Tencent Music Entertainment Group Stock

Tencent Music Entertainment Group (TME) operates as an online music entertainment platform in the People’s Republic of China (China or PRC). The company is a subsidiary of Tencent Holdings Limited.

The company offers an all-in-one online entertainment experience for people to discover, listen, sing, watch, perform and socialize around music. To bring a more diversified experience to the company’s users, it has also expanded the company’s platform to offer long-form audio services.

The TME platform is an all-in-one music and audio entertainment destination that allows users to seamlessly engage with a broad range of music and audio content in many ways, including discovering, listening, singing, watching, performing and socializing. The company adopts a dual engine content-and-platform strategy to constantly enrich content offerings on the company’s platform, while empowering content creation and distribution and delivering a compelling user experience. Through the company’s vibrant community, technologies, and visual and interactive features, the company enhances its user experience, engagement and retention.

Online music services, primarily the company’s QQ Music, Kugou Music and Kuwo Music, enable users to discover, enjoy and share music in personalized ways. The company provides a broad range of features for music discovery, including smart recommendations, music ranking charts, playlists, official music accounts and digital releases. The company also offers comprehensive long-form audio content including audiobooks, podcasts and talk shows, as well as music-oriented video content, including music videos, live performances and short videos.

Social entertainment services allow the company’s users to sing, watch and socialize on the company’s platform. The company delivers online karaoke services primarily through WeSing, which enables users to sing along from the company’s vast library of karaoke songs and share their performances either in audio or video formats with friends. The company also delivers music-centric live streaming services primarily through the ‘Live Streaming’ tab on QQ Music, Kugou Music, Kuwo Music, WeSing, Kugou Live and Kuwo Live, providing an interactive online stage for performers and users to showcase their talent and engage with a diverse audience base.

The company has four major apps — QQ Music, Kugou Music, Kuwo Music and WeSing — through which the company provides online music and social entertainment services to address the diverse music entertainment needs of a massive audience in China. The company also offers Lazy Audio, its dedicated long-form audio app as an effective complement to the company’s flagship music-centric mobile apps. These apps are highly complementary to each other as they focus on different content categories and target diversified groups of audience.

From a content library perspective, QQ Music, Kugou Music and Kuwo Music are substantially integrated as they share access to all of the tracks that the company licenses from music labels. At the same time, the company has a high degree of user overlap between its online music services and social entertainment services as a result of the complementary nature of the company’s products that organically direct user traffic from its online music services to the company’s social entertainment services, and vice versa. The company also adopts a holistic approach in operating its online music services and social entertainment services in terms of content sharing, user engagement, technology development and support, and monetization.

Besides the company’s major apps, the company also offers certain ancillary products, services and initiatives designed to engage both users and content creators through diversified music formats and mediums. All of these form part of the company’s broader music entertainment ecosystem, which distinguishes the company from its peers. For example, the company offers TME Live, its proprietary online-and-offline music concert initiative, as well as Tencent Musician Platform, an online service for selected aspiring musicians to showcase their talent, passion and original works for the broadest possible audience. The company has also launched AIGC tools to empower music-related content creation and enhance production efficiency. In 2022, the company unveiled its virtual pop idols, who the company brought to life with original content, unique voices, dance moves, and more. The company’s virtual performers can generate a record-grade vocal print, which is developed by TME LYRA LAB’s LyraSinger Engine. These ancillary services and initiatives were developed to serve the company’s large, growing network of content creators, including both established and emerging artists. Through these ancillary services and initiatives, the company is able to continuously diversify its content offerings, strengthening the bonding between artists and their audience.

Online Music Services

The company delivers its online music services primarily through QQ Music, Kugou Music and Kuwo Music, each of which has attracted a large and avid user base. The company purposely builds these mobile apps to serve the different user demographics across China with music that suits their differentiated tastes and preferences. Through QQ Music, the company offers a comprehensive music library and a broad range of music-oriented video content, with a focus on popular artists and leading hits for younger music lovers in metropolises in China. Kugou Music offers a broad set of entertainment features, with a mass market focus and strong user penetration in broader geographies. Kuwo Music primarily focuses on selected genres and segments, such as DJ mixes and children’s songs, to cater to users’ diverse music preferences. While maintaining complementary focuses of content curation and recommendation, QQ Music, Kugou Music and Kuwo Music are substantially integrated in terms of the company’s comprehensive content library as they share access to the tracks that the company licenses from music labels.

Users may use basic features on QQ Music, including streaming, without logging in. To purchase subscription packages and enjoy additional features, such as creating personal playlists, users need to log into QQ Music, which requires a Weixin or QQ account. Users may register with and access the company’s online music services on Kugou Music and Kuwo Music using their mobile phone numbers, or through their Weixin or QQ accounts.

