Participants

Kar Shun Pang; Executive Chairman; Tencent Music Entertainment Group

Millicent T.; Vice General Manager; Tencent Music Entertainment Group

Min Hu; CFO; Tencent Music Entertainment Group

Unidentified Company Representative

Zhu Liang; CEO & Director; Tencent Music Entertainment Group

Alex Poon; Equity Analyst; Morgan Stanley, Research Division

Alex C. Yao; Head of Asia Internet & New Media Research; JPMorgan Chase & Co, Research Division

Alicia Yap; MD & Head of Pan-Asia Internet Research; Citigroup Inc., Research Division

Lei Zhang; VP in Equity Research & Research Analyst; BofA Securities, Research Division

Lincoln Kong; Equity Analyst; Goldman Sachs Group, Inc., Research Division

Thomas Chong; Equity Analyst; Jefferies LLC, Research Division

Wei Xiong; Research Analyst; UBS Investment Bank, Research Division

Xueqing Zhang; Analyst; China International Capital Corporation Limited, Research Division

Presentation

Millicent T.

Good night, good morning. Welcome to Tencent Music Entertainment Group’s Third Quarter 2023 Earnings Webinar.
I’m Millicent Tu., Head of IR on the firm. TME introduced its quarterly monetary outcomes at this time earlier than the U.S. market opened. Earnings launch is now obtainable on our IR web site and through Newswire companies.
Today, you will hear from Mr. Kar Shun Pang, our Executive Chairman, who will begin the decision with an summary of our firm’s methods and enterprise updates. Next, Mr. Ross Liang, our CEO, will share further ideas on our platform methods and developments. Finally, Ms. Shirley Hu, our CFO, will focus on our monetary outcomes earlier than we open the decision for questions.
Before we proceed, I refer you to our protected harbor statements in our earnings launch, which applies to this name as we’ll make forward-looking statements. Please be aware that the corporate will focus on non-IFRS measures at this time, that are extra completely defined and reconciled to probably the most comparable measures reported below IFRS within the firm’s earnings launch and filings with the SEC.
(Operator Instructions) And please be suggested that at this time’s webinar is being recorded.
With that, I’m very happy to show over the decision to Kar Shun, Executive Chairman of the corporate. Kar Shun?

