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset for pricing any key if at any time. Your question has been and addressed and you would like to withdraw your question. Please press.
Our two.
For the benefit of all participants on today's call. Please limit yourself to one question. If you have additional questions you can reenter the queue. Once again to ask a question. Please press star one at this time, we will pause momentarily to assemble our roster.
Okay.
Our first question comes from Eddie Leung with Bank of America. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Just two quick one the first one years out.
The fourth quarter thesis trends as we head into the end up the just wondering if you could give us more carla on the tool may just sat mountains.
Yeah, No fault Wardell and then related to women.
In fourth quarter 2000 teamed.
There were high sales have marketing expenses quite significance will be higher that not all last year, So wondering where that the CEO .
So to see some motion old friends, Indiana for what the off.
And then secondly, I remember you guys mentioned about.
Content cost increase pop up its towards them by market prices.
So could you shed a little bit more carla or not the increase not funding cost of later to market prices, we see more competition awful cotton Todd if so up from which types of companies I think it.
Hi, Eddie let me address your first part of the question and then I'll, let surely address the later part of your question.
As we mentioned before we don't while we don't provide specific guidance to stay very focused on a long term growth I think directionally from a revenue perspective.
We expect our online music revenue to grow at a faster pace on a year over year basis in the fourth quarter compared to the third quarter and Thats, mostly driven by the trend of continuing acceleration in growth in the subscription revenue with the music.
And then in terms of social entertainment revenue, we expect the growth rate in the fourth quarter to be in line with the third quarter.
Now, we recognize that maybe slightly below where we previously thought it would be and that's primarily because of increasing competition that we facing.
With the short video platforms.
So what that translates to is that overall from a total revenue perspective, Q4 total revenue growth on a year over year basis should be slightly better.
And what it was in Q3.
For two questions for sales trends the is the only thing.
Last year.
We do some IPO so the expense will be very high and for like auto racing compared to the appeal to our sales events. These will lead to increase but the growth rate will be no.
Below on land.
Gross rate up revenue and the for the upward operating expenses wasting.
Now to the Q4 hundred 18.
As a percentage of total revenue.
Well no then lastly, yet.
And then in terms of your last question about the market price for licensing.
As as you would know region will be expect content price always goes up but given the rapid pace of growth of our music subscription revenue. We're actually very pleased to say that at the current pace of growth about music subscription revenue.
It's definitely outstripping the rates of growth in terms of the content.
Price.
One more point I would like to add its seems that we are also heavily investing into technology that can help us to do the content.
Distribution in a more efficient way. So we are going to since that we have largest none books on slide.
The market right now you get the best use of the content that we have on hand and also we will also help US do you have at work in future.
Okay. Thank you guys hi, healthcare.
Our next question comes from John AG Berg with Stifel. Please go ahead.
Great. Thanks for taking my question and congrats on the strong results.
The acceleration and paid users and conversion was was impressive can you talk about some of the key product initiatives driving increased retention.
As well some of your efforts benefiting the top of funnel growth. It sounds like your partnerships with universities, but embedded tractions with younger demos in particular would love to hear more about that strategy and how thats involved.
Okay. Thank you for your question.
Yes, we have do that.
Our online music service continue to deliver really could result in this quarter and first of all I think that the most important point is.
Illustrating that our uses its building we didn't want to pay for the high quality content and the retention rate all our.
Mistakes of this is chip improving.
From the operational point of view I think we continue to enhance our content offering and also provide a better user experience for our leases and disciplined shoe, especially dish.
Next year, we will continue to expand the content behind us reman payroll to gradually role on the high single digit level into 2019, and we will also at more online and offline pre pictures to our monthly subscription plan. So some marketing opened like bundling with other month or.
Surface. After 10 cents ecosystem. We will also be continue to execute we strongly believe that to paying ratio of our online music service continue to grow in the helping man.
Regarding the some of the younger generations uses that you mentioned that this is also a very key and important area that we are going to focusing on.
During the.
Presentation that we just talk about frankly speaking we things that defend based economy is going to be one or two very important driver for our business forward. So we will continue to.