The company makes enjoying to music simple and fun through discovery and personalization:

Listening Experience and Beyond

Advanced Music Player: The company offers various functions to enhance user experience, such as sound quality optimization, shuffle play, day/night modes and music caching. The company has also developed a variety of audio settings that fit different songs, use cases, moods and output devices. The company’s cloud-based services enable users to synchronize their playlists on different devices. A wide selection of proprietary sound effects is at users’ option, catering to their diverse music tastes and preferences. For instance, Kugou Viper Sound innovatively developed a three-dimensional sound effect to resemble music live, offering users a novel and fun listening experience. Moreover, the company is the first music platform in China to offer Dolby Surround Sound effect to the company’s Super VIP Membership subscribers and in-car users, offering them immersive audio experience. In addition, the company provides an innovative feature called Muse Engine that facilitates automated production of music posters on a large scale, utilizing melody and lyrics as the input.

Attractive Video Content: As the company’s collaboration with Weixin Video Accounts grows stronger, the company is consistently enriching the music video content on both TME platforms and Weixin Video Accounts. This in-depth collaboration in music promotion is proving to be highly valuable for the company’s musicians. Based on the company’s understanding of user preferences, the music-related video content the company provides to Weixin Video Accounts is immensely popular among Weixin users, and ranks among the best in the music category of Weixin Video Accounts. The company encourages user engagement by allowing WeSing users to share their own music video performances on Weixin Video Accounts. Additionally, to make music listening more fun, the company added visual elements to its content offerings, allowing users to enjoy a visual feast while playing a song. For example, by embedding music videos in music streaming pages, the company created video-based music products, further catering to the needs of users for consuming music videos and bringing in a more immersive audio-video experience.

Personal Homepage: Users have their own customized homepages where they can manage their playlists and access recently downloaded and/or streamed music content. It also provides various functions, such as following artists, purchasing subscription packages, tracking activity data and changing app themes.

Music Discovery

Search: Users can discover music content through the company’s powerful search engine. They can search music content across playlists, music charts, artists and genres. The company’s song recognition tool allows users to discover a randomly heard track of music without having to know a single key word.

Smart Recommendations: With the company’s algorithms that intelligently detect users’ evolving music tastes, the company then recommends music to users as part of their search, as well as through daily songs, new songs, music radios and users’ favorite songs based on what they listen to. The company has been improving the efficiency in content curation and accuracy of smart recommendations by utilizing deep learning and data analytics, which has resulted in a substantial increase in average daily streams and user engagements for both online music and social entertainment services. As the company expands its content library, the company continues to improve its knowledge about music and users’ preferences by refining the company’s music metadata tagging. This allows the company to further enhance its music discovery and recommendation capabilities.

Music Charts: As part of the company’s dedication to promoting healthy and sustainable industry development, the company strives to establish inclusive and professional music charts that accurately assess and reflect China’s music industry. To achieve this, the company has created the TME Chart, which is supported by the company’s data-driven TME Uni Chart and its expert review-based TME Wave Chart. Together, they form a robust music rating infrastructure that aligns with the company’s mission.

Curated Playlists: The company offers curated playlists covering a wide variety of genres, themes, languages and moods. The company is also adapting to the preferences of younger music users by adding genres, such as urban, electronic dance music (‘EDM’), animation, comic and gaming, as well as Chinese Ancient Style. The company’s extensive playlist offerings include curated playlists created by the company’s music editorial team, machine-generated playlists, and user-generated playlists. The company also encourages users to create their own playlists to share, thereby further amplifying their exposure within the company’s online music community. The company’s interactive playlists can be jointly built and edited by multiple users, allowing users to break through the barriers of time and place while dynamically integrating listening with social interaction.

Official Music Accounts: Users can subscribe to their favorite official music accounts operated by both established and aspiring artists, columnists and other music industry key opinion leaders. Through their official music accounts, owners can upload and share songs, videos, literature, photos and other music-oriented content.

Social Experience

Facilitate Interactions Among Friends: The company’s platform delivers a superior and unique social music experience. Users can share their songs or playlists via Weixin or QQ and other major social platforms. Furthermore, the company has upgraded the synchronized listening feature in QQ Music to encourage interactions among friends. While listening to a song, users can interact with others listening to the same song by posting and exchanging comments. They can also create their own lyrics posters and share them with friends.

Help Users Connect With Those Sharing Common Interests: The company provides users with various exciting ways to interact with their favorite artists, including enjoying digital singles and albums released by artists. As the company aspires to connect people through music, the company’s social and community-building efforts also focus on interactions among not only friends and families but also strangers with a shared passion for music. The company also launched an entertainment feature on QQ Music, Tan Go, which allows users to play with and truly feel the rhythm of selected songs by touching the keypads on the screen and following the tempo of the songs. Additionally, the company introduced VR Listen Together on TMELAND, which enables users to gather their avatars in virtual settings, such as camping, rooftop chats, and New Year celebrations to listen to content together. The company also offers the Leap of Heart function to enable a user to listen to songs another user is listening to with just a single click. These efforts have enabled users to stay connected with their friends and even strangers through music, to discover music that is trending around them and to share music with those they care about. This in turn allows the company to gain useful insight to improve music discovery and recommendations for the company’s users.