Story continues

Kar Shun Pang

Thank you, Millicent. Hello, everybody, and thanks for becoming a member of our name at this time.
We are happy to report one other quarter of sturdy progress in our on-line music companies regardless of the highest line headwinds of the social leisure enterprise, whereas adjusting sure industry-wide live-streaming interactive options represented some challenges for the quarter. It in the end positioned us on even stronger footing for our long-term sustainable improvement. As a working example, our evolving companies have develop into extra resilient, illustrated by group-wide margin growth and powerful money flows for the quarter.
What’s significantly price mentioning is our on-line music subscriptions. This enterprise has registered accelerated year-over-year income progress. Growth momentum carried into the third quarter with growth in each of our subscriber base and ARPPU. Our paying consumer base grew additional to 103 million, a powerful testomony to the broad enchantment and excessive worth of our music services. Our spectacular content material choices, compelling subscribers’ privileges and interactive product options, along with sturdy execution, enabled us to draw new subscribers, whereas retaining present ones.
We are additionally happy to see that month-to-month ARPPU expanded to RMB 10.3, because of disciplined promotions, efficient member acquisitions and our excessive subscriber retention charges. These achievements will consequence from the stable execution of our dual-engine content-and-platform technique. It additional unlocks the worth of music and pave the way in which for our long-term success.
I’d wish to share a number of highlights. First, we domesticate deeper, mutually useful partnerships with report labels and artists. Our insights throughout content material and customers in addition to our holistic strategy to rising the {industry}, supported our strengthened cooperations with music companions. For occasion, we strengthened our collaboration with TFBOYS on the 30-day head begin to launch of their 10-year anniversary single, See You Tomorrow, in addition to the sale of their themed album, 10 Years. To amplify consumer engagement and strengthen their bond with the artists, we launched a number of on-line song-guessing contests and music-based interactive options for this single.
We expanded our partnership with YG Entertainment into ticketing, the place we opened a devoted channel for customers to buy BLACKPINK’s live performance tickets, additional increasing subscriber purchases. In addition, we shaped a brand new partnership with CUBE Entertainment, bringing in a distinguished line of manufacturers and teams corresponding to BTOB, PENTAGON, (G)I-DLE and LIGHTSUM. This collaboration not solely enriched our music catalog, but in addition granted us the privileges of a 30-day head begin interval on new track releases.
Each of those examples strengthens our virtuous cycle and creates a win-win state of affairs. Our developed relationships with artists allows, fortify our music ecosystem, bringing extra [enjoying] privileges to our customers, whereas additionally creating prosperity for all stakeholders alongside the {industry} worth chain.
Second, leveraging TME’s built-in assets and experience, we expanded our {industry} affect by helping artists at totally different phases with their profession progress. With respect to top-tier artists, in August, we host a web based/offline live performance for Zhou Shen celebrating the 9-year anniversary of its debut, highlighted by gross sales of sought-after tickets and social media buzz of almost 2 billion occasion views in simply 3 weeks. This occasion generated nice pleasure and acclaim amongst customers.
As for our strategic partnership artists, this quarter, we assisted TIA RAY together with her look on the Mid-Autumn Festival Gala’s organized by CCTV and [Hunan] Satellite TV, efficiently rising her affect nationwide. Among our rising musicians, we’ve (inaudible) our Indie musicians carried out and showcases expertise on the truth present, The Treasured Voice. Through music publicity and social media, we assist workforce entice extra customers to discover his authentic sounds on our platform.
In quarter 3 this 12 months, we additionally had over 20 up and coming musicians acting at [Line] Music Festival. Many rising musicians kind our Tencent Musician program showcased their abilities on the Coca-Cola sponsored the 2023 Summer Limited Refreshing Music Festival. Such actions with high-quality manufacturers additionally encourage us to additional discover sponsorship promoting alternatives.
Third, we enhanced our expertise capabilities in content material creation, promotion and distribution. Some of this content material additionally recorded preliminary success abroad. In the third quarter, Venus launched its zero-shot AI-powered music manufacturing instrument, that includes quick and handy era of consumer’s AI voice to supply musical works, Kugou Music’s vocal producer additionally upgraded its capabilities to permit AI-generated music content material in a number of languages. Through a quick coaching part, it could possibly successfully and effectively produce songs in Mandarin, Cantonese, English, Korean and Japanese. Booth instruments considerably boosted creators’ creativity.
TME’s music promotion and distribution instrument kits, such because the TME Music Cloud and Kugou’s ToMoreMusic platform, made development in serving to report labels, creators and musicians effectively promote their musical work. Our deep {industry} insights and [enhance] knowledge and analytics allow us to efficiently promote Chinese songs abroad. For instance, we helped Angela Zhang’s Beast and Yang Junan’s Summer Love chart on numerous fashionable music lists in Singapore in the course of the quarter.
Moving on to our continued efforts on ESG. In the third quarter, we joined hand with Tencent’s SSV and launched our 2023 Youth Music Tech X program, inviting highschool college students to discover our technology-inspired music journey. Working facet by facet with the scholar, we commissioned a theme track, The Most Beautiful Sound within the World, to marketing campaign the general public care and assist the hearing-impaired senior residents.
In addition, we organized a particular music schooling undertaking, Music Garden Space, to assist kids from ethnic minorities and distant areas recognize the wonder and energy of music. These initiatives exhibit the worth and constructive affect you’ll be able to deliver to a variety of communities.
In abstract, our holistic and strategic strategy is strengthening and increasing our capabilities, making our platform and ecosystem more and more strong. We proceed to develop our music subscriptions and strengthen our partnerships with label and artists, enriching our content material and perpetuating our virtuous cycle. We are additionally fostering new abilities and leveraging our [adviser] expertise to assist our effectivity progress. This highly effective mixture and evolution will drive our firm’s sustainable improvement in the long term and assist the broader {industry} development.
Now I want to flip the decision over to Ross for extra colour on our platform improvement. Ross, please go forward.

