TME

Good evening, good morning, and welcome to Tencent Music Entertainment Group's first quarter 2026 earnings conference call. I'm Millicent Tu, Head of IR. We announced our quarterly financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and via news wire services. During today's call, you'll hear from Mr. Kar Shun Pang, our Executive Chairman, and Mr. Ross Liang, our CEO, who will share an overview of our company strategies and business updates. Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I refer you to the safe harbor statement in our earnings release, which applies to today's call as we make forward-looking statements.

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

Thank you, Millicent. Hello, everyone, and thank you for joining our call today. Despite an increasingly competitive landscape in the music streaming industry, we delivered a steady performance overall this quarter. Our growth is increasingly driven by diversified monetization across the music value chain, with the offline concert-related business achieving another quarter of triple-digit year-over-year growth. We will continue to accelerate the development of our multidimensional commercialization model, which is deeply rooted in our commitment to cultivating a vibrant and legitimate music ecosystem. While AI is rapidly expanding the supply of content, it is also introducing significant market noise and new industry challenges. The proliferation of unauthorized AI-generated content not only creates headwinds for our music subscription growth, but also undermines creators' rights and dilutes the long-term value of the music ecosystem as a whole.

In response, we are working closely with creators, rights holders, and regulators to lead and champion robust copyright protection efforts. While the nature of these challenges is unique to the AI era, we have successfully navigated major copyright and IP transitions before and have consistently been at the forefront of those efforts. We remain confident in our ability to adapt, lead by example, and help shape the future framework for intellectual property protection in the age of AI. This commitment has further sharpened our focus on what truly drives long-term value and sustainable growth. Today, we are now convinced than ever that original human creativity and premium music IPs are the ultimate differentiators. That's why we are evolving beyond traditional streaming services into an integrated music ecosystem that further unlocks the value of every piece of IP. This holistic approach is designed to deepen engagement and expand user wallet share.

Against this backdrop, we have further optimized our catalog, ensuring that our licensed and proprietary content offers valuable emotional responses, resonate that users crave. Let me share two examples. First, we further enhanced our classic music catalog, capitalizing on the enduring demand and extended life cycles of timeless hits. We recently renewed contracts with labels, including JVR Music, Linfair Records, and Mok-A-Bye Baby Music Limited, securing continued access to iconic catalogs from artists such as Jay Chou, Zhou Jie Lun, Karen Mok, Mo Wen Wei, Harlem Yu Cheng Qing, and Angela Zhang Shao Han, further reinforcing our leadership in premium content copyrights. We also deepened our strategic partnership with TF Entertainment, providing users with a 30-day head start benefit for upcoming releases and exploring collaboration across physical products, live performances, and other IP-related opportunities.

The streaming share of our in-house new releases has seen a steady rise, reflecting our ongoing efforts to enhance production capabilities. A notable example is our collaboration with Sony Pictures on the Chinese theme song, The Star Readers, for the scientific blockbuster, Project Hail Mary. Performed by Zhou Shen, the song granted strong traction upon release, quickly topping multiple charts across our platforms. Across our business, AI has become a key enabler, accelerating time to market, improving production efficiencies, and enhancing user experience. Importantly, it complements, not replaces, human creativity, and further reinforce the scarcity and value of premium IPs. Let me walk you through how we are actively embracing AI to further enhance our content ecosystem and, in turn, unlock additional value from legacy IPs. We provide creators with tools to reshape every stage of the creative process.

For instance, our one-stop AI music production tool, Venus, stimulates the full cycle songwriting process of professional musicians, from lyrics, compositions, and arrangement to vocal performance and mixing. This empowers creators to produce high-quality work more efficiently and at lower cost. Second, as we bring more legitimate AI-generated music onto our platform, we are pleased to see that high-quality AI works can, in turn, revitalize classic IPs and endure them to younger generations. Some AI covers of classic hits are often among the most popular tracks. By re-imagining iconic songs with innovative styles and vocals, these re-interpretations spark renewed interest, driving listeners back to the original versions and amplifying the visibility and commercial value of legacy IPs. As more premium IPs thrive on our platform, they serve as a powerful engine for our broader communicationization efforts.

By building holistic pan IP-related music experiences, we continue to lead industry consumption and grow at scale. Whether through immersive live performances or innovative fan-based economy, we are elevating music's influence while deepening water share. Specifically, first, our highly loyal user ecosystem continues to attract leading artists and IPs seeking deeper collaboration. By strengthening strategic partnerships, we extend IP value chains through integrated virtual and physical offerings. A key example is our collaboration with Jay Chou on his digital album, Children of the Sun, where we launched the package, the offerings combining the album, SVIP memberships, and physical collectibles. Supported by a nationwide offline campaign across 45 cities, the release achieved a strong viral traction, topped the major charts, surpassed CNY 1 billion in sales, and drove meaningful SVIP conversions.

We also deepened the partnership with leading artists, including Kun, Cai Xukun, and Roy Wang Yuan, whose recent releases delivered a strong fan engagement and commercial performances. Second, we also continue to strengthen cross-cultural reach through different offline partnership with leading domestic and international labels and artists. This quarter, we delivered multiple flagship concerts, which drawing over 10,000 attendees, maintaining a strong execution standard in live performances. Notably, BABYMONSTER's concert in Taiwan, China, and NCT WISH concerts in Hong Kong, China attracted both core fans and broader audience, expanding their reach. Third, we are cultivating our premier artist rosters to amplify the global footprint of Chinese music. This is exemplified by Silence Wang Sulong's debut world tour across Asia and North America, and Gai Zhou Yan's first large-scale show in Singapore.

Domestically, concerts by Will Pan Weibo, Tia, Yuan Yawei, Angela Zhang Shaohan, Jane Zhang Liangying, and Zhang Yuan further deepened fans engagement. Before concluding, I would like to share our ESG progress. In April, we published over our 2025 ESG report. Over the past years, we stepped up in created empowerment, product inclusivity, and value chain sustainability. This efforts reinforce the long-term value and resilience of our ecosystem, as reflected in the ESG rating upgrades and external recognition. In closing, we are encouraged by the progress we have made and the challenges we are elevating the strategic priority and investment in copyright governance, taking a more resolute stance to safeguard the long-term health of the music industry. We remain committed to advancing the broader creative economy, unlocking new opportunities, and driving enduring long-term value.

Now, I would like to hand the call over to Ross for an update on our overall platform development. Ross, please go ahead. Thank you.

Thank you, Kar shun. Hello, everyone. In an increasingly competitive landscape, we are building a more resonant platform powered by our content and the platform dual engine, driving user differentiation, engagement, and the lifetime value. As we strengthen our competitive edge and further differentiate our offerings, we are transitioning to a membership-based model that goes beyond content subscriptions to deliver more immersive music experiences. I will share more details shortly. For today's call, I would like to primarily focus on two areas: user growth and monetization efficiency improvement resulting from better services. On the user front, maintaining a healthy top-of-funnel remains our foundation. Let me share some updates.

First, we are excited to further deepen our integration with the WeChat ecosystem to broaden reach and streamline user conversion. By embedding a pathway basing video accounts, we facilitated a seamless transition from short video music discovery to full track playback on our platform. This also elevates musician's exposure, helping them convert casual short video viewers into a loyal fan base on our platform. Second, for Kugou, where competitive pressure is a bit more acute. We lowered barriers to entry through more freemium and ad memberships. Third, we leveraged AI to drive engagement with improved recommendation system, efficient discovery enabled by AI agents, and easier playlist creation. Growth in music assets boosted engagement. We also saw exponential growth in both AI-driven messenger and the playback DAU.

At the same time, personalized features such as theme avatars, player innovations, and interactive tools led to a deeper sense of belonging on our platform. Turning to how we are unlocking greater IP value and increasing user lifetime value, we continue to execute existing tiered plans. As I mentioned earlier, we launched a new initiative to transition to a membership-based concept with engaged content and the right offerings. Although still in its early stages, we see stronger long-term potential in IP-driven offerings through enhanced benefits and integrated rewards. First, as VIP membership continue to see stronger adoption and retention thanks to our refined operations and innovative benefits. For example, we appointed JC-T, Tan Jianci, as our first cross-platform VIP family brand ambassador. This strategic partnership significantly enhanced the per se value and the public awareness of our premium offerings.