Long-form Audio Offerings

The company provides extensive, diverse long-form audio content offerings covering a broad range of selected genres and segments, such as audiobooks, podcasts, cross talks and talk shows. In an effort to expand and diversify the company’s long-form audio content, the company has enriched its podcast ecosystem and bolstered the company’s joint content operations with popular IPs. As a result, mid- and long-tail podcast hosts are flourishing within the TME ecosystem. To further strengthen the company’s long-form audio content offerings, the company has added more audiobooks based on novel IPs, as well as self-produced paid children's literature. In addition, the company has enhanced its Text-to-Sound (TTS) technology to facilitate and supplement podcast content production.

As the company grows its long-form audio offerings, the company has designed its products to unlock significant value from both music and standalone long-form audio apps. This approach allows the company to leverage its massive existing music user base to drive penetration of the company’s long-form audio content offerings.

Social Entertainment Services

As users are increasingly looking for a variety of entertainment that goes beyond listening to music on the company’s platform, the company offers users simple and entertaining ways to sing, watch and socialize, whether it is with a friend, a group of friends, or other users on the company’s platform. The company’s music-centric social entertainment services include online karaoke social community and live streaming of music performances.

Online Karaoke Social Community

The company’s online karaoke social community is a platform for users who want a simple stage to share their love of music and singing, or a springboard to launch their careers as the stars of tomorrow.

The company delivers online karaoke services primarily through WeSing, China’s leading online karaoke social community, as well as the ‘Sing’ function on Kugou Music. The company offers millions of karaoke songs covering a broad range of genres, and the company continues to review and update its karaoke song library to keep it fresh, current and popular. Over these years, the company has continued to establish WeSing as a social entertainment platform with singing at its core. The company’s focus is to engage users by demonstrating the power of singing in socializing, celebrating and supporting the company’s community in a meaningful way, and creating tools that deliver a more personalized and enjoyable singing experience. The company requires users to register with and access services and functions on WeSing using their Weixin or QQ accounts, as WeSing is primarily used by users to socialize with their friends on Weixin or QQ through music. Such linkage between WeSing and Weixin or QQ has in turn also enriched Tencent’s content ecosystem by providing Weixin or QQ users with convenient access to the company’s content. The company also offers the WeSing Lite app with streamlined functionality designed to attract users who may appreciate a simpler interface.

Users can sing along from the company’s vast library of karaoke songs and share their performances, either in audio or video formats, with users connected on Weixin or QQ. Karaoke songs recorded by users significantly augment the company’s user-generated music content library.

WeSing has functions and features designed to drive user engagement, social interaction and entertainment, including:

Singing Features: Users can record their karaoke songs in audio and video formats. They can not only sing alone, but also sing duets with celebrities or other users and then make a complete song to share with their friends. Users also receive a system-generated assessment of their performance which helps them continue improving their singing. In addition, users may edit recordings of karaoke songs with a large selection of special audio and visual effects, or record songs at offline mini-KTV booths and share their performances online. To make the singing functions more accessible to mass users and improve recording performance and online singing experience, the company has continuously upgraded the audio and video recording tools, including multi-genre remix, auto-tune and quick sing, making it simpler and fun for users to create and publish recordings. WeSing also pioneered the industry’s voice synthesis technology, allowing music rookies to create a virtual singer based on their own voice.

Virtual Karaoke Rooms: Users can create virtual karaoke rooms and invite their friends or others to join an online karaoke party anytime and anywhere. In a singing room, users can sing and interact with each other by voice and text chatting, sending virtual gifts and holding sing-offs for most likes and gifts. In addition, WeSing’s multi-person singing rooms, available in both video and audio formats, have consistently enhanced real-time interaction scenarios on the platform. The company’s Friend Karaoke Room also enables families and friends to sing, chat, play and socialize, bringing the offline karaoke experience online for the company’s users to enjoy real-time social interactions. The company has also upgraded WeSing’s online karaoke rooms to offer a broader suite of online singing experience, including different party sizes ranging from solo and duet to small and large groups, as well as catering to different needs, such as singing-on-demand, sing along on demand, singing practice and cross-room activities.

Online Singing Groups: Users can discover and join a larger online singing group of people sharing common music interests. Online singing groups provide users with a great way to create online music communities, meet new like-minded friends, improve their singing performances and have fun socializing online. The company also introduced an online service model featuring on-demand vocal accompaniment. This effectively mobilizes karaoke stars on the platform with potential commercialization opportunities to reward their singing talent.

Live Performance: Users can stream their singing performance through interactive live streaming sessions where users can interact with others by chatting and giving virtual gifts.

Value-added Services: While users may access the company’s basic karaoke functions free of charge, they can also purchase virtual gifts to send to their favorite singers and subscribe for memberships that come with value-added functions, such as higher soundtrack resolution, additional app themes and access to singing tutorial programs.