Zhu Liang

Thank you, Kar Shun. Hello, everybody. Music is the guts and the soul of TME. I want to start by commenting that quarter 3 outcomes highlighted the effectivity features throughout our platforms. So particularly, our ecosystem’s power, platform’s scale and AI-empowered expertise have enabled us to transition into an more and more strong music powerhouse. From the operational degree, one key spotlight is our effort to increase the applying of AI applied sciences throughout our merchandise and the companies based mostly on our upgraded music [IRM]. This quarter, we built-in IRM integration platform, permitting third-party fashions to be higher built-in with an adaptive to the music vertical. With assist of AI, we enhanced the music discovery and the consumption effectivity, making a extra participating consumer expertise.
First, higher content material connection and discovery. This quarter, we continued to improve our suggestion center platform and enhanced customized suggestions on every our music apps. As a consequence, we reached a brand new report within the share of streams from suggestions in addition to a rise within the variety of songs added to customers’ private [series]. We additionally considerably lowered the limitations to music discovery. For instance, QQ Music launched its Quick Listen mode, which permits customers to take heed to a track’s refrain after which shortly [look at] the complete track. Another instance is Kugou Music’s [revamped] model, that includes sooner discovery of a number of songs, track covers in addition to AI-run [data] variations performed by totally different [instruments].
Second, higher for facilitating music consumption via extra consumer circumstances and leisure eventualities. In the in-car use take a look at, we prolonged our mobile-end choices, corresponding to our seamless consumer interface, premium sound high quality and a tailor-made playlist, to counterpoint in-cabin music consumption. To improve our protection, we not too long ago signed further automobile fashions together with Mercedes-Benz, good and extra BYD fashions. Partnering with {hardware} producers, we led the {industry} by leveraging Qualcomm’s newest AI laptop capabilities to reinforce customers’ music listening expertise with richer particulars and extra (inaudible) sensations.
In phrases of broadening leisure content material consumption, we custom-made our music companies, together with content material manufacturing, promotion and knowledge evaluation throughout within the areas of movie and tv, gaming and animation. Through tailor-made music works, we create a novel contact factors for authentic IPs, unlocking their worth. For instance, the coproduced each the theme and finish credit score songs for the blockbuster, No More Bets (overseas language). We additionally produced the unique soundtracks from cell video games, together with Peacekeeper Elite, CrossFire and Dungeon and the Fighter, all of which have obtained widespread acclaim.
Third, for our immersive consumer connections, we’ve created thriving group the place music lovers can bond (inaudible) making their expertise on our platform extra pleasing and lengthy lasting. For instance, QQ Music launched over 30 interactive song-guessing contests that includes artists, corresponding to Jay Chou, Zhou Shen, BLACKPINK and the Teens in Times. These occasions shortly went viral throughout social media platforms and our in-app group and the Funko teams, amplifying TME’s affect.
To sum up, these 3 dimensions of connections encourage us to additional unlock music’s worth. AI-powered expertise is supporting us to offer higher consumer expertise and making the platform more and more environment friendly. Our on-line music enterprise has develop into diversifying and essential progress pillar. Social leisure companies stay adaptive as a part of our holistic music choices. For 2024 and years forward, we’ll keep laser centered on offering, enlightening consumer experiences whereas driving operational efficiencies throughout the platform.
With that, I’ll flip the decision over to Shirley, our CFO, for a deep dive into our financials.

