Q2 2023 Tencent Music Entertainment Group Earnings Call
Speaker 1: helping development of China's online music industry.
Speaker 1: Following our long-standing efforts, we are pleased to see users becoming increasingly accustomed and willing to pay for copyrighted music, whether for songs they want to listen to or for the premium listening features they enjoy. Right on this way, we are happy to see that.
Speaker 1: our online music page ratio and monthly ARPPU which did an all-time sign of 16.7% and 9.7% respectively.
Speaker 1: Such achievements slow revenues from this business pillar in the recorded quarter to exceed that of social entertainment services for the first time in our history. This is a strong testament to our progress in developing a robust online business model and marks a significant step along PME's growth path. Looking at our social entertainment services, starting from the later part of the second quarter, we have proactively implemented several service enhancements and risk control measures to provide users with a more music-centric large filming atmosphere as well as to reinforce risk controls. While these measures are expected to put pressure on the industry, we are also looking at the world of sports prophetues to continue to grow their investments.
Speaker 1: on revenues from our social entertainment services throughout the second half of 2018-2023. And first, we have to impact our total revenue for this year. We believe they will provide users with an optimized user experience, as well as take the way for the group healthier and more with senior development in the long term.
Speaker 1: Moving on to our operation focus on content. As a key component fostering our missing ecosystem our comprehensive content ecosystem sets us apart from other industry players.
Speaker 1: During the quarter, we continue pushing the right places of our content ecosystems among actors, creators, and labels.
Speaker 1: On the front of top tier labels and outputs.
Speaker 1: We strengthened our partnerships with them to expand our industry influence and content appeal.
In July , we held the Ken Sten Music Entertainment Awards 2073, also known as PMDA, in Macavo.
It was a two-day event comprising of two music ceremonies and two music festivals.
joined by a prominent night club of over 80 well-known gymnastics and overseas musical groups and singers, such as J.J. Lin, Lin Junjie, Zhou Linsai, Chai Ni-rin, Laura Shang, Shang Wenzhe, Zhou Shen, Hie Wei, and 17.
Being able to successfully organize such a large scale offline performance of all music events over a single weekend, coupled with an exceptional host of musicians, demonstrates our strong industry influence and organizational capabilities with an audience of nearly 40,000 people offline participating in our two-day event.
Our TMEA also inspired social media but over 10 billion views, once again creating a national music sensation.
Furthermore, we remain in the pattern of choice for famous labels and articles on a wider range of content offerings and merchandise.
This enables us to provide music lovers with rich selection of music content and product as well as a unique and trendy experience at TME. For example, in the second portal of quantum chemistry, we renewed our strategic cooperation with Forward Music. TME environmentalists to
allowing us to offer a wider variety of Chinese top ministry uses in China and abroad.
In addition, we cooperate with Jackson Lee and Ken Hsieh on the release of his new physical album, New Yankee face.
Featuring a head start to release with TME.
This partnership delivered an outstanding sales record of Nian Zhan on our platform. Another site length was the debut of Chris Lee's Yiyu Chen's brand new digital album, Happy Night's Evening, So More Invite, past the sales of her album's limited edition merchandise.
In addition, we continue expanding our vertical music content to attract a more younger audience.
For example, Mindsom Records and TC Public recently joined our platform.
Adding over 440 songs to our hip hop music library, some of which include 30-day head modulus.
On the front of up and coming musicians.
We are helping new artists rise their visibility within the industry by providing critical technological assistance and integrated resources that support their growth throughout their entire music journey.
In July , we upgraded Venice.
Xingxin are all-in-one music production and promotion destinations. To better help indie musicians improve their efficiencies in producing,
transacting and promoting songs.
When latest iteration and integrated are full suite of AITC is nothing to lose in the winners.
As an AI-enabled music separation, speech music generation, night-wrap wiping, and creations of colorful songs, Flippant is quickly improving creators' efficiencies at each step of the music creation process.
and as of recently I'm using quality.
Ben is also creating enhanced efficiencies of resources called consolidation as it gathers a wealth of members on its platform and empowers convenience music transactions and promotion processes.
Having attracted a diverse range of creators and labels, Venice has recorded music transactions with a total value of over 10 million renminbi as of the second quarter.