Multi-media Content Enrichment: The company uses full-screen videos for its user interface design on the recommendation page to make content browsing more immersive and engaging. The company also enhanced the recommendation algorithms for greater content exposure and interaction experience. In turn, such technology improvements have incentivized users to publish more content, generating a virtuous cycle for users to create, publish and share content on the platform.

Content Creation: The company has continued to popularize the music creation process within WeSing, encouraging more users to become content creators. The company also provides users with a virtual stage background and avatar for video recording, as well as the option to create a personalized short video by simply recording their voices with a semi-finished video supplied by WeSing.

Live Streaming of Music Performances

Live music performances provide real-time interactions compared to recorded content. They can be exciting, exhilarating and engaging. This motivated the company to provide a venue for performers to express themselves, share their creative work and for audiences to enjoy a completely different, interactive music entertainment experience.

The company offers live streaming of music performances primarily through the ‘Live Streaming’ tab on QQ Music, Kugou Music, Kuwo Music, WeSing, Kugou Live and Kuwo Live. Having these multiple live streaming platforms built in the company’s core music apps allows the company to organically attract the massive online music user bases of each of the company’s music apps to the company’s live streaming offerings and seamlessly serve their diversified social entertainment needs for visual and interactive content. Professional artists and other performers alike can stream their singing and other performance to a vast online audience, fostering a vibrant online social music entertainment community.

The company offers users the option to register with and access its live streaming services using their Weixin or QQ accounts. Alternatively, users may also register with and access the company’s live streaming services using their mobile phone numbers, without Weixin or QQ accounts.

The company’s live streaming platforms cultivate an engaging and interactive environment for both the live streaming performers and the audience to create, discover, socialize and have fun together, mainly featuring the following:

Music-centric Live Streaming Content: The company’s live streaming content features a broad range of performance categories, such as singing, instrument playing and DJ performances by both professional artists and other performers. Most of the company’s live streaming users also use the company’s online music or online karaoke services. The company’s data analytics technology enable it to provide recommendations of relevant live streaming content based on what the company’s users are listening to or singing on its platform. For example, when a live streaming performer on Kugou Live performs a song, a message bubble pops up instantaneously on Kugou Music notifying users listening to the same song. This allows users to seamlessly access this performer’s live streaming sessions on Kugou Live. As an integral part of the company’s international expansion strategy, the company will seek to bring its quality live streaming content to international users.

Music Events and Talent Shows: To further diversify the company’s live streaming content offerings, the company offers virtual concerts performed by professional artists, as well as music events, music variety shows and fan meetings on the company’s live streaming platforms to allow its users to support and interact with their favorite artists through various ways.

Social Functions: The company’s social features make everyone a part of the show. Performers and users interact in various formats, such as voice and text chatting, video chatting, rating a performer’s performance and sending virtual gifts. On the company’s platforms, live streaming performers can engage in a variety of real-time singing and performance contests against each other, where users can send virtual gifts to their favorite performers. Users can also request to have a favorite song performed by a live streaming performer by sending a virtual gift. At any time during a live streaming session, users may choose to follow a performer they adore to receive notifications of future performances.

Cultivation of Music Talents: The company’s audio livestreaming business, combined with its expertise in artist incubation, provides ample space and support for the company’s musicians to grow. Leveraging the company’s experience in nurturing rising talent, the company is creating more opportunities for its indie musicians to develop into promising live streaming performers. For example, in 2022, the company’s self-produced hits, such as ‘Puppetry’ and ‘Echo’ drove substantial growth in the number of fans for their respective artists, resulting in increased copyright revenue and live streaming income. The company is also fostering a closer connection between audio live streaming and its music platforms. Following the successful expansion of audio live streaming by QQ Music, Kugou Music has now begun to establish its presence in this field. This has enormous growth potential, given its massive user base for music.

The company encourages its live streaming performers to sing and engage in other music performance on the company’s platform. The company’s live streaming platform becomes a large stage for performers to captivate and engage audience with similar interests and easily access attractive revenue opportunities, enabling them to develop their artist image and pursue their goals of becoming popular artists. Live streaming performers on the company’s platform include professional artists and aspiring performers, as well as ordinary people who want to share their music.

The company seeks to establish and maintain stable, mutually beneficial relationships with live streaming performers. In particular, as part of the company’s content strategies, the company nurtures promising live streaming performers and helps them reach a wider audience and make a living from their performances. The company provides them with performance training and promotion support to increase their exposure. The company’s platform further provides a differentiated way for live streaming performers to engage with their audiences and reach a larger audience base to raise their profiles in the industry.

The company helps popular live streaming performers release new singles and albums. This not only enriches the company’s comprehensive music content offerings but also attracts more traffic to both of the company’s music and live streaming services, increasing user engagement and loyalty on the company’s platform.

Live streaming performers are required to enter into a cooperation agreement with the company. Such agreements generally contain provisions that require the performer to live stream on the company’s platform with typically a one-to-three-year term. The company has a revenue sharing model in which the performers (and their talent agencies, if applicable) share with the company a percentage of the virtual gift sales generated from their live streams.