In addition, to further differentiate our VIP premium offerings, we continue to expand fan-based benefits and audio privileges. On the content front, we introduced China limited edition digital albums combined with physical collectible for leading K-pop artists such as BLACKPINK, EXO, and IVE. On the platform and the product front, we launched the TME Connect, enabling high fidelity audio transmission across multiple devices. Kugou Music launched the live house sound effects, and the QQ Music further deepened the collaboration with Dolby to become the first music platform in China to support Dolby Atmos audio format. We also extended this immersive experience to Dolby House, an offline audio experience space for artists like Charlie Puth, Silence Wang Sulong, and BLACKPINK. Second, we pioneered more IP-centric memberships to capture diverse user demands.

A key milestone this quarter was the launch of our inaugural fan club, Romance Universe, with Silence Wang Sulong, offering priority ticket access, unique content, and artist-centric perks that resonates well with fans. At the same time, we continue to expand artist reach on Bubble, welcomed Su Ruiqi as Bubble's first Sony Music artist, and enhanced product features such as in-chat search functionality, which further strengthened user engagement and retention. Last but not least, we are unlocking incremental growth by scaling IP-driven offline offerings, particularly with artist merchandise. For instance, we served as the sole distributor for TransfOrmProject, TOP [Non-English content]debut physical album and other sold-out merchandise such as Yuqi, Song Yuqi, (G)I-DLE New Year gift box, and the Hu Xia support plus collectibles.

Beyond merchandise, we brought the Idol City of Sense China debut exhibition to life in collaboration with Cube, delivering a multidimensional immersive experience for fans. To conclude, while challenges remain, we are confident in our path forward. We will continue sharpening our competitive edge to strengthen our vibrant platform. One that attract users, deepens engagement, and unlocks new monetization opportunities. With that, I would like to turn the call over to Shirley, our CFO, for a deep dive into our financials.

Thank you, Ross, and greetings, everyone. Let me now turn to our financial results. In the challenging environment, we have delivered steady financial results in the first quarter of 2026, with 7% year-on-year revenue growth. Revenues from music-related services grew 12% year-on-year, driven by solid growth in revenues from membership services and offline performances-related services, supplemented by growth in revenues from advertising services. Revenues from membership services were RMB 4.6 billion, up by 7% year-on-year. In the first quarter of 2026, this quarter, we started to presenting membership services revenues to better reflect the nature of our membership business. Revenues from membership services primarily consist of membership fees paid for membership benefits and privileges within music-related services. Over time, some IP-related benefits, such as artist merchandise and offline performances, have emerged as key drivers of VIP adoption.

Additionally, our newly launched fan club memberships further enriches fan experience and is a great example for enriching integrated product with content in the platform strategy. These collaborations we have built with the strategic artists across music promotion, offline performances, artist-related merchandise, and fan club membership provide more immersive experience for fans and help enrich privileges of our membership programs, building win-win relationships for everyone. Additionally, we delivered a solid year-on-year growth in advertising revenues, driven by growth of ad-supported model and sponsorship advertising. Our increased number of paying users and the churn of casual users created more challenges for our advertising business in the increasingly competitive market. We have taken actions to improve ads exposure, lower the entry barriers, and offer more engaging interactive ads tasks for users. As our engagement growth engine, offline performances-related services have achieved strong results in Q1.

We have positioned our strategic artists, such as Will Pan, Silence Wang, and Gaai, on high-profile stages across domestic and overseas markets, effectively expanding their global influence and further unlocking their long-term commercial value. Also, we have hosted flagship concerts with leading K-pop groups, including BABYMONSTER and NCT WISH. Revenues from social entertainment services and others were CNY 1.4 billion, down by 11% year-on-year. Our gross margin in Q1 2026 was 44.9%, up by 0.8 percentage points year-on-year. The year-on-year increase was primarily due to increase in revenues from membership services and advertising services, along with decreased channel fees. Additionally, we are happy to see cost efficiency improvement for IP-related services. In the long run, we are confident that our gross margin will remain competitive in the industry, although it may fluctuate quarter-over-quarter due to seasonality.

Moving on to operating expenses. They amounted to RMB 1.2 billion, representing 50.3% of our total revenues in Q1 2026, compared with 15.5% in the same period of last year. Selling and marketing expenses were RMB 271 million, up by 36% year-on-year. In response to the competition and to mitigate the impact of user churn, we increased channel spending this quarter. Operationally, we have improved the relevance of target audience while keeping high ROI level in the industry. Going forward, we expect to dynamically adjust our channel spending strategies according to evolving market conditions with ROI requirements. Meanwhile, we expect to increase content promotion and continue to provide high quality content to our users, which concurrently helps grow users on our platform.

General and administrative expenses were RMB 940 million, remained relatively stable compared with the same period of 2025. Our net profit attributable to equity holders was RMB 2.1 billion, compared with RMB 4.3 billion in the same period of 2025, as we have recognized a gain of RMB 2.4 billion on gaining the disposal of an associate in the first quarter of 2025. Our diluted earnings per ADS this quarter were RMB 1.34. This quarter, we started disclosing non-IFRS metrics, adjusted EBITDA, to better reflect our core business operation results. For Q1 2026, our adjusted EBITDA was RMB 2.8 billion, up by 10% year-on-year. Non-GAAP net profit attributable to equity holders of the company was RMB 2.3 billion, up by 7% year-on-year.

As of March 31st of 2026, our combined balance of cash equivalents, term deposits, and short-term investment was RMB 41 billion as compared to RMB 38 billion as of December 31st of 2025.

This combined balance was affected by changes in the exchange rate of RMB to USD at different balance sheet dates. In March 2026, we declared a cash dividend of $0.012 per ordinary share or $0.24 for ADS, for the year ended December 31st, 2025. The cash payment for the dividend of $317 million was made in April 2026. In addition, as part of our long-term commitment to shareholder returns, we plan to complete the two year stock repurchase program that we announced in March 2025 on time. Finally, I'll conclude with some remarks on the outlooks. Looking ahead, while challenges exist, our long-term strategy and commitment to investment in content and technology remain unchanged. We continue to focus on IP development for the long run health of our business and industry.

Through comprehensive collaborations with our strategic partners, we will continue to bring new benefits and privileges to our users and create more innovative products. All these factors enable us to build a richer and more dynamic music and entertainment ecosystem. This concludes our prepared remarks. We are now ready to open the call for questions.

Thank you, Shirley. If you are dialing in by phone, please press five to ask a question and then six to unmute yourself. If you are accessing the call from the Tencent Meeting or VooV Meeting application, please click the Raise Hand button at the bottom left. For the benefits of today's call, please limit yourself to one question, and then if you have more, you can go back to the queue. The first question comes to the line from Lincoln Kong from Goldman Sachs. Lincoln, your line is open.

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Thank you very much for giving this opportunity to ask first question. Just now, first of all, congrats on the good performance in Q1. Just now you said you're going to take a holistic approach and also make full use of whole ecosystem to improve our business. My question, first of all, is about the revenue guidance for the remainder of 2026. Can you give us an outlook on the member and non-membership business and what are key drivers for future growth and especially, as we know that the competition remains intense, especially for the membership businesses. Speaking of the ecosystem, we have noticed that the Ximalaya deal has been approved by the regulator, and can you give us some update on how it can improve our performance in the whole ecosystem.

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Thank you, Lincoln, for your question. First of all, I'll say a few words about the guidance for the remainder of 2026. Despite a challenging environment to achieve a steady performance in Q1, this is attributed to our content plus platform dual-engine strategy, which has helped us build an irreplaceable one-stop music entertainment system. This quarter, our non-membership growth was robust, and our performance-related businesses once again achieved a triple-digit year-on-year growth.

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However, competitive pressure remains significant. Disorderly price competition within the industry, coupled with the rampant issue of pirated content driven by AI, has introduced uncertainties regarding the future revenue growth of traditional streaming services. Moving forward, our operational focus will center on three key areas.

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First of all, strengthen enforcement to prevent AI from becoming an excuse for infringement. In response to industry chaos, we have established a dedicated rights protection mechanism to resolutely safeguard the legal interests of our platform, copyright owners and creators. We welcome tech innovation, but we'll do everything in our power to suppress song washing and other infringing behaviors.

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Expanding top of funnel traffic through deeper integration with the Tencent ecosystem. April this year, we entered into a deep strategic partnership with WeChat Channels. By bridging short form video with music consumption, WeChat Channels users can now jump directly to QQ Music with one single click when they discover music they like. This creates a seamless connection from discovery to legitimate listening, collection and high quality consumption, while providing music creators with greater promotion and exposure opportunities.