Furthermore, we've leveraged our differentiated and comprehensive set of resources and opportunities to further up-and-coming musicians and foster quantivities. For example, our 10-strand musician platform strengthens its holistic support system for musicians.
which ranges from offering additional exposure for offline performances to launching theme programs to promote creative content production and even extends to helping musicians find commercial opportunities.
In the second quarter, our Immersion Force program sent several of its emerging artists to seven offline music events. We also offer them more views and, in the event, the opportunity to produce a theme based on what we call the
Our deep involvement across the music value chain enabled us to be in a unique position of having extensive insights in China's music industry.
which we in turn hope to give back to the industry by contributing to its advancement.
In June this year, our TME Research Institute released its first consecutive annual edition of 2022 EM Report of Digital Music in China.
Through in-depth data analysis and multifamily interpretation, we provide a comprehensive and pioneering insight as well as case studies aiming to promote healthier and more sustainable industry development..
That concludes the overview of our second quarter and the progress we have made across our growing content capabilities.
I will now turn the call over to Ross. He will share more about our platform strategies. Ross, please go ahead.
Thank you, Kasia. Hello, everyone.
We are excited to have reached an important milestone of 100 million online music paying users in June .
This demonstrates our strength as Chinese leading online music platform and reflects our growing appeal to music lovers.
As we see, an increase in growth potential materializing from users involving music consumption minus life.
We are continually elevating our music experience to meet users' higher standards and a stronger desire for quality.
On top of the progress in our content ecosystem as passion shared earlier,
We are continuing to optimize user experience on our platform in order to reinforce the traction of our lively and passionate music community among music lovers.
Along with the ongoing refinements to our distinctive and immersive listening experience, we are also exploring more innovative and personalized means of entertainment and interaction.
In terms of user experience,
We optimized premium feature and product experience to attract pair user engagement and stickiness to our platform.
For example, QQ Music upgraded its series of QQ Music Audio, to ensure optimal sound quality and effects.
which are now also available in our in-car service.
They also launched QQ Music Audio Certification, which sets industry's
standards for sound quality across hardware devices such as earphones, speakers, music players, and car audio speakers.
allowing access to superior sound quality among users in their daily lives.
QQ Music also expanded in 3D music player, offerings such as players customized for subscribers or designed for classical music to boost product attractiveness and thus user use.
In Google Music flagship apps.
in Google Music flagship apps. This is an upgrade.
We highlighted a more intuitive interface and an engaging unlimited music discovery function.
The book also unveiled is Viper 3D, Cretious, Changing Shown.
Bring on the mercy of live concert like listening experience to users.
Furthermore, Mizzing introduced a brand new function in drone that enhances users' recording and seeing experience, including optimized vocal details, enhance the balance between human-wise and accompaniment.
Coupled with these enhancements, we also stressed our ability to recommend music through this format by providing a decent().
allowing convenience under individualized music discovery.
All of these efforts contributed to higher DALs derived from the
from virus recomposition scenarios and a larger portion of recomposition-related streaming share.
In terms of listing scenarios,
We expanded our music services to additional use cases, such as various IoT scenarios to serve a large audience in a more immersive way.
Specifically, for the in-car use cases, we improved user experience across sound quality and effects.
burette recommendation, and interactive functions.
For example, QQ Music launched its in-car version 2.0 in June this year and forgot partnerships with more carmakers such as SEIC, Volkswagen, FAW, Volkswagen and Volvo among others.
We also expanded the cooperation with more carmakers and invited our in-car offerings in more car models.
potentially typing into a wider base of users who then can enjoy a seamless, native-in-car music-listing experience.
Alongside the recovery of offline tourism,
Driving times have launched.
that's increasing the use of in-car music services.
As a case in point, during the level day holiday period on the summer vacations
We saw a notable uptick in user-activeness and thickness for our in-car service.
In terms of user engagement and interaction, we created a highly individualized and defined and oriented music entertainment experience for users.
users through our AI-TC intervals.
while fulfilling their desires for 20 filters to keep up with the AIGC bond.
On the online music side, we started testing AI-enabled listening together that allows f inmates on the first day ofee of IoT testing during universities.