Other Music Services

The company offers other services to drive user traffic, deepen user engagement and increase monetization. Such services primarily include sales of music-related merchandise, including Kugou headset, smart speakers, WeSing karaoke microphones and Hi-Fi systems; services that help smart device and automobile makers build and operate their branded music services on their devices and vehicles; and online music event ticketing services.

In order to provide users a consistent and cohesive listening experience, the company started to forge Internet of Things (‘IoT’) partnerships with leading manufacturers of cars, smart speakers and smart watches in 2019, which provided further channels for user acquisition. As a new music content consumption channel, IoT enhances the company’s ability to effectively roll out and promote new music content to a wider audience in a broader set of use cases in users’ daily lives, making the company’s services more accessible and more convenient to the company’s users. The company also expanded its coverage of a broader set of music usage scenarios, integrating with smart speakers, in-car audio systems, smart watches and TV, and making inroad into the public performance market.

Content

The company is dedicated to building a comprehensive and up-to-date content library covering the company’s users’ favorite content across both genres and formats. The company has a comprehensive content library with over 150 million music and audio tracks as of December 31, 2022.

Diverse Content Library

The company offers a diverse range of professional, as well as user-generated recorded and live content across various formats. The company’s content generally spans five different types:

Songs

Features songs performed by both established and aspiring artists in China and around the world.

Underpinned by a comprehensive original content production system leverages the company’s technology capabilities and deep understanding of music, as well as internal and external resources to systematically create, evaluate and promote music.

Represents a variety of themes, such as latest top hits, internet hits, time favorites and movie soundtracks.

Covers a broad range of music genres, including pop, rock, indie, hip hop, R&B, classical, jazz and electronic music in various languages, including Mandarin, Cantonese, English, Korean and Japanese.

Categorized by listening habits, settings and moods, such as workout, travel, study and work, relaxation and many more.

Adapts to the preferences of younger music users by covering a wide range of genres, such as urban, EDM, animation, comic and gaming, as well as Chinese Ancient Style.

Live Streaming of Music Performances: Professional artists along with aspiring and other performers stream music and other performances in real time to the company’s online audiences. These live streams allow users to experience and enjoy live music performances and interact with the performers in a variety of ways. Additionally, the company offers live streaming of more professionally organized online concerts and music events for more established artists.

Recorded Video and Audio: Various recorded music-oriented video content, such as full-length music videos, short videos, both professionally- and user-generated, behind-the-scenes footage, artist interviews, music-focused variety shows and music awards shows, as well as audiobooks, podcasts and talk shows covering a diverse set of topics on children, education, history and humanity, among other things.

Karaoke Songs: Millions of online karaoke songs and the related user comments, which further expand the breadth of the company’s music content offerings, enhancing the company’s user experience and engagement.

Reviews and Articles: The company supplements its music content offerings through an enormous library of reviews and articles about music and artists, written or curated by the company’s in-house editorial team. The company places links to the featured music in the articles to provide users with even more choices of content.

Content Strategies

Partnering with Music Labels and Leading Industry Players

The company primarily licenses top hits and premium content from major domestic and international music labels for a broad audience base. All the tracks that the company licenses from music labels are generally available to users across the company’s online music apps and, to the extent permitted by the terms of the company’s licensing agreements with the licensors, the company’s social entertainment products, except under certain circumstances where the artists or rights owners require the company to publish their content under specific subscription packages or in a specific format.

Given the reach of the company’s platform and its ability to help users discover music, the company has become one of the most preferred and effective platforms for music labels and artists to gain exposure to and gauge the popularity of their music with their audience base. The company develops long-term relationships with a broad range of music labels, including major domestic and international labels that provide the company valuable opportunities to collaborate on new album releases, music events and other initiatives. The company also collaborates with established artists and major music labels to promote and release digital albums for the company’s massive user base.

The company is continuously diversifying across content type, genres and formats on the company’s platform. Additionally, while broadening the company’s offering of copyrighted music, the company has also been working closely with industry participants, artists and other partners to create and produce more differentiated content, and co-produced dozens of chart-topping songs across gaming, film, literature and comic categories.

In addition, the company has collaborated with leading music charts and magazines worldwide to increase the exposure of Chinese artists and songs globally. Built on the company’s collaborations with Billboard, the company has announced the integration of TME UNI Chart as the only music chart from mainland China on Billboard. Additionally, the company jointly released the 2022 Annual Music Report with Billboard, which attracted a record-high number of visitors. The company has also supported the growth of Chinese musicians, such as Pan Yunqi, who has quickly risen to become a rising star. By partnering with Coca-Cola's music event in the fourth quarter of 2022 and promoting her through Billboard's global network, the company was able to help her gain more recognition. Furthermore, Pan Yunqi came in third place in The Voice of China 2022 and was featured on the cover of Billboard's December 2022 issue.