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Third, leveraging our flourishing IP ecosystem to solidify the one-stop music consumption mindset. Years of accumulation has provided us not only with a massive library of premium content, but also with the creators behind the hits and the loyal fan base that follow them. To fully unlock the long-term value of this ecosystem, we are broadening our competitive advantage through two dimensions: IP expansion and value deepening.

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First, expanding the IP matrix. While continuously expanding our matrix of partner artists, we're also building our in-house artist system. Currently, our ecosystem features numerous talented artists. Second is expanding the value chains. Establishing an in-house artist system allows us to flexibly integrate the entire industrial chain, from music creation to commercial licensing and brand collaborations, significantly improving IP monetization efficiency. Taking our strategic partnership with Silence Wang as an example, our collaboration has evolved from early digital release rights to organizing concert tours and selling physical merchandise. This quarter, we also co-launched our first fan base membership service, building a dedicated artist-centric fan experience that includes priority entry and unique fan benefits.

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Looking at a year as a whole, we expect some short-term volatility in gross rating from membership and advertising business due to competition, but we will try to be proactive in safeguarding our copyright and try to divert more traffic from the ecosystem. In the long run, we remain optimistic about our comprehensive IP-based monetization and which we expect to maintain steady growth.

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We just received a notice of the approval from SAMR. Along with the Tencent group, TME and Tencent group will follow strictly the requirements of SAMR and honor all the commitments to ensure the transaction will be proceeded accordingly and legally.

Thank you. The next question comes from Alicia Yap from Citigroup. Alicia, please. Alicia, your line is open. Are you with us?

Oh, hello. Yeah. Can you hear me now?

Yes, we can.

[Non English content] So, thanks management for taking my questions.

My question is related to subscription. Can management share some detail about the subscription tiering split? What is the growth status for the advertising subscription user? What are their retention rate? The contribution and the growth potential from those newer subscription like the fan club and Bubble, will this become a meaningful driver for the blended RPU growth in the future? With the pending approval of the Ximalaya transaction, any preliminary plan on the long form audio subscription plan, you know, in the future? Thank you.

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First of all, the positioning of TME this year is to make a one-stop music service platform.

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Kugou Music and QQ Music has been developing for over two decades, and over the years we have been expanding our business based on music.

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For years, we have evolved from doing traditional streaming business to a broader category of business.

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As to your question about user retention for different tiers of users, we have not disclosed this number, but in general it's very stable.

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The design of a multi-tier member system is to meet demands of different kind of users.

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For light users or not those very active users, we're using like free and ad-supported approach to improve retention and tap their commercial value.

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Basic music service is mainly for the users who have a relatively high demand for music and also for those sticky users.

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For those deeper value users, like our products like fan club, Bubbles are for those users who have a more diversified demand.

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I believe in the future, the IP based music subscription, not just a music subscription, but also the audio subscription business, including like book listening or kids audios. This IP based content will create a bigger commercial opportunities and also improve our retention.

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All in all, in the future, we will continue to build IP based one-stop music service platform. With all of this, we can continue to improve user retention and tap more business opportunities.

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This is the very part that provides the most value compared with our competitors.

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

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Thank you very much. My question is about member services. We noticed that this quarter, if you look at where year-over-year growth, that's very good. If you look at quarter-over-quarter, it's going down slightly. I'm just wondering what is the reason behind? As far as I can tell, this business doesn't seem to have a very strong seasonality. Probably I guess it's because Q1 is a relatively low season. Apart from the seasonality, is there any other possible reasons like competition, some churns of users or some higher value users are changing their packages from like high packages to some cheaper packages? Could you also give us some like guidance of the future quarter-over-quarter growth for this business?

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Well, first, I want to respond to your question by saying it is not because some SVIP members have chosen some lower or cheaper packages or because of the churning of users. As you can tell that our SVIP member is still growing steadily, so our medium to high value users are still there.

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Well, as you mentioned, this quarter-over-quarter slight decline is mainly because of the competition on the streaming music streaming business, and especially for those free and ad-supported members.

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We've observed some phenomenon in the market that deviate from the business essence. Some other competitors are using AI to quickly fill their music libraries and trying to use aggressive strategy to divert traffic and users into their platform. They're also fighting for those light users.

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Well, we noticed that this is a very important moment for the industry, because such behavior is an exhaustion of the economic value of this industry. Also they are consuming their own business value.

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Amid this environment, as we said in the beginning, we will stay focused on building a one-stop comprehensive music service platform.

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We provide monthly subscription music services on two music platforms, Kugou and QQ Music.

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Users on Kugou platform is more price sensitive and promotion sensitive and well, in face of multiple choices and these kind of users are easily flowing away.

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Well, this will have some impact on the new membership growth on Kugou platform.

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In this context, we have to use the free and ad supported mode to reduce the barrier to entry.

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Kugou Concept Version is also posting a very robust growth in the first half of this year because we're adopting a more flexible pricing and content to retain these light users.

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QQ Music is a relatively more comprehensive platform.

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The overall operational data on QQ Music platform is steady and healthy.

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The overall value of users on this platform is even increasing.

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The recent release of the collaboration between WeChat Channels and QQ Music will further consolidate our competitive edge.

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Lastly, our offline performance or experience or multi-device user experience and scale remain to be our competitive edge, which provide a solid base for us to further tap commercial opportunities.

Thank you. The next question coming from Mizuho, Wei where your line is open.

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Well, thank you very much. We noticed that the GP margin this year actually is growing a little bit quarter-over-quarter. I am just wondering in this case, will you change your overall the whole year guidance on GPM? Because I remember last quarter's call you said that the overall year GP margin will stay flat or even decreasing slightly. We also noticed that the sales and selling expenses actually increased a bit. You said because of the like the deeper collaboration with Tencent ecosystem. I am just wondering this cost ratio, is it one-off or?

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Well, if you look at YOY, in Q1, we've had a very good GP margin, mainly because of the following reasons.

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Number one is in Q1, we see a continuous growth of membership and ADS business, which contributes positively to our GP margin.

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Well, despite the fact that the IP related business is growing very, very rapidly in terms of the overall contribution to the revenue, and especially if you look at our brokering business is growing exponentially and its proportion for overall contribution to the revenue is also going up. We can also tell our offline performance and event business, through that, we have accumulated lots of experience and improve the operational efficiency. Overall, the IP related business impact on the GP margin is close to zero.

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The rigid cost control, also generate very good results on our ROI.

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Well, if you look at quarter-over-quarter, the rise of GP margin is mainly because of the seasonality of IP related business. Because if you look at Q1, the contribution from this business is far lower than Q4 last year.

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It generates some positive impact over GP margin and also offsets the impact of the seasonality reasons of membership and advertising business.

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Well, as to the, our expectation over future revenue growth, we expect to have a GP margin on par with last year in Q2.

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Well, as our IP related business is growing robustly, which will have some structural pressure on our overall GP margin. We will keep optimizing our cost and adopt project basis measures to control costs. Also we'll use our content platform, content plus platform strategy, online plus offline, and also improving, increasing the % of contribution of our own proprietary IP business. With all of these measures, we can maintain a steady profit.

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In the long run, we are very confident to stay at the frontline of our GP margin in the industry.

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Well, as to the question about selling expenses in Q1, it went up by 36% year-on-year. That's mainly because of the intensifying competition in the industry. In face of such intensifying competition, we have to strategically increasing our expenses in user acquisition for our music platforms. We're using different channels like ByteDance to acquire higher value users. We're also using the Star Card of artists to acquire more high quality, high value users.

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In the meantime, we're also promoting our proprietary content, increase the music exposure, and also increase the core competitiveness of our own content. With all of these measures, we try to increase the stickiness of our users.

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With the Tencent ecosystem this year, we will allocate some strategic resources with WeChat Channels, and we will help WeChat Channels establish its own music system.

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We will work with the top tier musicians, singers and studios, and we will do some joint promotions and even releases with them so as to create and improve the overall efficiency of our collaboration.

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We expect that in the future, with the maturization of the WeChat Channels music platform plus our own content contribution, we will achieve a win-win results on two platforms.

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For the whole year, the selling expense will have a reasonable rise and which will be in line with our previous whole year guidance and will in the following quarters, it will not be growing as fast as 36%.

Okay. Thank you, Shirley Hu. Thank you everyone. For the interest of time, I will wrap up today's call. If you have any further questions, please feel free to contact the IR team. This concludes today's call, and thank you again. Look forward to speaking next quarter.