To join users' music listening journey, shared a variety of topics include their views on music and recommend songs or playlists based on their real-time interaction.
This new function will offer users an interactive, fun way of discovering music, as well as a more personalized and engaging music listening experience.
On the live streaming side, we innovated AITC Imports Virtual Gifts.
to facilitate a more trained setting interaction between users and anchors.
Such virtual games can be automatically virtualized quickly as users input text.
descriptions promoting a more creative and unique user
Perform our funding during live streaming.
All these efforts have in turn reinforced our platform's traction among users.
As we continue exploring opportunities and possibilities in China's online music arena.
Our dedication to copyrighted music will position us to better ride the wave of users changing music consumption habits.
Promoting great prosperity across the music industry, we are creating long-term value for our shareholders.
Besides, I'd like to give the floor to Tony to reveal our business options. Tony, please go ahead. Thank you, Ross. Hello, everyone. For online music services, our efforts over the years to cultivate users' copyright awareness are bearing fruit.
paralleling US users increased willingness to pay for premium music content and optimal listening experience.
we continue to see exciting growth in online music subscriptions.
The number of paying users reached a record high of 99.4 million in the second quarter.
driven by a combination of operational measures such as refined operation strategies, which explore opportunities associated with trending topics or special occasions, more subscriber privileges, and additional attractive music content.
These factors translate into new paying users.
returned turned subscribers and improved user retention.
In addition, we launched a premium package tailored to couples in June , promoting customized features and privileges between couples.
In terms of paying users' spending, we witnessed a monthly ARPPU increase for the fifth consecutive quarter to reach an all-time high at RMB 9.7 in the second quarter.
The ongoing uptake was mainly a result of effective promotional activities.
a consistently high user retention rate, and the increased appeal of our subscriber privileges, among others.
In addition, we made notable progress in our in-car music services as well, seeing expanded user base and enhanced monetization primarily as a result of our extensive relationships with more carmakers and its applications in more car models.
Online music services other than subscriptions also delivered robust growth as we further enhanced monetization.
other than subscriptions also delivered robust growth as we further enhance monetization. For advertising, you can click on the link at the top of the screen.
diversified product portfolio and innovative ad format remained highly attractive to advertisers across different industry verticals.
Advertisers from e-commerce, gaming, and travel industries were outperforming on the advertising spend list.
Ad-supported mode continued outperforming our overall advertising services.
with penetration steadily improving and revenues significantly increasing.
Sponsorship advertising also attracted various types of brand advertisers as our IP mix provided them with a broad and diverse target audience.
such as our campus music contest, NYX Singer 2023.
our signature music event wave maker
QQ Musics, DnFoM, Music Festival, and Kool Music, Music Festivals with barbecue-related themes.
Such a portfolio of music IPs attracted Sprite, Tongyu Songchu, and JD.com to sponsor, among others.
As for artist merchandise, we also saw an exciting performance driven by our strong relationships with well-known artists, which normally gives us a head start in the release of the albums and sales of various merchandise.
Moving to social entertainment services, as Kachin mentioned, starting from the latter part of the second quarter of 2023, we have implemented several service enhancements and risk control measures across our live streaming services to provide users with more music-centric user engagement experience.
led to a weaker than expected performance in our social entertainment services for the reported quarter and will bring continued adverse effects on its revenues throughout the rest of this year.
expected performance in our social entertainment services for the reported quarter and will bring continued adverse effects on its revenues throughout the rest of this year. As a result,
we expect our total revenues for the company to experience a low to mid-teens percent decrease year-over-year for the third quarter of 2023 and a low to mid single digit percent decrease for the full year 2023 as compared with 2022.
Nonetheless, we remain confident that we will deliver year-over-year bottom line growth for 2023, driven by the continued strong performance of online music services.
We also believe all these efforts will lay a more solid foundation for TME's sustainable and resilient development in the long run.
Meanwhile, we are also trying out new interactive features such as AIGC-empowered virtual GIFs and functions of Bullet Chats in our live streaming services to enhance user interaction experience while increasing our product competitiveness.
In addition, we continue to explore overseas opportunities, leveraging our operational experience in the domestic market. For example, we further enhanced user experience in overseas singing rooms and introduced new localized features to boost engagement and support.
showing satisfactory initial results in both penetration rate and time spent.