The company also seeks to deepen its partnerships with the broader Tencent ecosystem to create new music entertainment experiences and content. Throughout 2022, the company expanded its collaboration Weixin Video Accounts to enrich users’ visual experience and explore new avenues to distribute music and video content. For example, the company deepened the collaboration between TME Live and Weixin Video Accounts, allowing a broader user base to participate in concerts and experience innovative online-merge-offline interactions. The company also offers a song recognition feature in Weixin Video Accounts that can automatically identify the background music of videos from Weixin Video Accounts, direct users to QQ Music to listen, and allow users to set such music as their Weixin ringtone or use in their own videos.

Enhance In-House Original Content Development Capabilities

The company continues to invest in original content production to meet user demands for diverse forms of music entertainment. The company has established a comprehensive set of original content production capabilities that leverage the company’s technology capabilities and deep understanding of music, as well as internal and external resources to systematically create, evaluate and promote music. For instance, the company launched a smart music assistant functionality, enabling creators to quickly make decisions through the company’s proprietary predictive content discovery model (the ‘PDM’) at key stages of the music production process, such as demo screening, and trade of lyrics and melody. The company also rolled out a voice synthesis technology, Lingyin Engine, to quickly and vividly replicate singers’ voices for use in original songs of any style and language. Furthermore, the company has developed a number of content promotion tools that integrate the company’s internal and external promotion resources, providing a one-stop service to help artists and songs reach the targeted audience and gain popularity. Powered by these advanced tools and technologies, the company’s artists have created quality and popular works, serving a wide range of users’ tastes and adding a great complement to the company’s content library.

Cultivating Aspiring Artists

The company is not just a platform for established artists but also one for discovering and cultivating rising music talents. The company provides opportunities for newer generations of aspiring artists to fulfill their ambitions to sing and perform by supporting them in areas, such as content curation, marketing, promotion, monetization and career training. The company is proud to have promoted the singing careers of many new music stars who got their start on the company’s platform. The company also works closely together with music labels to identify and cultivate aspiring artists on the company’s platform.

Cultivating original works and enriching the indie musician ecosystem through the company’s Tencent Musician Platform leads to the company’s content differentiation. Tencent Musician Platform is the company’s online service for selected aspiring musicians to showcase their talent, passion and original works for the broadest possible audience. The company supports its indie musicians with useful tools and collaborative opportunities to realize their full potential, and create, grow, engage and monetize their art and audience base. The company does this in part by providing them access to valuable resources, from song production and domestic and overseas promotion, all the way to artist and repertoire development, incentive plans, performance resources, copyright protection and career training. In 2022, the company recommended a diverse group of the company’s musicians to various shows and events hosted by TME and sponsored by well-known brands, demonstrating the company’s commitment to amplifying the influence of talented artists. Additionally, by continuously launching smart features and tools for indie musicians to accelerate song composition and release, the company’s Tencent Musician Platform has empowered them to create more than 2.3 million musical works by the end of 2022.

Tencent Musician Platform has also established the sustainable and diverse monetization models for musicians and the industry. Throughout 2022, the company rolled out several incentive programs to help high-quality content and artists gain exposure across the company’s platforms. For example, the company introduced a new service to easily mass-distribute musicians' works globally to over 150 popular platforms and disseminated songs to overseas audiences. The company also launched TME Artists’ Albums which helps musicians release digital albums and generate income therefrom.

The company’s ongoing support to indie musicians resulted in a growing number of indie musicians on the company’s platform. By the end of 2022, the number of indie musicians on the Tencent Musician Platform reached 390,000.

Fostering User Content Creation

To further extend the breadth of the company’s content offerings, the company allows users to upload content in the forms of karaoke songs, live streaming performance, short-and long-form videos and other formats of music-oriented content. This user-generated music content further engages users and enhances their experience, both as content creators and as audience.

The company leverages its data analytics technologies to recommend content generated by karaoke singers and live streaming performers to help increase their exposure.

Furthermore, the company added additional video and long-form audio formats to its content offerings and continued to launch social media initiatives and additional lite versions of the company’s apps to attract a broader group of users. The company also developed innovative ways for users to enjoy personalized content by consistently improving the company’s music content tagging process and analyzing the company’s platform’s data repository to better fulfill users’ music tastes and preferences. All of these initiatives are strategic, long-term investments that will improve the company’s user experience, attract more customers to contribute to more user-generated content on the company’s platform, driving a virtuous cycle for sustained growth and monetization.

Explore Innovative Content Forms

The company constantly innovate brand new forms of content that the company’s users love. For example, the company leverages TME Live to create new online-merge-offline music scenarios. Throughout 2022, TME Live hosted 63 concerts and continued to innovate in terms of interactive formats and monetization models. TME Live’s series of music performances sponsored by e-commerce, automotive and other advertisers, helped brand owners dynamically resonate with users and maximize their brands’ emotional impact, while simultaneously fostering new business models.