Thank you. Okay, bye bye.

Bye bye.

Good evening, good morning, and welcome to Tencent Music Entertainment Group's fourth quarter and full year 2025 earnings conference call. I'm Millicent Tu, Head of IR. We announced our financial results earlier today before the U.S. market opened. The earnings release is now available on our website and via newswire services. During today's call, you'll hear from Mr. Cussion Pang, our Executive Chairman, and Mr. Ross Liang, our CEO, who will share an overview of our company strategies and business updates. Then Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I refer you to the safe harbor statement in our earnings release, which applies to this call as we may make forward-looking statements.

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

Thank you, Millicent. Hello, everyone, and thank you for joining our call today. In 2025, we remained disciplined in executing our dual-engine content and platform strategy, delivering accelerated revenue growth and sustained margin expansion. Our differentiated all-in-one music service platform has fueled solid subscription growth and strong momentum across our non-subscription offerings. This enables us to unlock greater value from music IPs, create new opportunities for artists, and address a larger market. As the competitive landscape continues to evolve, our proven ability to deliver integrated, expansive, and multifaceted services give us a distinct competitive advantage. With disciplined investment and continued innovation focused on long-term value creation, we are confident in leading the industry advancement. Our competitive edge first and foremost stems from our industry-leading music copyright portfolio.

Building on our high-quality IP access, we have expanded a comprehensive suite of music services to create holistic value for music creators and contribute to the long-term growth of music industry. Leveraging our deep insights into the industry, we have amplified our content strength and addressed the evolving listening preferences of our users. First, our timeless and classic music catalog fostered deep emotional connections and served as the cornerstone of our subscription business. This is why music can be so long-lasting and enduring in terms of monetization. Pushing forward from a position of strength, we recently renewed the contract with Warner Music Group and Believe Music, exploring new avenues for physical albums, merchandise, and live performances. We also deepened alliance with Media Asia Music, introducing Dolby Atmos to over 300 iconic tracks by legendary artists, including Jacky Cheung, Kenny Bee, Leslie Cheung, Zhang Guorong, and Andy Lau, Liu Dehua.

For the first time, elevating the value of our classics with a more immersive listening experience. Second, we continue to deepen differentiations through our proprietary content. The streaming share of our self-produced content keeps growing as listeners seek unique high-quality genres and musical experience. For example, our mid-autumn themed hit, Year After Year, Sui Sui Nian Nian, performed by Xiao Zhan, charted in 17 countries and regions and generated over 100 million social media views in a single day. Furthermore, our capability to craft hits OSTs continues to strengthen. In the fourth quarter, we produced a bespoke 14-track OST suite for Tencent Video's hit drama, Shine On Me, 骄阳似我, which topped multiple music charts during the drama's broadcast.

In addition, several of our co-produced songs were featured on the 2026 CMG Spring Festival Gala, which then quickly went viral, with multiple tracks surpassing 10 million streams in just a few days. Third, we continue to gain share among younger users, thanks to our coverage of genres that resonate well with this user cohort. K-pop, for instance, is capturing and increasing shares of streams. Our recently renewed partnership with P NATION secured a 30-day headstart benefit to new releases from top Korean artists and groups such as Psy, Crush, Hwasa, Baby Don't Cry, and TNX. Keeping users at the forefront of global trends, our thriving Tencent Musician platform, an established avenue for indie and up-and-coming artists, is also vital to meeting the growing appetite of young audiences for diverse music styles.

This quarter, we partnered with the indie band Fine, a music group with over a million followers. Their tracks, including the viral hit Breathing Decision, Hūxī Juédìng, sparked enthusiastic community interaction among young users. Years of dedication, efforts, and our distinctive competitive edge within the content and platform ecosystem have enabled us to accelerate the comprehensive expansion of our music services. We believe this is quite unique to TME, enabling us to continue leading music consumption along the entire music industry chain. Beyond music subscription, we see tremendous potential in other music-related value-added services. We aim to grow and expand our total addressable market sustainably, guarded by our deeply rooted and strong conviction in serving, protecting, and unlocking the full value of music IPs. Building on our momentum, we continue to push boundaries by hosting more high-quality live experiences that empower artists in expanding their audience reach.

First, let me begin by highlighting that in 2025, we showcased our production capabilities with multiple flagship events, including G-Dragon's Kwon Ji-yong World Tour. The 20-concert tour across eight cities in Asia Pacific attracted over 260,000 fans. This highly sought-after tour featured two landmark shows at the Taipei Dome in the fourth quarter, drawing over 75,000 fans, the largest-scale events that we have hosted for him. This unprecedented success proved our ability to execute complex, high-profile tours and laid a solid foundation for future collaborations with top-tier international artists. Secondly, through continuous investment across the music value chain, we have built a diverse and robust lineup of strategic artists. We collaborate with them across music promotion, live performances, artist management, and merchandise, and these investments have begun to bear fruit.

Contributing to strong growth in our non-subscription revenue in 2025, our strategic artist portfolio includes Hailai Ahmu, Will Pan Weibo, Fiona Sit, Xue Kaiqi, Silence Wang Sulong, Kenji Wu Kequan, Tia Ray, Yuan Yawei, Jane Zhang Liangying, Angela Zhang Shaohan, Zhang Yuan, and GAI. Through these efforts, we offer fans a richer array of music consumption and well-rounded entertainment experiences while transforming music and artists into influential IPs, further extending their value and impact. Third, beyond live concerts, we continue to introduce innovative merchandise formats to spark new waves of fan-based consumption. A prime example was the kit album for Ed Sheeran's latest release, Play, marking our first partnership with a top-tier Western artist using this hybrid physical-digital format. We also enhanced Esther Yu Shuxin's physical album, Spicy Honey, with a suite of collectible elements, pushing fan engagement.

In addition, we make a breakthrough in expanding artist merchandise with new tour-themed collectibles, which are highly valued by fans as tangible extensions of the live concerts experience and emotional connections with their favorite artists. Our exclusive edition, Lay Zhang's, Zhang Yixing's Grand Line: Boundless, two special commemorative gift box and the special release of Lu Han's π, Lu Han's Season Four Asia Tour commemorative album integrated with SVIP privileges, both achieved strong sales across the board. I'm pleased to say that we more than doubled revenues of IP-related merchandise and fan-based consumption as we exited 2025. As advertising and other IP-related offerings scale, and as we offer multi-tiered membership for online music subscription, the business impact of each paid membership varies. Given the significant evolution of our business model in recent years, our focus has moved beyond the number of paid subscribers and ARPPU.

The operating metrics for our online music services adopted at our listing. Instead, we are increasingly focused on revenue and profits as our primary performance indicators. Reflecting this shift, starting from the next quarter, we will discontinue to disclose these certain operating metrics on a quarterly basis. Going forward, we will report annually the number of total paying users across our music services as of year-end. Last but not least, with social responsibilities embedded in our core strategy, we continue to improve accessibility and inclusive design, making our products more user-friendly. For example, QQ Music introduced a hearing protection mode for children, leveraging AI and user insights to reduce sharp and sensitive sounds for safer and more comfortable listening experience. Meanwhile, WeSing upgraded its large font mode to better serve more users with adoption exceeding 50%.

To wrap up, our thriving dual-engine ecosystem anchoring by content advantage, comprehensive service offerings, and innovative excellence enable us to effectively serve a diverse range of user creators and fans while unlocking the IP value and enhancing monetization efficiencies. Looking ahead, we will continue to reinforce our core strength and broaden our reach to capture the significant growth opportunities before us. Now, I would like to hand the call over to Ross for a deeper dive into our overall platform development. Ross, please go ahead. Thank you.

Thank you Cussion. Hello, everyone. In an area of rapid technological advancement and evolving consumption expectations, apart from what Kasha just discussed, we stayed nimble, acting proactively across the board to serve our users better and keep the flywheel of our content platform rolling. With our deeper commitment to user value, we have built a comprehensive multi-pronged membership system designed to drive effective subscriber conversion, stronger engagement, and a deeper share of wallet. We continue to lead music consumption trends through ongoing technological and product innovation, inspiring users to explore a broader range of music genres and discover artists. Driven by differentiated, extensive content privileges as well as immersive experiences, we ended 2025 with over 20 million SVIP users with ARPPU trending steadily upward. Our new AD-supported subscription plan is also gaining initial traction.