Putting more efforts in this area and examples that we have already to talk about like Legit JH, how payless Weve and also do rise example, demonstrating off the different assets no matter the at the top honors the mats.
The office, our international artist or even the rising fivefold future also having really encouraging result from our digital album cells. So all the key drivers of us and we are demonstrating that the young generation really like this kind of idea and we will continue to put in more acquisitions.
And also let me clarify sometimes.
At point does misunderstood by by the market is about the Chow digital albums.
In the in the sales period, a Jane Hsiao actually helped our digital album revenue.
As opposed to the music subscription revenue because only users who bought the digital elds are able to listen to this all not even the.
Monthly subscribers for the time be right after that promotional period after the sales period of the digital album.
Then the Sol falls into behind the pay wall and then that moment on whats. The subscriber would then be able to enjoy this all after being a subscriber so.
At the in the third quarter.
The Ajay Chow album launched helped out digital digital mobile revenue, but.
Has not been a big contributor to our subscription revenue and we expect that.
To contribute over overtime.
Great. Thank you.
Our next question lesson from Alex Yao with JP Morgan. Please go ahead.
Good morning, much but this is daniel calling on behalf of Joe.
My first questions on your music stops are pool, that's really showed very strong sequential growth.
Hey, Paul Quad for saying that this quarter, so wondering what.
Main congressional be high and how should we thinking about the trade a future quarters and our main medsurg.
Increase the music stops ARPU in the future.
My second question is regarding the pay was so we will have some content to pay will be in recent quarters, such as Jay trial, even trend et cetera, but we know what is most.
Label contests, obviously, we're not going to pay what yet.
Management give us some color on our plan to put music's either pay war in that mix, what the two years. Thanks.
Okay.
Hi.
Thanks for your questions the new and now we're now we are focusing on.
Promoting the pretty real monthly VIP packages and the result is encouraging which helped to drive the op wall, but on the other hence since the paying users conversion you still our top hierarchy, we expected that breast to slight increase in the online with the ARPU in the coming quarters.
Regarding the paywalls that you mentioned about.
Willing to continually adding more.
And behind the pay wall right now, we just due to high single digits and we will continue to add on top of this and but we're going to bleed in now gradually man and up but we are receiving really encouraging result, especially by the strong we sold off on the subscription and we have the confidence that people is willing to pay for the high quality content.
And bounces up increased leasing not to it means we cultural I'll use the us hellgate a good bit back, yes, they or think our premium content to have it price. So.
This quarter, we reduced our promotion and the only promotion we IP.
Well Oh.
We IP so the up in Queens and segment.
Our automatically renewable packages have.
Price a tool increased.
So that's why I'll hop.
Inc. enquiries and I wasn't quite as imposed on quick.
Hi, guys question.
Thank you.
Our next question is from Rob Sanderson with loop capital. Please go ahead.
Thank you couple of questions on.
Just wanted to ask your view on advertising as a source of monetization going forward, but both from the online music segment, but especially interested in advertising opportunities within your social entertainment properties and then along those lines. It's clear that digital platforms are becoming more and more important enough and more powerful in.
In a promotion Novartis and marketing Novartis, how do you view opportunities like the sponsored recommendations that Spotify recently announced and.
First and type of digital music ecosystem is quite different than the U.S. and Europe , but it can marketplace concepts like this be successful at this stage of development or are these more later stage ideas and driving adoption of paid music in a subscription model as more of the singular focus for the time being any color there would be would be.
Helpful. Thank you.
Okay. So in terms of the advertising opportunity.
I think we mentioned this a couple of quarters.
Back, we actually see there to be a massive opportunity in terms of advertising potential not only just within social entertainment.
Services, but probably more so in the India online music services and that's because with an online music we had a much larger user base with a very long time spent.
And as you probably are with no if you compare our.
Our product experience with our western peers.
Free users still not subject to as many add blockage.
And in fact, a very very low AD load at the moment and so that has a lot more room for it to run.
And then in terms of the second question about whether we see marketplace, that's something that.
That would work in China look I think we we haven't spent a lot of time talking about it but.
We actually think there's room for the marketplace model to work in China as well in fact.
Hanson musician program is it's as a follow similar concept.
Which is our efforts to promote more in independent artist.