Last but not least.
TME continues to fulfill its social responsibilities in a unique and distinctive way through its strong commitment to music-based social wealth activities.
In the second quarter, we cooperated with Tencent Charity and other public welfare organizations and helped to Little Red Flower charity concerts.
Xiao Hou Hua Ku Li Ning Li for Children. In May, we hosted the first concert to raise public support for children with hearing impairment. We helped seven hearing impaired children replicate their own voices with our Li Ning Ning Xing AI capabilities, then utilize their AI-generated voices to create their own voice.
to create and perform a concert along with several musicians.
On Children's Day in June , we hosted another concert for children in rural areas, offering them a platform to express themselves through music while showcasing music aesthetic education in those villages.
These programs not only raise the public's emotional resonance, they also allow us to explore music's possibilities and impact across different areas.
Going forward, we will continue to drive progress across our content and platform to bring users a differentiated, superior music entertainment experience that can only be obtained on TME's platform while sharing the fruit of industry development with all other stakeholders across the music value chain. Thank you.
I am so proud of the progress we have made, both as a company and as an architect of the online music industry's future. Thank you once again for allowing me to be a part of this incredible journey. Now I would like to turn the call over to Shirley, our CFO , for a closer look at our financials.
Daniel Toney, hello everyone. Next, I'll discuss our results from a financial perspective. In the second part of 2023, driven by significant growth in our muted sub-question and advertising business, our total revenues reached RMB.
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80% of total remnants.
Passing the revenue contribution from social entertainment to service for the first time in our history.
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Respectively, long-term rate net profit margin reached 21.7% this quarter.
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The business bank, number of online mail-to-pay users grew to 19.4 million, up by 20 percent over the last 20 years.
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monthly ARPPU has grown for five consecutive quarters and have reached a record high of RMB 9.7 this quarter up by 14% year-over-year and 5% Mayor's Office are actively centering the work to build trees, and Professor Ckinciazzi is a well-practice scientist. His Sheikham Fellowship offer rock-ida demonstrated thanks to Chris 2006 but also throughout his career as a
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have proven the growth and will continue to strengthen the foundation for sustainable growth in our milk sixteen million peopleora or admiration
Additionally, revenues from advertising achieved strong growth on a year-over-year basis due to strong performance from our eight best models.
as well as lower advertising revenues for compensation in Q2 2022.
The annual 618 E-commerce sales event generated a higher demand for advertising and contributed to a decrease in advertising revenues.
We continue to explore new products and formats to offer more diversified options for our advertisers and remain confident about the long-term growth potentials in our advertising business.
Social and Tenement Services and other revenues will be three points billing.
Down by 25% year over year.
Starting from the late part of the second quarter of 2023.
We have proactively implemented several adjustments to live streaming functions and certain risk control measures including more streaming.
Requirements for containers.
intended to offer better music-centric user appearance.
These measures have actively impacted our life-changing Germany this quarter, and we expect the negative impact to continue in the second half of 2023.
resulting in a lower than previously expected revenues for four years 2023.
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Nonetheless, we believe these measures are necessary and are beneficial to our users, which will help lay down a healthier and more sustainable foundation for our long-term growth.
Gross margin in Q2 was 34.3% up 4.4% points year over year.
primarily due to the following factors.
First, online music services have shown strong growth momentum with high quality growth of music subscription revenues driven by the continued uptick in online music paying users and AI PPU and robust growth in advertising revenues.
Second, as we gradually ramp up our own content, it has a positive impact on the margin and will continue to be a favorable factor for our margin.
In addition, the continuous improvement of operational cost efficiency also contributed to the increase in gross margin this quarter. Now moving on to operating expenses. Total operating expenses for Q2 were RMB 1.3 billion or 17.2% as a percentage of total revenues. Down by 3.3% from 20.5% as a percentage of total revenue in the same period last year. headquartered the rates at the end of mural CMOS rollout colossalomical prices Canadian
by 6% year over year. This decrease was primarily due to decrease in employee-related expenses as a result of improved high-count expenses. Expenses related to our application for secondary lessons last year also contributed to the year-over-year decrease. We continue to closely manage employee-related expenses by improving high-count expenses and invest in research and development to further empower mutual related content creation, enhance production defenses, and improve sound quality and effects. Our effective tax rate for Q2 was 12.2% for Q2 2023. Our net profit and net profit attribute to equity holders of the company were only 1.3 billion.