Over time, it will allow us to broaden user access and attract new audiences to our platform. We continue to innovate product metrics to deliver highly differentiated offerings that make music consumption seamless and accessible anytime, anywhere. First, we further deepen and integrate our presence across multiple devices. While mobile apps remain our core access point, we have also penetrated further into PC, in-car, smart speaker, and wearable ecosystems. This makes music consumption an integral part of users' daily lives, whether they are commuting, and at home or at work. Second, our multi-platform portfolio enables us to cater to a wide range of user habits and preferences. While Kugou Music and the QQ Music offer comprehensive premium services to highly engaged users with a strong willingness to pay. Lighter versions such as Bodian Music and the Kugou Concept serve casual listeners effectively.

Third, we are integrating social features to amplify user reach and boost user acquisition, conversion, and engagement. In quarter four, QQ Music introduced Weverse DM, onboarding 170 artists from HYBE and other labels to broaden artist fan interaction channels. Bubble upgraded its functionality with an intelligent song recognition feature that automatically detects song titles, screenshots, or links shared by artists and enables one-tap playback. Together with the launch of live streaming for domestic artists, this enhancement has driven higher user time spent and retention. It's also worthwhile to mention that this year a new music report campaign added handwritten letters and AI-generated voice messages from artists, further strengthening user engagement and encouraging widespread sharing. As our expanding user cases result in broadened audience reach, we remain focused on harnessing AI to empower music creation and elevate user experiences.

From music creation and production to distribution and consumption, we are making music consumption more fun and personalized. First, our AI tools are enriching content supply. Today, over 10 million users and more than 150,000 professional creators use our one-stop AI music production platform. Features such as track refinement and AI-generated vocal demos accelerate music creation. In addition, AI auto-capture chorus highlights and generated videos, video clips based on lyrics, delivering more engaging audio-video experiences through quick listen mode. Second, we are deepening collaboration across the broader Tencent ecosystem to enhance content distribution and consumption. We enhanced our self-developed multimodal large model, driving our recommendation-driven stream share to a record high. We also deepened collaboration with Weixin Video Accounts by co-creating trends, trending music charts, and adding BGM music links in the comment section for the joint promotion of hit songs.

Meanwhile, Yuanbao has also been embedded into QQ Music. This has not only boosted user engagement but also provided deep insights into our user preferences and needs, thereby improving distribution efficiency. Third, we have integrated AI across the end-to-end music consumption journey. Powered by Yuanbao, QQ Music's AI agent has evolved into a system-level hub, allowing user to handle complex multi-step tasks using natural language commands. For example, beyond music discovery, the AI agent provides direct access to digital albums and merchandise purchase, creating a seamless intent-to-action experience that drives conversion. Last but not least, we continue to scale and differentiate our SVIP membership, capturing new audience segments and leveraging our uniquely comprehensive ecosystem to deepen music consumption and unlock substantial monetization opportunities, particularly through our growing fan-based economy.

As we constantly deepen collaboration with music labels, artists and introduce new high-value benefits, our SVIP users surpassed the 20 million milestone, confirming the success of our strategy. Our further enriched membership benefits fulfill the diverse needs of a broadened user base, driving both SVIP sign-ups and retention. For example, the appointment of Ju Jingyi, Ding Yuxi, and Wang Junkai as QQ Music SVIP brand ambassadors, and Liu Yuning as Kugou Music first ever brand ambassador, paired with limited edition physical and virtual gifts boosted SVIP subscription. The pre-organized SVIP ticket package for the annual gala of Melody Journey 2 and the QQ Music Top Music Night 2026 also result in effective SVIP adoption. We also grew our Starlight Card roster to include career artists like Ivy and NMIXX, enriching the card pool and attracting fan participation.

At the same time, feature-related perks continue to drive SVIP acquisition and retention. Highlights include QQ Music co-branded TTIX and the proprietary NAC sound formats. Kugou Music's scenario-specific DTS sound effects and festival and co-branding skins with renowned artists like Eason Chan, Chen Yixun, Silence Wang Sulong, and Zhou Shen. All of this added to a more immersive listening experience and deeper fan engagement. To summarize, our commitment to product excellence, innovation, and value creation has propelled resilient growth in a dynamic and competitive market environment. Looking ahead, we remain dedicated to this long-term user-centric approach, sitting at the forefront to capture new growth in the sustainable music ecosystem. With that, I would like to turn the call over to Shirley, our CFO, for a deep dive into our financials.

Thank you, Ross, and greetings, everyone. Let me now turn to our financial results. We closed 2025 with outstanding financial performance in both top line and bottom line. We achieved a robust growth in music subscription, advertising, offline performance, and artist-related merchandise sales, and successfully implemented our ROI-focused approach for promotional expenses. I will first talk about Q4 2025 performance. In Q4 2025, our total revenues grew 16% year-on-year to CNY 8.6 billion, driven by strong growth in online music services. Music subscription revenues continued growth momentum, up by 13% year-on-year, and reached CNY 4.6 billion in Q4 2025. Revenues from music service other than music subscription were CNY 2.5 billion, up by 41% year-on-year.

For music subscription revenues, as Ross discussed earlier, we have built a multi-pronged membership system that includes ad-supported membership, standard membership, and SVIP to serve users with different needs and preferences. This system has been well-received and successfully led to increased user retention and growth in music subscription revenues. We continuously enrich privileges and benefits and provide limited-time event opportunities for our SVIP members. In Q4, we appointed Liu Yuning as Kugou Music's first-ever brand ambassador, together with limited edition physical and virtual gift sales. In addition, we offered priority ticketing for the annual Melody Journey 2 gala entrance tickets for our SVIP members. Advertising revenue continued its strong growth trajectory both year-on-year and sequentially, primarily driven by the following. First, our ad-supported model continued its robust growth as a result of increased number of advertisers, higher entrance rates, and higher ECPM.

Double 11 Shopping Festival also contributed to the sequential revenue growth. Second, sponsorship advertising achieved strong growth. Offline performance and music festivals have broadened our user scenario and effectively attracted more brands, thereby driving growth in sponsorship advertising revenues. Over the past few quarters, our offline performances and artist-related merchandise sales have made a significant progress and delivered impressive results. In Q4, we hosted two grand shows in Taipei for G-Dragon and provided the artist-related merchandise sales during the show, which were exceptionally well received. We also collaborated with Silence Wang to deliver a series of successful concerts, providing fans with distinctive experience. Meanwhile, we have established collaborations with strategic artists across musical promotion, offline performances, and artist-related merchandise to provide a more immersive experience for fans and help enrich privileges of SVIP membership.

Revenues from social entertainment service and others were CNY 1.5 billion, down by 5% year-on-year. Our gross margin in Q4 2025 was 44.7%, up by 1.1 percentage points year-on-year, which was mainly attributable to strong growth in music subscription and advertising revenues, alongside a lower revenue sharing ratio in social entertainment services. As we continue to invest in new business, such as offline performance and artist-related merchandise sales, revenue mix between music subscriptions and this new business may cause fluctuations in overall gross margin. Moving on to operating expenses, they amounted to CNY 1.2 billion, representing 14.4% of our total revenues in Q4 2025, compared with 15.7% in the same period of last year.

Selling and marketing expenses were RMB 266 million, up by 7% year-on-year, primarily due to higher channel spending and content promotion expenses. We will keep monitoring market conditions and increase content promotion and the channel spending as needed with our eye focused on financial discipline. General and administrative expenses were RMB 981 million, up by 6% year-on-year, primarily due to growth in employee-related expenses. Our effective tax rate for Q4 2025 was 70.5%. For Q4 2025, our net profit increased by 10% to RMB 2.3 billion, and the net profit attributable to equity holders of the company increased by 13% to RMB 2.2 billion.

Non-GAAP net profit increased by 8% to CNY 2.6 billion, and the non-GAAP net profit attributable to equity holders of the company increased by 9% to CNY 2.5 billion. Our diluted earnings per ADS this quarter was CNY 1.41, up by 12% year-on-year, and the non-GAAP diluted earnings per ADS was CNY 1.6, up by 9% year-on-year. As of December 31, of 2025, our combined balance of cash equivalents, term deposits, and short-term investment was CNY 38 billion, as compared to CNY 36.1 billion as of September 30, 2025. This combined balance was impacted by changes in the exchange rate of CNY to USD at different balance sheet dates. Next, I will briefly discuss our performance for the full year of 2025.