Min Hu

Thank you, Ross. Hello, everybody. Next, I’ll focus on our outcomes from a monetary perspective. In the third quarter of 2023, revenues from on-line music elevated by 33% to RMB 4.6 billion on a year-over-year foundation, pushed by sturdy progress in our music subscription and promoting enterprise. Our complete revenues had been RMB 6.6 billion, down by 11% year-over-year attributable to decline of revenues from social leisure companies and different companies.
Music subscription revenues in Q3 reached RMB 3.2 billion, up by 42% year-over-year and by 10% sequentially, pushed by additional growth of each on-line music paying consumer base and month-to-month app. So mainly, the variety of on-line music paying customers grew to 103 million, up by 21% year-over-year, representing internet provides of three.6 million customers sequentially. Monthly ARPPU was RMB 10.3 billion, up by 17% year-over-year and 6% sequentially, marking its sixth consecutive quarters of progress and one other record-high quantity. This was consequence from our merchandise extra interesting member privileges, interactive product options, enticing music content material and disciplined promotion and member acquisition methods in addition to excessive subscriber retention price.
Additionally, revenues from promoting achieved sturdy progress on a year-over-year foundation as our diversified product portfolio and the modern advert codecs together with advert supported mannequin and sponsorship promoting are extremely enticing to the advertisers. Our Campus Music Contest QQ Music 2023, Young Music Campus Trend Music Competition and the Coca-Cola sponsored 2023 Summer Limited Refreshing Music Festival had been 2 good examples of how our portfolio of music IPs attracted numerous branded advertisers.
Social leisure companies and different revenues had been RMB 2 billion, down by 49% year-over-year. The lower was primarily brought on by our changes to sure live-streaming interactive capabilities and extra stringent compliance procedures as we carried out a number of service enhancement and danger management measures. This is in step with our expectation about live-streaming revenues as mentioned progressively. We imagine this measures are much less (inaudible) and are useful to our customers, which is able to assist pave the way in which for the long-term sustainable improvement of our enterprise.
Gross margin in Q3 was 35.7%, up 3.1 proportion factors year-over-year, primarily because of the following elements. First, our music subscription revenues had sturdy progress this quarter. Specifically, growth in paying consumer base and enchancment in month-to-month ARPPU, each had a positive affect on our gross margin. Second, our promoting revenues additionally had a powerful progress, which additionally profit our gross margin. Third, as we step by step ramp up our personal content material, it has positively impacted our margin.
As you see right here, shifting to win-win relationships with labels and artists and rising subscription ARPPU, over the previous a number of years, have (inaudible) margin mannequin and greater than offset the affect from decline in live-streaming revenues.
Now transferring on to working bills. Total working bills for Q3 had been RMB 1.3 billion or 19.3% as a proportion of complete income, down by 0.2% from 19.5% of complete revenues in the identical interval final 12 months. Selling and advertising and marketing bills had been RMB 219 million, down by 11% year-over-year as we intently monitor the ROI of every promotion channel and improved the effectiveness of promotions.
General and administrative bills had been RMB 1 billion, down by 12% year-over-year. This lower was primarily attributable to decreased employee-related bills because of improved headcount effectivity and bills associated to the Hong Kong secondary itemizing incurred in the identical interval of 2022.
Our efficient tax price for Q3 was 12.2%. For Q3, our internet revenue and internet revenue attributable to fairness holders of the corporate had been RMB 1.3 billion and RMB 1.2 billion, respectively. Non-IFRS internet revenue and the non-IFRS internet revenue attributable to fairness holders of the corporate had been RMB 1.1 billion and RMB 1.4 billion, respectively. Diluted earnings per ADS had been RMB 0.74, up 12% on a year-over-year foundation. Non-IFRS diluted earnings per ADS was RMB 0.89, up 3% on a year-over-year foundation.
As of September 30, 2023, our mixed balances of money, money equivalents and time period deposits had been RMB 31 billion as in contrast with RMB 30.5 billion as of June 30, 2023. Such mixed balances was additionally affected by the change in change price from RMB to USD, a special steadiness sheet base.
In March 2023, we introduced a share repurchase program of USD 500 million. As of September 30, 2023, we had repurchased 15.8 million ADS from the open market with money for a complete consideration of roughly USD 103 million.
In conclusion, our music subscription enterprise has demonstrated a powerful progress trajectory ready by quarterly progress in each ARPPU and the paying customers, and we count on such pattern to proceed with a eager concentrate on [ROI] administration and improved efficiencies in working prices and selling channels, we count on to proceed driving our general profitability. Last, however not least, we’ll preserve investing in new services, high-quality content material in addition to new applied sciences via natural improvement and [maintain] to solidify the inspiration for our long-term progress.
This concludes our ready remarks. We are able to open the decision for questions.

Question and Answer Session

Operator

(Operator Instructions) And the primary query comes from the road from Alicia Yap from Citigroup.

Alicia Yap

Congrats on the stable consequence. I’m going to ask the questions in Mandarin first. (overseas language)
I’m going to translate myself. So I ponder if administration can share your preliminary view in your expectations for the web music’s income progress in 2024. And the way you count on the enterprise and the aggressive occasion will get to evolve within the subsequent 3 years? In addition, questioning if administration might share the way you assume the macro surroundings would possibly have an effect on the expansion prospect in subsequent 12 months and in addition over the subsequent 3 years?