Non-offense net profit and non-offense net profit are to go to equity holders of the company while RMB 1.6 billing and RMB 1.5 billing respectively. Diluted earnings per ideas was RMB 0.82, up 55% on a year-over-year basis. Non-offense diluted earnings per ideas was RMB 0.97, up 54% on a year-over-year basis. As of June 30, 2023, our combined balance of cash equivalents and term deposits were RMB 30.5 billing as compared with RMB 28.5 billing as of March 31, 2023. The increase was primarily due to the strong cash flow generated from operations of RMB 2.1 billing for the second quarter of 2023.
Such a confined balance was also affected by change in exchange rate of RMB to USD at a different balance sheet space. In conclusion, our milk subscription business has demonstrated significant growth trajectory propelled by quality growth in both ARPPU and paying users. And we expect such momentum to continue. With keen focus on user experience and monetization, we will continue to invest in new products and services, include high quality content, differentiated premium packages with appearing privileges, and new technologies such as AIGC through organic development and M&A to certify our foundation for long-term growth. This concludes our prepared remarks. With that, I will turn the call back to Kashi.
Thanks, Shelley. Before we enter the Q&A session, I would like to take a few minutes to express our gratitude to Tony. During his tenure, Tony played a key role in our two successful public listings and contributed his professional expertise to the appliance, TME's post-work development. We really appreciate Tony's ease of excellent work and invaluable contributions to the group. Thank you, Tony. Now we are ready for questions. Operator, please. Hello, everyone. 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 system meeting or location application, please click the raise hand button at the bottom left. For the benefit of all participants on this call, please limit yourself to one question. And if you have additional questions, you can be entered in the queue. If you ask your questions in Chinese, please repeat them in English. Okay. Our today's first question comes from Alex Yao from J.P. Morgan. Alex, your line is open. Please go ahead. Thank you. Thank you, Benjamin, for talking us through the fundamental development during the quarter hour.
this quarter our online music services revenue contributions reached nearly 60%. We were presenting a significant growth from only 30% five years ago. So looking at the revenue contribution of our subscription businesses, it has surged from only 5 years ago to 40 this quarter. So this progress is really demonstrating that since we go IPO, TME has been continuously expanding and solidifying our core online music business.
This is where our long-term development is built upon and the exact reason why we are confident of our soil development for this year and beyond. Looking ahead to the second quarter of 2023, our online news expenses is expected to maintain a robust growth, strengthened by both the paying user growth and ARPPE expansion for the subscription business, as well as the continued advertising and merchandise business expansion. This robust growth will be a strong driver to both of our top line and also bottom line. Meanwhile, our social entertainment service will be expected to...
on a multi-month basis. So therefore we expected the total revenue for this year will decline by low to mid-single digit per cent year over year, but our full year profit and profit margins will see further improvements. So at the group level, I think our development strategy is focused on exploring the diverse business opportunities in the mid-arena.
and discovering the long-term growth potentials. As for our social entertainment services, our current goal is to maintain stable business skills. Although the social entertainment is currently facing some pressure,
when compared to five years ago, but we now have more resources and a growing accumulation of industry insight to strategically plan for the group's long-term development. So we believe that the adjustment made to our live streaming business will allow us to unlock the next level of development on a more solid footing. Thank you, Gusion. That's a fairly elaborate answer. The only thing I'd add is that...
the social entertainment services revenue adjustment took place in the later part of Q2, which means that downward pressure will continue into the second half, which effectively resets the level of the social entertainment revenue at a lower level. However, barring any significant unexpected events, the social entertainment revenue adjustment will continue into the second half.
we currently do anticipate that impact level of these adjustments to stabilize by the end of Q3. And therefore, we expect monthly revenue for social entertainment services to stabilize on a month-on-month basis in Q4.
I think that's the only thing I can answer. Thank you, Alex. Our next question comes from Lei Zhang from Bank of America, Maryland. Your line is open. Please go ahead. Thank you. Hi, management. Thanks for taking my question. The best wishes to Tony on your new journey. And if I may want to follow up on social entertainment.