Total revenues were CNY 32.9 billion, up by 16% year-over-year. Revenues from online music service were CNY 226.7 billion, up by 23% year-over-year. The increase was driven by strong growth in music subscription revenues, supplemented by growth in revenues from offline performances, advertising services, and artist-related merchandise. Our music subscription revenues were CNY 17.7 billion, up by 16% year-over-year, primarily driven by continuous expansion of membership privileges, such as early access to live performances, artist-related merchandise, and a wider range of premium offerings. Revenues from social entertainment service climbed by 7% year-over-year. Gross margin in 2025 was 44.2%, up by 1.9 percentage points year-over-year due to the reasons discussed earlier.

Total operating expenses for 2025 were CNY 4.9 billion, up by 4% year-over-year, primarily due to growth in employee-related expenses and higher content promotion expenses and channel spending. In 2025, non-GAAP net profit increased by 60% to CNY 11.4 billion, and the net profit attributable to equity holders of the company increased by 66% to CNY 11.1 billion. We have recognized a gain of CNY 2.4 billion on disposal of an associate in the first quarter of 2025.

Non-GAAP net profit increased by 22% to CNY 9.9 billion, and the non-GAAP net profit attributable to equity holders of the company increased by 25% to CNY 9.6 billion. In March 2026, we declared a cash dividend of $0.2 per ordinary share or $0.24 per ADS for the year ended December 31, 2025. The cash dividend of approximately $368 million is expected to be paid in the second quarter of 2026. Finally, I'll conclude with some remarks on the outlooks. Looking ahead, we will continue our strategy to invest in content and technology. We will keep focusing on IP development and self-produced content, while advancing innovative integrated products with content and platform synergy to build a richer and more dynamic music and entertainment ecosystem.

We remain confident in the healthy growth of our business and are committed to delivering returns for our shareholders. This concludes our prepared remarks. Operator, we are ready to open the call to questions.

Thank you. If you are dialing in by phone, please press star to ask a question, then press star to mute yourself. If you are accessing the call on the Internet, please click the raise hand button at the bottom. For the benefit of this call, please limit yourself to one question, and you may always come back to the queue. If you ask the question in Chinese, please repeat in English. The first question comes from the line of Alicia Yap from Citigroup. Alicia, your line is open.

Hello. Good evening, management. Thanks for taking my questions.

In light of the AI wave and also the growing industry competition, what is the, you know, company's strategic growth outlook for 2026, and how does the company plan to capture the opportunities and also address the challenges that arise? Thank you.

Thank you, Alicia, for your questions, and I will try to answer it from both of the TME's internal and external perspective. Internally, first of all, I think that TME had delivered a very solid results, including both of top line and bottom lines in 2025, with a healthy growth of subscription and impressive momentum across our non-subscription offerings. In particular, our non-music subscription business continues to grow and scale, further endorsing our content platform five-year. For the music subscription side, as we mentioned, we have built a three-tiers membership system to drive effective member conversions, stronger engagement, and a deeper wallet share. Our SVIP continue to scale and surpassing 20 million SVIP subscribers in just two years.

We piloted our advertising membership in late 2025 as well, and which allowing us to compete, broaden, and attract new audience, setting the stage for long-term growth. On the non-subscription side, I think that we have further expanded, deepening the collaborations with artists and labels, and penetrated further into the offline experiences such as the live concerts and merchandise. We believe it is just the beginning. The initiatives are important to enrich the SVIP benefits and allowing us to unlock new growth possibilities and further strengthening our competitive advantage as well. From the external, perspective, I think that the competition is not new to us, but our historical performance has proven that we have always remained agile to compete effectively.

We remain focused on long-term value creations, and we believe that our unique content and platform strategy will continue to deliver the high-quality growth in a healthy way. Whether it is home or abroad, we firmly believe that content with lasting value is IP-driven, and robust IPs will always enjoy the long legacy. Their value will be further enhanced through bottom distribution, cross-media collaborations, and diverse monetization opportunities. The rapid revenue growth of our expansive non-music subscription services over the past two years illustrated our strength and capability in this regard. In year 2026, our subscription revenue will experience some short-term pressure due to the intense competition. But we believe that our three-tiers membership and refined non-subscription services will allow us to grow healthily, holistically, and also sustainably.

The last point that I would like to address in the 2026 outlook is about AI. We continue to embrace AI to improve our user experience on our platform and also using AI technology as a tool to improve the efficiencies in content creation and promotion. With our proficiencies on IP creation and management, we believe that with the help of AI, it will further strengthen our competitive advantage and create business value in the long run.

Thank you. The next question comes from Lincoln Kong from Goldman Sachs, Lincoln Kong, please.

Thank you, management, for taking my question, and congrats on the pretty solid finish in 2025. 我可能先用中文问一下。就是我的问题还是想再问一问这个AI方面啊 其实市场上有很多讨论，就是AI对于整个音乐这个产业链或者音乐这个行业的一些影响。可以再请冠逸先生跟我们说一说腾讯音乐在如何将AI更融入我们整体的这些产品和这个生态体系，以及冠逸先生觉得这个AI对于音乐的这些我们上游的这些唱片，还是这个这些流媒体的播放平台以及用户的这些行为，可能未来会有哪些方面的一些变化，可以请冠逸先生分享一下。[Foreign language]. So, thank you, my question is about AI.

Actually, I want to seek management thoughts around AI impact into the overall music value chain. How would TM embrace AI as we integrate many into our products and our ecosystem and the management thinking around AI impact to music labels, streaming platforms and user behavior. Thank you.

对，我们实际上从现在目前这样一个环境下，应该说最近这三个月应该可以看到，就是AI已经在深刻地改变，不只是音乐行业，应该是在全部内容产业里面的创作、分发、体验和管理的方式。 [Foreign language].

Under current circumstances, especially in the recent three months, we're aware of the fact that the AI is profoundly changing not only music industry, but also the overall industry in terms of content creation, distribution, etc.

我们可以看到，最近这三个月来说，我们已经出现了音乐歌曲在排行榜单上，有AI歌曲在我们的排行榜单上实际上出现了，在这三个月内其实就出现了一些爆炸式的增长。 [Foreign language].

We've already seen some of the hit songs in the recent three months created by AI.

所以这对我们整个的流媒体平台是有比较大的挑战的，因为对我们来说，我们还是更加希望积极地去推进我们原创内容在我们平台上的整个的分发。 [Foreign language].

This brings huge challenge to streaming music platforms, because for us, we're still trying to promote the songs of especially the original songs.

所以，我们还是要积极拥抱本身这样一个态势。基本上来说，我们要在音乐的创作领域，刚才我提到，就是我们在音乐的创作这个领域里面，我们仍然要去提供最有效的和最方便的低门槛的创作工具，能够给到我们的音乐创作者，让他们去降低他们的创作门槛。 [Foreign language].

We will continue to embrace the AI technologies. Just now I mentioned music creation. We will continue to provide the most effective, most convenient creation tools for creators so as to create a very low threshold for creators.

但对于音乐来说，其实最重要的部分仍然是，除了音乐制作以外，其实最重要的仍然是在消费的场景。所以我们实际上在我们目前这个形势下，我们仍然还是希望在保证我们基于真正的人创内容的流量分发，这个流量被保证的情况下，我们也需要去分配一定的流量，能够对AI歌曲进行一定的推广。 [Foreign language].

Music content remains the most important thing, because nowadays, apart from the human created content for music, we'll continue to give more distribution resources to that. Apart from that, we'll also give some traffic to the AI generated content.

所以当然我们现在也可以看到，其实在对于我们在整个市场上也出现了非常大量的这种低成本的并且存在着版权风险的这样的AI的音乐的内容，甚至是其实对于它的翻唱权是有侵犯的。那我们也是在这里面也在花大量的力气对市场进行这样的治理，来保证我们整个的这个权利能够非常正向地能够去被传播。 [Foreign language].

We've noticed that there are lots of low-cost even some content with some risks of copyright infringement, and even some of the content is already infringing the copyright original copyright. We're spending lots of efforts in educating this market so as to serve a positive driver to this market.

所以对于我们来说，我们仍然对于TME来说，我们应该说现在目前是处在一个在音乐领域中，我们希望处在还是一个领先的这样一个位置，我们实际上是在行业内率先将AI能够深度地整合在我们音乐业务中的各个环节。 [Foreign language].

TME is still in a leading position in the music industry. We're also one of the very first company to fully integrate AI into the music industry.