Kar Shun Pang

Thank you in your questions, Alicia. And I believe 2023 is a crucial 12 months for us. We have been transitioning and increasing our music ecosystem, making our enterprise combine far more resilient. And that is really we factored in various points. First, we responded shortly to the challenges going through the live-streaming {industry}, taking proactive actions to regulate our social leisure enterprise and making it extra sustainable.
Secondly, we proceed to drive the prosperity of our music ecosystem whereas diversifying our income streams. And thirdly, our core enterprise like the web music subscriptions and promoting report strong progress amid evolving macro surroundings. So you’ll be able to see this in our second and third quarter monetary outcomes.
For 2022, I believe that assuming we’re going to have a steady exterior surroundings, and we see the chance to drive our general prime line progress and margin growth in comparison with 2023, particularly, we’ll proceed to drive stable progress of our on-line music enterprise with subscription income pushed by the subscription base progress and in addition ARPPU growth as nicely. Outside of the subscription income, we count on the revenues from promoting and new initiatives, corresponding to artist merchandise, to proceed to develop healthily.
For the social leisure companies, we’ll proceed to execute our present operational technique with the backdrop of the macro elements and competitors. For 2024, our main goal is to stabilize the enterprise and higher serve our core customers. As a part of our holistic music ecosystem, we count on our social leisure enterprise to proceed producing a wholesome money movement for us.
For 2024 earnings, we aimed (inaudible) level our sturdy outcomes to date in 2023 and proceed to drive each gross and internet margin growth. For the three years outlook, I believe TME’s core companies, particularly our on-line music companies, nonetheless have numerous room to develop over the subsequent 3 years. We are excited to see the expansion alternatives in present areas, together with the subscription, ARPPU, promoting and extra potential from the long-form audio as nicely.
In addition to the web music companies as nicely, we’ve been prolonged our wealthy and increasing capabilities alongside your entire music worth chain. We have efficiently developed our new monetization fashions to extend our goal addressable market with the diversifying income streams. And these embody the stay performances, like concert events and music festivals, artist merchandise and extra. With all these initiatives nonetheless within the early stage, we imagine that we’ve constructed a powerful basis to faucet into extra areas for the long-term progress.
So in a nutshell, I believe that we’re glad that our core companies like the web music service present nice resilience amid the present macro surroundings, and we’re assured that our content-and-platform dual-engine technique will proceed to seize extra alternatives for our future wholesome progress.

Operator

The subsequent query comes from the road of Alex Poon from Morgan Stanley.

Alex Poon

Congratulations administration for a really sturdy quarterly outcomes, particularly the subscription enterprise. My query is said to our ARPPU progress. So third quarter, we’ve achieved report excessive absolute quantity and in addition on a year-over-year and sequential progress foundation. Going ahead, as a result of our blended ARPPU remains to be even decrease than our Double 11 promotion worth, and a variety of customers are paying the auto renewal worth of RMB 15, so how ought to we take into consideration the trajectory? How a lot visibility do we’ve for persevering with this very sturdy ARPPU progress within the subsequent 2, 3 years, perhaps as a result of there’s additionally a macro problem, deflationary surroundings, additionally competitors with NetEase, which remains to be charging at a lower cost than us?

Min Hu

[Interpreted] Thanks for the query. Well, concerning the ARPPU, really, we maintained our ARPPU progress for six consecutive quarters. And for this quarter, it is already RMB 10.3. And as a result of we additionally proceed to downsize our promotional occasions and in addition make the membership advantages extra enticing and we additionally adjusted the worth insurance policies.
Well, on the similar time, you’ll be able to say that we really make some concessions concerning the discounted price for the consecutive subscription enterprise however we’re additionally proactively adopting the efficient operational methods. Therefore, we will retain our customers. That’s elevating our — in Q3 of this 12 months really present an excellent efficiency. .
Well, on the similar time, and we’re nonetheless very assured concerning our future subscription enterprise income progress.
You’re additionally asking in regards to the This fall efficiency, and we’re additionally very comfortable and assured we will develop the quantity.
In the second a part of your query, you requested in regards to the outtake for the subsequent 3 to five years. And you talked about really our charge is round RMB 50 and we will regulate the economic competitors, our personal operational and in addition factoring the weather you talked about, for instance, like inflation after which to additional optimize our efficiency.