Can you give us some, you know, the rationale behind this significant adjustment and how should we look at the social entertainment segment outlook for the full year and when do we expect the revenue growth to bottom out? Thank you. Yeah, I think the motivation behind these adjustments are to create a more music-centric live streaming atmosphere for our users and these adjustments include stricter compliance procedures and also adjustments to certain live streaming functions.
it enables us to better control potential risks that the platform may face in the future. And so even though these results in significant short-term pressure on our revenues, we see these as necessary in order to provide a solid foundation for our platform's healthy development in the long run. And I think, like I said, I think in terms of outlook for the social entertainment revenues, it effectively resets it at a lower level, although the impact of that is likely going to stabilize by the end of Q3, so that when we look at each month in Q4, monthly revenues for social entertainment services are likely to be relatively stable on a month-to-month basis within Q4. Thank you. Okay, thank you, Le.
And our next question comes from Alex from the London survey. Alex, your line is open. Please go ahead. Thank you. Thank you, management, for taking my question. And all the best, Tony, to your next journey. My first question is congratulations on reaching the 100 million paying user milestone. Can management share your next targets, one or two targets, for your subscription business and the timing of that target? And my follow-up question is regarding our share buyback and dividends, if any.
market education, encouraging users to develop a music consumption mindset to support copyrighted music.
We have continued to refine our operational strategies, enrich user privileges such as sound quality and sound effects. As a result, we are seeing a gradual shift towards increasing willingness to pay.
for music services as well as for privileged product features.
On the ARPPU side, as we mentioned for several quarters now, we will continue to follow our strategy towards optimizing our promotional discounts, gradually reducing them, and to enhance the user's perception of the value that they're paying. And for those users who are...
who have higher expectations for sale qualities and additional demand for use scenarios, we do have other premium product options at a higher price point. Besides Super VIP as well as other IoT memberships.
We also launched premium packages that are tailored to couples, for example. And so I think as we continue to see increasing willingness to pay among the user group, we are confident to be able to continue to grow the paying user, both the paying user and ARPPU, at a healthy pace to drive the subscription revenue going forward.
And then on buyback, obviously I think we have announced the buyback as you saw. We haven't conducted buyback to date, but we will be actively looking for opportunities to do so if the right opportunities present itself, especially in times of share price weakness.
Okay, thank you Alex. And our next question comes from Lincoln Cole from B I think management emphasized the importance of AIGC to our platform and to our business. Could management elaborate a bit more on the latest development of any AIGC tools?
or the large language model we are currently leveraging, how we think about the whole AIGC to empower our business. Thank you. So, at the beginning of onsite live- steam. He then impractical information robot 2018 more people assets only SomeSteven
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So, we will continue to ride the wave of innovation that is brought to us with AIGC.
You know, while there has been a lot of focus on large models, our own focus more on the application layer, which are primarily twofold on either the content side or on user interaction side. On the content side, you know, we'll work on providing productivity tools to assist musicians to become more efficient with the music creation. You know, whether or not we will see one day a fully automated end-to-end solution remains to be seen, but that's something, you know, we would continue to monitor. We are working on and are starting to provide synthetic voice creation, you know, where users can pay to use AI to create their own voice, to sing and to do other things. And then finally we are using...
AI capabilities to dramatically shorten our R&D time. On the user interaction side, with Xiaoxing, which we mentioned previously, is a companion that guides your music journey. She can recommend songs to you, she can chat with you, and tell you her views of particular songs. She can also comment on individual songs. On the live streaming front, we are able to use AI to instantaneously create a customized virtual gift based on the words that users type in, so that every user can create a very unique virtual gift and use that to give to their favorite live streamer.
And then finally, we are working on a new product called WaveOn, which is similar to a feature where users can chat with various AI characters. Okay, thank you. And our next question comes from Alicia. Alicia, your line is open. Please go ahead. Thank you. Hi, good evening. Can you hear me okay? Yes. Okay, all right. Good evening, management. Thanks for taking my questions and also all the best to Tony. So can management share with us what should we expect for the growth margin in the coming quarters? With online music now contributing also higher proportions of the revenue and then social entertainment continue to face the ongoing pressure.