You go mainstream.
By giving them easier access to our lots user base, providing programs for them to improve.
There are music at helping connect them with the right mentors and music labels to work with as well as helping them promote and monetize the music onto our platform and so that's also part of our.
Industry value chain strategy to extend beyond.
Just the.
A recommendation, but more to us the in the musician market.
And also as we always talk about in PMG, we want to one to make music ubiquitous to our users. So we will come from many different use cases, both hi thing I think especially in the in car audio systems or the smock speakers and all our lives scenario that we.
Currently we have a nimble very successful business partners with those manufacturing and service providers. So I think that you will also provide our the audio based advertising opportunity for us in the future.
Okay. Thank you caution thank you Tony.
Thank you mentioned.
Our next question comes from Wendy Chen with Goldman Sachs. Please go ahead.
Hi, Thanks for taking my question or congratulation on dishonest subscriber growth.
Related to our next quarter or color next given by Tony.
For greater relief to see that our subscriber growth momentum is continually.
We see the our please lexia broadly stable I assume minorities contributed by the subscriber growth. So just wondering what's the action or not you may have been taken to sustain the subscriber growth into the next quarter or potentially you Matt salary.
Finally on subscriber growth this quarter can management share some color on how much of this country, thereby.
Hey for streaming business model for James calculus, with premium content versus the campaign, we have down.
The very lastly on the social entertainment, we see that in the quarter Cynthia any your growth have been rather than be muted compared to last quarter only through munis and also our perhaps seems like a Q on Q decrease.
Despite this is a peak summer season. So just wondering is there anything this quarter particular, that's resulting rhapsody weaker commercial bank.
Sure Wendy you mentioned Jane Hsiao again.
Once again going to change how is a fantastic partner of ours and we really appreciate the opportunity with working with them on releasing has digital album, but like I said.
Yes Chow.
She helped.
Our digital album revenue in Q3.
The music actually isn't in the pay wall.
The floor.
For subscribers within Q3, yet and so over time that effect what would play out.
And then in terms of what.
The company has done to drive music subscription it's.
Ill continue to improve retention.
As well as people are screaming pays off for example, we continue to attract subscribers with our premium content offering.
That is the most high quality and comprehensive in the market. Our personalized recommendation provides the right content that users like as a result.
Giving them more chance and increased likelihood for them to be willing to pay for it.
Initiatives to promote a higher adoption of our auto renewal subscription program.
As well as I'll pay will pave the streaming strategy that caution mentioned, which started beginning of this year with zero percent of our content being behind the Payor and now we expect it to reach high single digit percentage.
And.
By year end. So all these efforts will contribute to to the pay subscriber growth.
And then in terms of social entertainment.
It is facing increasing competition from short video platforms.
Which is capturing an increasing percentage of user time spent.
And as a result, this have started impact.
The may you and revenue growth pace into dresses.
In addition, TV growth initiatives that I mentioned in last quarter, we will be further stepping up our investment in the user growth plan within social Entertainment segment.
Which entails.
Right fairly comprehensive program, such as penetrating younger demographics, partnering with schools and universities and offline thing in competitions partnering with movie studio television Studios and game Studios to campaign around originals theme song at our release.
With these topical head content, our popular amongst a younger demographics.
We will also be Oh, we not a short video platform, but we will also be providing more and better quality short video content to fulfill our users need for music centric.
Short videos, so that they consume music center.
Sure videos within our platform.
And to this and we have the benefit of being able to leverage 10 cents vast amount of a short video content that already available within the Tencent ecosystem.
And finally, given we saying we think speak a strength, it's a social network.
We will be stepping up investments and expanding its social network and so over the coming quarters.
Is there will continue to see a lot more new features that help them better connect with their friends and discover new people with similar interests.
And we'll make it easier for users to for example joined singing room were seeing do add or engage in a good chat or enrich in the number of things they could do while they're in a single room or conducting a group chat all those things to make it more social experience and to broaden the social network. So.
All in all we're confident that user growth will return overtime as we execute all these gross initiatives that I discussed.
And also and all this is just on the domestic front by the way in terms in terms of our overseas growth initiatives. We think continue to do extremely well as I mentioned ranked number one in Philippines and number two.