就像刚才我提到的，我们已经提供了一站式的这样AI音乐的制作工具，那相对来说应该有超过千万的普通用户，以及超过十五万的专业创作者在使用我们的AI音乐的制作工具。 [Foreign language].

We've already provided a one stop AI music production tool. Over tens of millions of average users and over 150,000 professional creators already using our tools.

而且我们应该说我们现在也是在行业里面第一个，其实已经在AI制作音乐上取得了……就在应该说在国内这样的音乐平台上，我们通过这样的AI音乐制作已经取得了比较好的商业化收益的一个平台。 [Foreign language].

We're also one of the very first platforms here at home to achieve very good commercial value on AI generated content.

所以我们相信，随着我们AI制作工具的能力的释放，我们在其中去挖掘用户的需求，以及真的在里面的商业化的机会的潜力是非常巨大的。 [Foreign language].

We believe with the further improvement of AI generated tools, we can continue to tap more potential from customer demand and also tap more commercial value out of it.

另外就是我们在第二点，最重要的，我们现在正在全面升级我们的AI agent，也是跟现在的open cloud这样的一个趋势比较类似，我们希望我们的这样的一个助手能够在我们的站内帮助用户去完成更加全面的这样的一个行为。 [Foreign language].

More importantly, we're also operating our AI agent similar to Hu Hu. We hope that with this AI agent, it could help our users to fulfill their target on our platform.

所以整体来看，对于TME来说，AI的这个影响确实是在多个方面的。所以对于我们来说，其实是很大的挑战，但是我们相信这里面应该还是一个很大的机遇，我们自己目前的行动也正在全面拥抱AI，但是我们也相信在未来的时候，它应该还是一个对我们来说非常有利的潮流，我们能够把它抓住的。 [Foreign language].

TME indeed face a lot of challenges brought by AI. It is a big challenge, but we believe it remains to be a huge opportunity for us. We're embracing AI and we believe AI will serve as a positive trend to TME.

我稍微补充一下，就AI除了像刚才Ross提到的，我们整个TME的集团，我们都会全力地用到AI的新技术，给我们的平台的用户带来最好的用户体验，以及我们在歌曲的生产上会提升我们的效率以外呢，我们也会觉得当前的AI确实能帮助我们把歌做得更方便。但同时间我们也看到一个歌版权的价值不单单只是那个歌曲，更多要看到那个IP本身，所以我们未来也会加大我们的力度，投入到IP的制作跟创作上。 [Foreign language].

Some additional comment apart from what just Ross discussed. At TME, we are trying to make music creation more convenient and so as to provide a better user experience. At present, we can see that AI tools indeed is making music creation and production more convenient. But on the copyright, it's not just about songs, and IP also matters a lot. In the future, we'll also give more input into IP creation.

而且很多线下的人种种的一些音乐的体验，包括演唱会啊，粉丝经济，以及刚才讲到的很多的周边等等，当前也非常难的给AI所取代。所以当前我们还是加大我们的力度来大力发展优质的IP，然后用好AI来帮助我们提升创作内容的那个效率。我们双管齐下，我们相信这个是TME当前一个独特的优势。 [Foreign language].

The addition of our offline music experience also matters like live concert, fan base economy, merchandise, and these things can be hardly replaced by AI technologies. We'll keep investing or giving more input into optimizing our IP. In the meantime, we'll also leverage AI to improve the efficiency of music production.

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

Thanks, management, for taking my questions. We talked about in our prepared remarks, the investment in content, IP development, innovative products. If we look at it from a financial perspective, how should we think about the trend in terms of our GP margin, the trend for our OPEX and the earnings growth for this year? Thank you.

总体而言，对于2026年来讲，我们估计我们的毛利率呢基本是与25年持平的，稍微有一点下降。[Foreign language].

In general, our 2026 GP will stay flat with 2025. We'll be a little bit lower than 2025.

随着包月业务及广告业务收入的继续增长，我们同时内容成本结构会持续做优化，并且持续关注内容成本的ROI的提升。我们预计包月业务和广告业务的增长仍然会对我们的毛利总额和毛利率有积极的影响。 [Foreign language].

1, with the continuous growth of our subscription business and advertising business, and we will continue to optimize our content cost and which will boost the ROI. With the sustained growth of the sub and ads advertisement business, it will contribute positively to our GP margin and total GP profit.

第二点呢，就是目前来看，iOS渠道费率的调整呢也降低了我们的渠道成本，对公司的整体的毛利率产生一个正向的影响。 [Foreign language].

In addition, the recent adjustment of iOS commission fee also serves as a positive driver for our GP margin.

第三点呢，我们依然会加大对各类优质IP版权的深度生态和全面的合作，那么也会增强自制内容的投入，强化在内容生态的核心竞争力。 [Foreign language].

In addition, number 3, we will continue to strengthen our ecological cooperation with the high-quality IP and also have more self-produced content so as to create a better competitiveness.

第四点呢，我们持续加深和扩展与头部唱片公司、头部艺人的全方位的合作，在演唱会、周边商品等方面持续加大投入。[Foreign language].

Number 4, we will continue to deepen and expand our collaboration with the top tier labels and artists, and so as to create more revenue on live concerts and merchandise.

由此会扩展和丰富我们的变现方式。[Foreign language].

This will enrich and expand our ways of monetization.

在这些业务的新业务发展的初期，可能对毛利率有一定的负向影响。 [Foreign language].

Well, at the beginning of the development of businesses, it may have some minor negative impact on our GP margin.

但长期而言，随着收入结构的变化，毛利率是在季度间会有一定的波动。[Foreign language].

Well, with the changes of the revenue mix, there might be some seasonal fluctuations of our GP.

长期而言，这些业务呢，在用户多元消费需求得到满足的同时，也可以贡献更高的单用户价值。 [Foreign language].

In the long run, with more services meeting the diversified demands from users, it will also generate a higher ARPU of each user.

IP 和版权的全方位投入组合也可以带来一定的成本效率的提升。 [Foreign language].

Input into IP and copyright will also help improve our content cost.

那我们与产业链上关键参与者的深度绑定，会推动我们业务的多元化。同时呢，在每个业务运作上也有不错的效率提升空间。 [Foreign language].

The deep bundling with the important industrial players will also provide diversified services to us, and it will also help improve our efficiency of each business.

我们相信长期而言，收入和毛利润都会得到有效的增长，毛利率会保持在一个较好的稳定的水平上。 [Foreign language].

We believe in the long run, we will keep growing our top line and GP margin, and we believe our GP margin will stay at a sound and steady level.

对于经营利润来讲呢，就是说确实我们目前面临着一个比较大的、在一个比较剧烈的竞争环境当中，再加上AI刚刚讲的这些方面的一些变化吧，那我们是通过加大对内容的战略升级，持续布局一站式的综合服务，巩固用户的心智，将音乐IP的价值最大化，那这也是音乐产业链上最具价值的一环。 [Foreign language].

About our operating profit, we have to admit that in the face of current fierce competitive landscape and plus the changes brought by AI as we just discussed, and we will continue to give more input into content and with our strategic upgrading, and we will keep improving our one-stop music services to our users to enhance our users' awareness so as to maximize the value of music.

我们不会进行大水漫灌式的烧钱去做营销，我们主要是聚焦核心价值、用户与生态的优势，然后对自有内容宣发进行有效的投入。同时，也会对渠道推广加大力度和精准度，同时遵循ROI的要求，稳步我们的付费用户的基本盘。销售费用的增长会略快于收入的增长。 [Foreign language].

We will not just spend on marketing by a very large margin or by a very large volume. We will still be focused on our core value, which is our users and our ecosystem. We will keep investing in self-produced content and to improve our acquisition cost and based on the ROI calculation, and we will continue to test more value on our paid users so as to achieve a steady and sustained growth.

2026年整体的净利润也会有所提升，净利润呢会相对于2025年基本持平，略有下降。 [Foreign language].

Into 2026, our total net profit will be improved, and the margin will be similar to 2025. Might be a bit lower than 2025.

Thank you. The next question will come from Alex Yao from J.P. Morgan. Ask please.