Operator

The subsequent query comes from the road of Zhang Lei from Bank of America Merrill Lynch.

Lei Zhang

(overseas language) Noticed that our gross margin is fairly on observe in previous quarters and reached the report excessive since 2019. And are you able to share with us the pattern of music and social leisure enterprise when it comes to gross margin? And how ought to we take a look at the margin pattern going ahead?

Min Hu

Gross margin is 35.7% in Q3, elevated by 4.1% year-over-year because of the elements as follows. First music subscription revenues had a major progress growth in paying consumer house and enchancment in multi-ARPPU, each had a constructive affect on our gross margin. Second, the strong progress of promoting revenues additionally has a positive affect on gross margin. Third, we step by step ramped up our self-owned content material, which profit our gross margins. Fourth, we optimized the content material price mannequin of ROC and elevated ROC requirement of content material prices. Our on-line music revenues progress ratio was sooner than internet ratio of content material prices.
Five, fastened license price of lengthy kind audio decreased at a year-over-year foundation. And sixth, after the adjustment to stay streaming enterprise, the proportion of revenues from rising membership and promoting in social leisure revenues have elevated, which had a positive affect on our gross margin. And seven, the optimized expertise and operation technique associated to model — and brief functionality and improved utilization of our service and gear. Our gross margin has improved for six consecutive quarters. Looking ahead to This fall, we count on subscription income and commercial income will proceed to be sturdy progress.
On the price facet, we count on our in-house made content material could have a constructive affect on gross margin, and we’ll proceed to extend our operational effectivity and monitor price objects by our similar mannequin. Despite the stay streaming income shall be decreased in This fall, we count on our gross margin shall be elevated sequentially and look ahead in subsequent 3 — to subsequent 12 months, we count on our gross margin shall be elevated, however the elevated diploma shall be steady — shall be later than this 12 months.

Operator

The subsequent query involves the road of Lincoln Kong from Goldman Sachs.

Lincoln Kong

So my query is in regards to the arising from the enterprise, the subscription enterprise. So to start with, are you able to administration elaborate a bit extra how this enterprise when it comes to doing within the third quarter, so together with promoting, provide chain, digital consequence, et cetera? We’re significantly fascinating, the enterprising funding pattern into the fourth quarter as we simply handed a single [stay]. So how will we see the enterprising ramping up for the 12 months or for this fourth quarter. And after we take into consideration 2024, what are areas we predict have — nonetheless have progress potential for this sort we see?

Unidentified Company Representative

[Interpreted] Thanks in your query. In This fall of this 12 months, and we do imagine we will keep a great progress for the subscription enterprise so long as what we have seen carried out in Q3 of this 12 months. Well, concerning the promoting enterprise as a result of in This fall of the 12 months, we will have the double 11 procuring pageant. So we do imagine the This fall efficiency would outperform Q3.
Well, concerning the outlook of 2024. And in 2024, we imagine our subscriber base will proceed to develop, however perhaps the expansion price can be slowed down in contrast with 2023.
Well, concerning the subscription enterprise mannequin in 2024, in addition to engaged on the cell finish options, we’re additionally going to accentuate our efforts within the in-car utility and IoT utility. We’re additionally going to step up our efforts concerning the Super VIP enterprise, offering further capabilities just like the impact of the music and the tunes of the music and we’re additionally going to proceed to roll out family or the household membership and couple membership and proceed to develop our app.
Well, concerning the income from the promoting enterprise, and for subsequent 12 months, in 2024, we nonetheless want to preserve a constructive perspective over the overall financial system manufacturers. So we will keep our income progress goal of promoting enterprise in 2024, the identical as 2023. .
Well, concerning the expansion for subsequent 12 months, and in addition to what we talked about within the ad-supported mode, we’re additionally going to accentuate our efforts concerning the industrial promotion, and we will leverage the promotion together with the sunshine occasions and concert events as a result of — we’ll have the ability to ensure we discover a deep bond between our commercialization and offline occasions. This would even be an ideal progress driver for our subsequent 12 months promoting enterprise.