In Indonesia, Thailand, and Malaysia, and having said all this it's important not to lose sight of the fact that.
Ill social entertainment revenue continue to grow at a 33% pace this quarter.
And our online music business continue to do extremely well with a continuation of the accelerating growth trend and in Q4, we believe our momentum of growth. The fiber will continue and op will be stable compared to the closely.
Great. Thanks to our luck.
Management would like to remind questioners. Please limit your question to one.
Our next question comes from the Jing Lu with UBI. Please go ahead.
Hi management. Thank you for taking my question.
Only one question is that all on video companies has mentioned possibility of price hike in 2020 do you have similar plans for next two years. Thank you.
I think that at least not our key focus to.
Hi, or price at this moment, we just keep applies to drive to paying ratio is going to be our top priority because it takes time to educate a useful and once they started to pay we have confidence that they would come easy pay.
Proven that I'll retention rate right now has been keep improving and I think that we still have a long reasonable growth into paying ratio. So this is going to be out politics.
Next question.
Our next question comes from Thomas Chong with Jefferies. Please go ahead.
Hi, good morning.
Taking my question.
A question.
Great.
Ken.
It's about how we should think about the complements regulations.
Yes that green coffee Andy.
A quick follow up about competition.
On the deal.
My comments about.
The competition for medium happen right now and also and you bring that.
They are more trading.
And that.
Yes.
Thank you.
I'll address the point about the competition first I think.
We're starting to see more of the impact from competition because both the short video platforms and our social entertainment.
Platform, our off very large scale.
And for example, with we saying not only is it.
Hi, penetrated within first tier one and future cities, but it also has a strong foothold in Q4 and five cities and so as we see the shelf video platforms extending the footprint.
Into all four tiers of cities we increasingly.
Seeing competition for user time spent as a result.
And karaoke.
As one former entertainment short video is another former entertainment.
And.
And in this sense, we also facing competition for a shelf type.
And then in terms of the regulatory environment.
We are obviously I think everyone.
Very focused on the regulatory environment is increasingly.
Being Titan.
But nevertheless, we are fully committed to working very closely with the regulators to ensure a healthy development of the music industry and in particular, our efforts in copyright protection.
Seem very well recognized by the industry.
And also we are very compliant.
In terms of the Sublicensing requirement that other imposed on us.
And so I think it apart from our perspective.
We think music.
This is a slightly better.
Operating environment compared to essentially.
Other sectors.
So we are facing some of the competition on the on social media platform, but I still think that 14, either shows and is it seem as though that is do you.
Essentially formal competitive dispute this unique vicious cycle of value creation.
First of all we can leverage on our.
User base and the strong capabilities of our music platform and online growth platform and we will be able to just couple of some of the young talents.
Helped him and gloom them to become the inspiring a aspiring promising future.
Let me give you two examples one of the stock would just call I turn.
Talk on our leasing platform. He started his career in Q4 team and attracted over 14 million spends on our platform and.
One of his popular song we run the number one on now you'll band music Chas opt DMD and also has to see some have recorded over 100 million streams on now QQ music and recent title and the others. You will Uli was also one of the well known performer, who go live streaming platform and actually.
Essentially we leave that to hit song with over 1 billion streams on our platform. So all I also key Differentiators also and payments surfaces and we are moving to future style Tomorrow and also be Ken will all this panel as best we can attract more users who loves music to go to help.
Bombs and drawings.
Next question.
Our next question comes from Eileen Yang with Macquarie. Please go ahead.
Thank you management for taking me taking my question I just have a quick question on the we've seen.
For the management talked about our performance in overseas markets. So how do we plan to monetize this overseas market.
Thank you.
Sure well with leasing at the moment I will focus on expanding our user base and footprint.
It's still very early stage with only it's been less than a year. Since we started on this journey of international expansion.
But over time as you would imagine we thing is very experienced.
In coming up with innovative ways of modest monetization for example.
Virtual gifting.
By having friends and virtual gift to other friends.
While commenting on karaoke saw recording we have singing rooms monetization that we talked about previously there also UGC live streaming features so all of those are applicable but at the moment. Our focus is on garnering a bigger you suffered footprint that mistake.