What is the net profit trend for the rest of 2023 and overall 2023? Thank you. Okay. Let me first talk about the gross margin. Gross margin is 34.3% in Q2, increased by 44% year-over-year due to some factors as follows. First, online music stories have shown strong gross momentum with high quality growth to music subscription revenues driven by the continued uptick in the online music paying user base and the monthly ARTPU. And second, the robust growth of advertising revenues. And third, our self-owned content gradually ramp up. That has a positive impact on our gross margin.
and will continue to be a variable factor for our gross margin. And fourth, we optimized the content cost model of ROCE and increased our requirement of content cost this year. And fifth, license cost of long-form audio decreased at year-over-year phases. And sixth, to optimize the technology and operation strategy related to bandwidth and storage capability and improved the utilization of our service and equipment. Our gross margin has improved for five consecutive quarters. Looking forward to Q3, we expect the subscription revenue and the advertisement revenue will continue to increase the gross. On the cost side, we expect our in-house made content will have positive impact on gross margin continually.
and we will continue to increase our operational efficiency and monitor cost items by our model. Despite the live streaming revenue will be decreased significantly in Q3, we expect our gross margin will be increased sequentially, and the gross margin in 2023 will be higher than in 2022. And now we move to our OPEX. We continue.
folks are improving our efficiency of OPACs in 2023. Over the past quarters, our ROI-oriented marketing strategy has proven successful. In saving costs and enhanced efficiency, our sales expenses declined year over year for the sixth consecutive quarter, thanks to effective management of sales channels ROI and a well-balanced allocation of international and external resources. And we will remain committed to this principle. We anticipate a continued year over year decrease in selling and marketing expenses. We will also further refine our operations.
enhance headcount efficiency, pay more attention to improve the profitability of business and products, adjust headcount according to profitability of business. Meanwhile, we are continuously monitoring new opportunities within the accounting ecosystem and cutting A3 technologies and invest in such areas. Looking forward to Q3, the life-streaming revenue will decrease significantly. So we anticipate our adjusted net profit will be around this table at year over year.
And the adjusted net profit margin will increase. We also anticipate that adjusted net profit and the margin all will increase at year-over-year base in the second half year of 2023. Thank you. And our next question comes from Thomas Pong from Jeffery. Thomas, you're live, please go ahead. Thank you. Hi, good evening. Thanks, management, for taking my questions and all the best for Tony.
May I ask a question regarding our content strategies? Given the solid results we achieved in our original content, can management comments about the strategies going forward? Thank you. Thank you Thomas for the questions. As the leading music platform in China, I think one of our key focuses is discovering and also cultivating the talented musicians and encouraging them to create more music. We are also assisting them in promoting their work on our content.
Firstly, the Tencent Musician Platform, as we mentioned before, they always offer offline performance opportunities and also exposure and launch a screen program to encourage the innovative content production. It also provides various commercial opportunities as well, including the royalty, online teaching, digital album sales.
It is good to continue the research. In terms of service conditions, we can see a growth in noise production and cooled houses are very good, especially the temperature changes in terms of the subordinate production of the car and current agriculture??. Thitted surprises can only be figured out particularly in terms of trade. So we also hope that we believe that we will come from the long term. In terms of the production of the car, the use of the car and the market opportunity can also be used to help the company's use of the car and the market. So with the IoT current main focus is in car services, especially smart cars which we believe will be a huge market. Primarily domestically, but also to some extent overseas fear jokes. Music, as you know, would be a prime entertainment use case within smart cars. Through our premium sound effects, such as our partnerships with Dobey, we understand well-positioned to benefit. We also have deep cooperation with the broadest set of car makers.
and we've launched QQ music 2.0 version that are dedicated for Intel sensors. As a result of all these efforts, both our Intel music user as well as revenues are seeing rapid growth. And as an example, during the May holiday, where there had to be seen a significant increase in the holiday and time spent during cars, we have seen a significant uptake in the user consumption and spending. And as a result, over the long term, we're very optimistic that IoT specifically car services will provide us with the clear opportunity for subscription and revenue goals. Thank you. We have a program to get an end in the covers. I would now turn it over to our full semester. Just close the call for today. I just want to extend.