In addition, the company continued to expand music use cases and capture the vast underlying monetization opportunities via TMELAND, China’s first virtual music carnival that the company launched in 2021. Throughout 2022, the company teamed up with well-known domestic and overseas brands to build up customized live shows, attracting millions of users joined the events in their avatars.

Content Sourcing Arrangements

Content is the foundation of the company’s platform. The company licenses from, and pay royalties to, the following major rights holders to obtain the vast majority of the music content offered on the company’s platform.

Music Labels and Music Copyright Owners

The company has strong partnerships with a wide range of music labels and other copyright owners. The company licenses musical recording rights and/or music publishing rights underlying music content mainly on terms ranging from one to three years from domestic and international music labels.

The company pays for music labels for licensed music content based on licensing fee and revenue-sharing incentive royalties. Under such fee arrangements, the amounts of licensing fees and incentive royalties depend on multiple factors, including the type of content, the popularity of the performers, as well as the company’s relationships with the licensors. Payments under the licenses are generally made in installments throughout the duration of the licenses.

The company’s licensing agreements with music labels and music copyright owners are on a non-exclusive basis.

The licensing agreements will specify whether the company has the right to sublicense the content the company sources from music labels and copyright owners.

The company’s licensing agreements with music labels and copyright owners generally expire upon the end of the term, which typically range from one to three years, unless otherwise terminated earlier pursuant to the relevant provisions in certain circumstances, such as a material breach of contract.

Individual Artists

The company also enters into licenses with individual artists or their agencies to bring a broader and more diverse range of content offerings on the company’s platform.

The company typically pays these individual artists performance-based licensing fees. The company may also make prepayments and/or pay fixed content fees to certain individual artists, depending on various factors, including their historical performance and popularity among users.

The licensing agreements between the company and individual artists are either on a no more than three years’ exclusive basis, or on a non-exclusive basis.

Subject to the contract terms with specific individual artists, the company may sublicense the relevant individual artists’ content to other parties.

The agreements between individual artists and the company generally expires upon the end of the term, which is typically three years, unless otherwise terminated earlier pursuant to the relevant provisions in certain circumstances, such as a material breach of contract.

Live Streaming Performers and their Agencies

User-generated content from live streaming performers (and their talent agencies, if applicable) is covered by revenue-sharing arrangements, under which they are entitled to a percentage of the revenue generated from sales of virtual gifts attributable to their performance on the company’s live streaming platforms. Payment to live streaming performers (and their talent agencies, if applicable) is typically settled periodically.

The company’s agreements with live streaming performers (and their talent agencies, if applicable) will specify certain qualitative and quantitative requirements that they must meet in order to be entitled to their share of the revenue.

Live streaming performers (and their talent agencies, if applicable) own the intellectual property rights of the live streaming content they create, and the company is permitted to use such content on its platforms pursuant to the company’s agreements. In addition, users uploading user-generated content on the company’s platform typically agree to grant the company the associated copyright of such content. For additional details concerning the company’s copyright protection with respect to user-generated content.

The company’s agreements with live streaming performers or their agencies are either on an exclusive or non-exclusive basis.

The company’s agreements with live streaming performers (and their talent agencies, if applicable) generally expire upon the end of the term, which usually ranges from one to three years, unless otherwise terminated earlier pursuant to the relevant provisions in certain events, such as a material breach of contract.

The company generates revenues primarily from online music services and social entertainment services and others.

Paid Music and Audio Content

The company offers users subscription packages across its QQ Music, Kugou Music and Kuwo Music products to access the company’s content. Subscription packages are available at different prices to provide users with different combinations of features and privileges. For example, users subscribing for the company’s basic subscription package are offered a fixed amount of downloads per month of the company’s music content offerings and access to certain pay-for-streaming content, and users subscribing for the company’s premium memberships have access to add-on features and privileges, including additional personalized app themes and avatar designs, more sound effects that enhance listening experiences, and faster streaming and download speed. The company also offers users higher-end subscription package Super VIP Membership with a variety of compelling priviledges, such as Blu-ray playback of the concert at the highest resolution and cache and projection on TV screens. In addition, the company offers certain privileges and benefits that are only available to paying users to encourage user spending and paying user conversion and retention on the company’s platform.

The company also operates a ‘pay-for-streaming’ model where selected songs are made available only for streaming (as opposed to streaming and downloading) by paying users during the term of the subscription. This model has been driving the number of paying users and paying ratio of the company’s online music services. The company will continue to implement effective monetization measures as the company nurtures users’ willingness to pay for premium music content.

In addition to monthly subscription, the company allows users to stream and/or download singles and albums on a paid on-demand basis. Songs first released on the company’s platforms are available for streaming and/or downloading within a given ‘promotion’ period after the release only by the users who have purchased those songs, and the songs will be made available under the pay-for-streaming model when the promotion period expires under this model.