Next question please.
Our next question from our.
With China Renaissance. Please go ahead.
Hi, Thanks management for taking my questions just two quick questions here.
Yes.
The other cotton cost trend.
Heading into next year, how should we think about.
The combination strategy.
Negotiation.
First round off.
Agreement renewal.
Secondly, just on the live streaming part of the business. So we obviously see some competition just want to figure out how those trends.
Impact.
Revenue growth trending. So next next year 2020, and any guidance will be very helpful. Thank you.
For the cost of change I think we have a good is not under amil outside.
Because we had stayed at that.
Cost increased reach eight.
No I attend our subscriber.
Gross agreed that it wouldn't neos and for the.
Revenue sharing fees I, we think.
Maybe.
We will continue our treatments Incruse choosy.
Yes.
It'll increase.
In the next up next next question.
And then in terms of 2020 outlook I'm afraid that we have to reserve that for our discussion in the next quarter's earnings call.
All right next question.
Our next question comes from 10 pool with how sorry with Th capital. Please go ahead.
Yes.
Good morning management.
Nation.
Earnings.
My question is regarding your investments for the growth initiatives. So you mentioned overseas you mentioned more.
No.
Hey, Hey, converging paying users the money.
I wonder how that.
Hi.
Margin and yeah.
So that is the main question, how how that's impacting your margin. Thank you.
Well, how comfortable talking to all these investment in our.
So waste.
We think we can.
Continual keep.
Gross margin was stable in the lack of time yeah.
Last one.
Our last question comes from Benny Wong with HSBC. Please go ahead.
Okay.
Hi, Good morning management. Thank you for taking the questions. So my question is actually on if you look at the Oh on de conversion site like if you look at the actually on the compression styles that used to and also on the retention because I think management have been mentioning that retention has been quite good I can you were you able to give us some color in terms.
Something like quantifying it and maybe that users to have been up solidly on the online video platform. It was sometimes commenting does stay for users that have been subscriber that been signing up for the last 12 months, how many months have they been continuously be on.
So I don't know if there's any metrics on the pension I can comment on and then down to roll that out because we see also nice growth in your social entertainment side, how do we left for HD user data that we use a profile that you get there and then.
Management have mentioned that we we are stronger in terms of promoting like feeding the users with the song that they want right. So it's about about the pockets. So I think that technology side, it's something that investors have been closely looking at so all color on these funds will be great. Thank you.
Sure well, while we don't disclose the specific data in some sort of retention rate I think by virtue of observing outflows trend in our music subscribers.
And the fact that is continuing to grow at a faster and faster pace.
That should give everyone the confidence that the retention rate are in.
In fact, improving at a at a fair fairly healthy pace otherwise they wouldn't it wouldn't be possible for us too.
Grow the subscribers at such a healthy pace and then in terms of the the data funds.
We have massive amount of data on our platform not just because we have very large user base, but also because we have a very long operating.
Track record.
Thank you music and Google Music has.
Been in operation for over 15 years.
And so over the over time, we've accumulated a lot of information on a particular listening preferences music trends.
And thats on the user side.
In addition, we also investing very heavily into.
Analyzing data on the content side.
There is the content.
Curations that I talked about in the in the prepared a presentation early on this call.
We are able to how better to rate the content that a suited to a particular target group and thereby we seeing a better improved.
Favorite rates and improved listening.
Volume of those groups of users.
And I also like to say that.
Being part of 10 cents, obviously give us an additional benefit of having excess access to their social graph.
And you see that as a key feature.
On the home page of the leasing where users are able to connect with their friends instantly.
Even if you're just a new user onto the platform and obviously that gives us a lot of benefit in terms of understanding what the friend circle are listening to and what kind of content.
Our our more suited for that particular group of users.
We are now approaching the end of the conference call I will now turn the call over to your speaker host today Ms. Heather demon for any closing remarks.
Thank you everyone for joining us today, if you have any further questions. Please fill freight and 10 P.M. Eastern Master relations team through to contact information slide at our website or TPG accommodate investor Relations partner. This concludes today's call. We look forward to speaking with you again next quarter.
Thank you and goodbye.
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