Operator

The subsequent query comes from Thomas Chong from Jefferies.

Thomas Chong

My query is referring to AI and LLM. Given we’ve been seeing AI is so vital on content material creation and in addition supporting our musicians and in addition driving the consumer engagement, simply need to get some colour with regard to our 3-year methods, in LLM and AI. And what sort of — what degree of spending ought to we count on over the subsequent couple of years? (overseas language)

Unidentified Company Representative

[Interpreted] Thanks for the query. Well, concerning the AI-related questions, I imagine we will — methods with what has been supplied by our dad or mum firm, Tencent. We do imagine AI goes to be a really sturdy and strong driving pressure for the subsequent few years.
Well, attributable to our relationship with Tencent Group and for some primary fashions, really, we’re not going to do — for extra analysis as a result of Tencent Group has already launched its — system, and we’re additionally going to leverage the — produced by Tencent Group to proceed to — our enterprise with their mannequin.
Actually, our enterprise is extra utility pushed. So what we will do within the close to future is to leverage the prevailing LLM to totally assist the answer with nice integration. And we do imagine that we’ll have the ability to seamlessly change to the main language fashions within the {industry}, together with (inaudible).
As you in all probability observed, in Q3 of this 12 months, we’ve already launched our music — mannequin connection platform 2.0. And we’re additionally totally dedicated in accelerating the mannequin use and particularly making the mannequin be part of our manufacturing system in order that it could possibly assist us to attempting to proceed the low price, and so they’re additionally going to spice up our work effectivity.
Well, you may also say that within the subsequent 3 years, what we’re attempting to do remains to be leverage the prevailing LLM to proceed to increase its utility. For instance, we have already got the listening collectively product that’s based mostly on the up to date LLM. In different phrases, it could possibly enable the consumer to take heed to the identical music, we’re additionally capable of chat with one another and in addition discover out by having these fashions, the Q&A and in addition the chat efficiencies been enormously improved.
Well, on the similar time, in contrast with what I discussed, the elemental LLM, what we’re attempting to enhance is definitely our AIGC capability. And we’re additionally analysis and adopting the main engines within the {industry} and a few preliminary outcomes has already been achieved in video, in graphics and in audio and you already know a few of the industrial outcomes has already been harvested in our stay streaming efficiency.
Last not least, we additionally imagine that AIGC play a significant room for music creation and consumer expertise enhancement. It can present the consumer a extra customized, diversified but immersive music expertise. In the close to future, we’ll proceed to speculate and discover the improved innovation on this suite. We’re additionally going to affix palms with our technical companions and the music creators so that we’ll proceed to developed and to create within the content material {industry}.

Operator

The subsequent query comes from Alex Yao from JPMorgan.

Alex C. Yao

Can you hear me okay?

Operator

Yes, we are able to hear you now. Yes.

Alex C. Yao

And congrats on a great quarter. I’ve a query on gross sales advertising and marketing. You guys have been rationalizing the gross sales, advertising and marketing spending very efficiently up to now few years — sorry, previous few quarters. The income combine has considerably shifted in direction of music and on the again of probably extra on-line/offline integration and involvement within the offline music actions.
How ought to we take into consideration the gross sales modeling technique going ahead? For instance, subsequent 12 months, are we nonetheless going to see a flattish and even barely decrease gross sales and advertising and marketing bills versus this 12 months? Or ought to we take into consideration, as you focus more and more extra on music with extra potential offline actions, the gross sales and advertising and marketing will step by step ramp up within the subsequent few quarters?