Thank you management for taking my question。我先用中文讲一下我的问题啊。我想再跟进问两个这个AI相关的这个问题，对咱们这个在线音乐的这个行业的影响。一个呢是就是我们也聊到现在其实这个AI产生的音乐现在在迅速地成长，那他们这种成长的过程里面，咱们观察到的它这个需求端有没有变化？是说AI产生了音乐以后，这个带来了新的原来不怎么听音乐的人，因为现在他们的口味可以被AI更好地满足，所以他们现在开始花更多时间来听音乐，还是说听音乐的还是那波人，但是他们的时间从100%听人制作的音乐转到了一部分这个AI的音乐，就是说供给端肯定是会极大地丰富，但是需求端出现什么样的变化，请管理层给我们分享一点这个你们的观察和思考。那另外第二个问题呢，是如果中长期音乐的制作门槛被AI极大地降低了，比如说我Alex通过一个月付某个AI软件二十块钱，可以大规模地产生很多的音乐，那当我的这个或者说很多的这种民间草根的这种AI产生的音乐，他们在时长上占据了越来越多的这个时长和比例的话，那会不会影响这个今天我们这个音乐这行业的这个版权费用或者版权收入的这个整个的池子，如果那个池子发生变化了以后，我们这个在线音乐的商业模式需要做怎么样的调整去适应这种变化？也就是说AI把这个内容的这个壁垒和成本大幅地拉低，甚至是影响了今天这个赚钱的业务模式，那我们会做什么样的调整啊？那我自己翻译一下。[Foreign language]. I have two questions. Number one is regarding the Impact from AI generated music content, particularly on the demand side. Are we seeing AI content that generate additional and incremental demand for music consumption, or this is more of a zero-sum game in terms of total consumer time spent on music content? Second question is regarding the royalty pool. If medium to longer term, the AI will democratize the music content generation, will that gradually eat into the royalty pool, from monetization perspective? If that's the case, should we consider changes to our business model to fit the new supply side of the change? Thank you.

对，这俩，挺有趣的两个问题啊。所以我看第一个，其实从本质上来看呢，目前AI最大的改变主要是改变的是网络歌曲这个生态。 [Foreign language].

These are very good and interesting questions. Number one, I think in nature, AI is already changing the nature of the music industry.

因为在我们以前，我们也知道网络热歌所出现的情况，也是这种歌曲很火，但是你并不知道这首歌是哪个人来唱，就是基本上会出现那种歌火人不火的一个现象。 [Foreign language].

In the past, we saw lots of hit songs from the internet, but you never know who the singer behind it is.

最近三个月所出现的情况是很有意思的，最近三个月爆发的增长，是确实我们在排行榜上出现了大量的AI的歌曲。 [Foreign language].

In the very recent three months, very interestingly enough is we do see some hit songs on many music rankings.

从我们这其中可以看到两方面的一个特征。第一个就是本身在短视频平台上对于AI歌曲的推广也是给了很大的一个支持。 [Foreign language].

Well, we have to know that the short-form video sites have already given a big boost to these AI-generated music.

第二点其实是可以看到非常明显，就是它大部分是以翻唱为主。所以对于AI的原创歌曲，在目前实际上还是相对来说是一个比较小的份额。 [Foreign language].

Most of the songs are not original songs. If you look at this sector, the AI-generated content are rarely original.

所以我们现在目前的主要的一个合作，就以大头针举例，其实大部分的大量的歌曲仍然来自于经典歌曲的翻唱，这就意味着其实现在目前在歌曲质量本身并没有那么大的超越，主要还在于唱歌的音色相比于其他人会有一个更加完美的现象。 [Foreign language].

As you can see on Suno, most of the songs are to re-sung. Basically the quality itself is rarely changed. It's what is changing is the sound quality.

所以我们相信，其实在后……应该在维持很长一段时间，在这种翻唱本身，就AI在翻唱这样一个领域里面，其实会得到一个非常大的发展。但是在本身的原创歌曲上，可能它在我们在消费端，其实我们刚刚回答你这个问题，其实在消费端本身原创歌曲应该并没有发生一个非常根本的变化。 [Foreign language].

Maybe in the long run, the re-sing by AI will experience a rapid development. In terms of the question you just asked about the consumption of the original songs, we are not aware of big changes.

那对于第二个问题，对于UGC来说，其实你到最后就发现它是跟可能跟图文，跟视频在未来音乐的UGC就出现了一个有意思情况，它是跟图文跟视频出现了一个很大一样规模的UGC的场景，就是有大量的人都是可以去做大量的歌曲，或者像现在一样大量地去拍照和大量地拍视频。 [Foreign language].

As to the UGC or you may see a similar trend to the UGC texts and videos, which is to say that maybe in the future, many people can make music like they can take pictures and videos now.

所以你要去看到现在，无论是现在的Ins也好，还是Facebook也好，你去或者是TikTok或者现在抖音，如果那未来肯定就是一样，一样的现象。也就是说，UGC本身也仅仅是在社交网络，在自己的关系圈里面能够起到更多的传播，但实际上在版权这部分或者在分成领域中仍然还是来自于PGC或者更高的我们称为OGC的这样的内容。所以音乐也一样，就基本…… [Foreign language].

所以这个问题的答案就是，我认为目前无论是怎么样，UGC也仅仅只能去提升我们在用户之间的传播方式，但是它基本上对于我们目前的版权分成是不会有多大改变的。 [Foreign language].

If you look at Instagram, Facebook, TikTok or Douyin, it may be well distributed among the social media just between the female users. If you look at the copyright royalty or the revenue sharing, it still comes from PGC or OGC. It's the same for the music industry. My opinion is that UGC will be well distributed among the female users. In terms of royalty and revenue sharing, we do not see material changes.

所以我们现在反而在花大力气去做这样的一个平台，是希望能大量的用户能够去通过这样的工具去产生这样的内容，也许在未来实际上可以诞生我们在一个TME上基于音乐内容的这样一个social media的平台。 [Foreign language].

We are spending lots of efforts, trying to make a platform to allow our users to create or produce music. We hope that in the future, on TME platform, we can also make a social platform about music content.

那我再补充一下，就是说这个问题确实是一个我们需要仔细思考，或者说是非常重要的一个问题。那从目前来看，就是根据刚刚Ross讲的，我们对于AI创作的歌曲，然后是就是AI工具在创作过程当中，它是使用的AI工具，但是唱的时候是用人声，就是真正的有IP的这些角度，那么它是跟我们传统的这个歌曲是一样的这个分成方式。但是如果是用完全是用AI的虚拟的声音，然后这些歌曲的话，它其实是不会在我们整体的这个人声，人声的这个版权的这个库里面去进行分成，那么它其实是用另外的方式。那么刚刚说用其他的UGC平台，或者它可能是一种激励的方式，那么不是，不会影响到我们现有的这个版权分成的一个情况吧。对。 [Foreign language].

I want to have some additional comment. First of all, this question really deserves more thought, and I think this is also a critical question. Just to follow up on what Ross said, AI-generated music or content, if it is still sung by human sound, while the revenue sharing mechanism will remain the same with traditional model. If this is a wholly AI-made, while you have a different royalty sharing model. On these, those UGC platforms, maybe they have to adopt like incentive model or something else, but it doesn't generate any material change or impact on the current business.

We have time for one more question. It goes to Maggie from CLSA.

Thanks, management, for taking my question. Since this is the last one, I'll get a housekeeping one. Wondering if there's any update you can share with us regarding the proposed Ximalaya acquisition deal. Partly relating to that, what's management's latest thought on the share repurchase program? We noticed that there's still a large quota left. Thank you.

最后，因为是最后一个问题呢，我就说得简短一点啊。一个是关于喜马拉雅的这个交易，最近有一些更新的信息，然后另外一个，因为我们回购的额度还有挺多的嘛，所以之后还是有回购的计划。 [Foreign language].

喜马拉雅，我们现在正在还在积极地跟市场监管总局沟通。主要目前的这个消息主要还是后面会，如果有变化，我们会向公众来传播这个，来宣布这个消息。 [Foreign language].

We are still communicating with the regulator on the Ximalaya deal. If there is any update, we will disclose it.

关于你第二个问题，我们一直都是非常重视对股东的投资回报的。所以你可以看到我们其实今年的股息派发上，我们也比去年有一个更显著的绝对数的增长，这个也代表了我们对股东的重视。 [Foreign language].

We have always valued our shareholder return. This year, as you can see, our dividend payout is far higher than last year, which shows strong emphasis on shareholders.

至于我们的股票回购，我们当前还是董事会之前已经审批了一个两年的回购计划，我们会适当地在满足监管要求的前提底下，也综合市场的情况，我们会积极来执行。 [Foreign language].

Currently about the share buyback will stick to the previous plan and we will respond to market needs while meeting the regulatory requirements.

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

Thank you very much.

Thank you.

Thank you.