Min Hu

[Interpreted] Thanks in your query. Yes, certainly, for the primary few quarters, our gross sales expense has been nicely managed as a result of we all the time adopted ROC to nicely handle our bills. .
Well, concerning the longer term, really, we do imagine we will enhance our profitability concerning the music of the enterprise and we’re nonetheless going to put money into the music channel enterprise. But as we’re adopting the ROC, we will confidently translate the funding into returns.
As you might in all probability discover and on the opposite facet, we proceed to try for a greater self-produced and co-creation content material, and we’re additionally going to launch extra offline occasions or actions. So for positive, we will want extra promotional actions to take action. But as a result of we adopted the ROI administration methodology, so in different phrases, our funding is very environment friendly and efficient.
Well, concerning the This fall of 2023, as you in all probability observed, This fall is all the time the season full of advertising and marketing and promotional occasions. So I believe our gross sales and advertising and marketing bills in This fall of this 12 months can be the identical as what we noticed final 12 months.
So concerning the 2024, the gross sales and advertising and marketing bills, from absolutely the worth perspective, it is likely to be some progress. But in contrast with the income progress, I do imagine our funding is really environment friendly.

Operator

The subsequent query coming from Zhang, Xueqing from CICC.

Xueqing Zhang

(overseas language) Follow-up on the questions on IoT. As additionally talked about earlier than, you’ll increase IoT membership sooner or later. And so I’d wish to ask about your query that what is the scale of IoT and –? And what number of are paying customers? What’s our plan to transform them into paying consumer sooner or later? And how ought to we take into consideration the long-term monetization potential?

Zhu Liang

[Interpreted] Thanks, Xueqing. Regarding the IoT enterprise, our technique is to ensure we’ve a really wholesome progress for the loud speaker and the TV enterprise the place, on the similar time, we’re additionally going to step up our efforts in additional increasing the consumer base for the in-car service. .
So as you in all probability observed, for the loud speaker and the TV enterprise as a result of the longer term progress potential is likely to be restricted. So what we’re doing now’s to try to to dive deep into the prevailing consumer base ensuring we’ve an excellent monetization and in addition ensuring we are able to develop up within the present buyer base.
Well, concerning the in-car service, really, we connected with nice significance to the brand new vitality car as the brand new vitality car {industry} continued to develop, and we additionally imagine that in China, we additionally see ever-increasing progress concerning the clever prices.
So really, concerning the methods for the in-car enterprise, we will preserve an excellent relationship with auto OEMs and together with the home auto OEM and even Tesla. We’re going to ensure our content material may very well be nicely supplied into their driver within the cockpit.
Well, on the similar time, that also for us, we paved the way concerning the sound high quality and in addition the sound impact. So we actually need to ensure we proceed with our high-quality sound high quality and sound impact within the in-car service. And we even have our indigenous expertise concerning the first sound high quality and in addition the 2D sound impact, ensuring the customers, when they’re of their automobile, they’ll additionally benefit from the high-quality service from us.
Well, for the previous 2 years, we’re additionally clearly observed that Hulu up from absolutely the worth perspective, the in-car service is best than the cell and — service. While, on the similar time, we additionally observed that what we’re doing now’s to attempting to increase the consumer base for the in-car service. When we develop our buyer base to a sure quantity, we will leverage extra industrial actions and techniques to show them into the paying consumer.

Operator

Due to the curiosity of time, we take the final query from Wei Xiong from UBS.

Wei Xiong

And congrats on a great quarter. My query is round shareholder returns. So good to see the execution of buyback program up to now quarter. Looking forward, how ought to we take into consideration the tempo of buyback? And what elements will we take into account in figuring out the timing and perhaps the tempo of the buyback execution? And additionally what are the methods will we take into consideration to drive higher shareholder returns?

Min Hu

[Interpreted] Thank you very a lot. In Q1 of this 12 months, we introduced a USD 500 million share repurchase program for repurchasing the Class A abnormal shares. As of September 30, 2023, we made money repurchases of roughly 15.8 million ADS within the open marketplace for a complete consideration of almost USD 103 million. We will proceed to regulate the market, particularly the most recent market developments and in addition seize alternatives to create extra values for our shareholders.
By retaining our eye available on the market, we will even take into account additional repurchase program if the time and the chance come up.

Operator

Okay. With that, I’ll flip the decision over to Kar Shun for closing remarks.

Kar Shun Pang

Thank you, everybody, for becoming a member of us at this time. If you might have any additional questions, please be at liberty to contact TME’s IR workforce. And this concludes at this time’s name, and we sit up for talking with you once more subsequent quarter. Thank you a lot, and goodbye.

Min Hu

Thank you.

Kar Shun Pang

Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]