Furthermore, the company offers users subscription packages to access the company’s audio content. Paying users on the company’s platform are granted unlimited access to certain popular and carefully curated audio content during the subscription period. The company also offers its paying users a variety of other privileges and benefits, including priority access to certain audio content and discounts on audiobooks.

As the company’s music library continues to grow in scale, the company has been exploring market opportunities to monetize its massive quality music content. For example, the company generates revenues through licensing the company’s original music content and distributing certain of its licensed content to other online music platforms in accordance with the terms of the relevant licensing and distribution agreements.

Advertising Services

The company offers various advertising services to advertisers across its platforms, and the company endeavors to continue to innovate and expand the company’s advertising service portfolio. The company’s advertising offerings mainly include full-screen display ads that automatically appear when a user opens the company’s mobile apps, industry standard banner ads of various sizes and placements on the interfaces of the company’s platform. The company also offers an ad-supported mode that allows users to watch or hear an advertisement in order to stream certain of the company’s music content for free that they would otherwise have to pay for.

Social Entertainment Services and Others

Users are attracted to the company’s online karaoke and live streaming platforms for both video and audio primarily by engaging music performances from the company’s online karaoke singers and live streaming performers. The company generates revenues from online karaoke and live streaming services primarily from sales and consumption of virtual gifts, including consumable, time-based and durable virtual items. Consumable virtual items are mainly used as gifts sent to online karaoke singers and live streaming performers by the audiences as a way for them to show support and appreciation for the performance. During the live streams, special visual items, such as diamond rings or cars, will be displayed on the screen when these gifts are sent to the singers or performers. Users may also send virtual gifts to online karaoke performers if he or she likes the recordings uploaded by the performers. The company also offers users the option to purchase virtual items, which provide them with certain privileges or recognized status over a period of time, such as badges displayed for a certain period of time on the users’ profile pages. While purchasing and using these virtual gifts is not a prerequisite for using the features in the company’s products, it provides a way for users to participate in online karaoke and live streaming, which drives user engagement and loyalty.

In addition to virtual gift sales, the company generates revenue from online karaoke and live streaming services through sales of premium memberships and other monetization models. For online karaoke, users can subscribe for memberships to include higher soundtrack resolution and access to video clips of vocal tutorials. For live streaming, selected live streaming performers can produce and sell their own digital albums through the company’s platform if they share a portion of their revenues with the company. Revenues generated on the company’s platform are shared with its karaoke singers and live streaming performers or their agents, typically based on a percentage of the revenue generated from the sales of virtual gifts attributable to their performance. Furthermore, similar to the advertisements displayed on the company’s online music apps, the company offers various advertising services across its online karaoke platform.

Moreover, the company generates revenues from sales of music-related merchandise, including Kugou headsets, smart speakers, WeSing karaoke microphones and Hi-Fi systems.

Branding, Marketing and Sales

The focus of the company’s marketing efforts is to further strengthen the company’s brands, including QQ Music, Kugou Music, Kuwo Music, WeSing, and Lazy Audio, and to expand the company’s entertainment ecosystem to connect more users, artists and content providers. The company intends to deliver best-in-class entertainment content and services in order to garner strong word-of-mouth referrals and enhance the company’s brand recognition.

The company also engages in diverse marketing activities both online and offline to enhance brand awareness. Specifically, the company’s marketing campaigns increase platform traffic through search engine marketing and social media. Moreover, the company hosts or participates in various forms of music-related events and activities to further boost the company’s brand recognition, such as cooperation with established artists, singing competitions, TV and internet music talent shows, music festivals, campus campaigns, artist tours and fan events, to enhance the company’s brand recognition. The company also continues to deepen its presence into schools and college campuses through online and offline activities, such as on-campus competitions and graduation ceremonies.

The company continues to implement new technologies, introduce new features and tools, as well as improve user experience in order to encourage users to access the company’s platform more frequently and for longer periods of time, and ultimately to increase the company’s monetization efficiency on the company’s platform. The company also uses direct marketing tools deployed through its platform interfaces to convert the company’s users into paying users.

Content Monitoring

The company is committed to complying with the applicable laws and regulations regarding the provision of content through the internet. The company leverages its technology to implement procedures to monitor and remove inappropriate or illegal content from the company’s platform. Text, images and videos are screened by the company’s content monitoring team, aided by systems that periodically filter the company’s platform. For example, the company’s video recognition technology enables the company to effectively monitor live streaming for content violations. The company has also developed an effective copyright infringement monitoring system that detects potential copyright infringement by other platforms or the company’s users. The company has also adopted various public reporting channels to identify and remove illegal or improper content. The company’s legal team may also take further actions to hold the content creators accountable for any illegal or inappropriate content.

The company focuses on the monitoring and screening of user-generated content. The company requires live streaming performers and users to register on a real-name basis to upload content to the company’s platform and require them to agree not to distribute content in violation of any third-party rights or any applicable laws or regulations. The company requires users and live streaming performers to comply with the company’s terms of service, which strictly prohibit inappropriate content across the company’s platform. The company’s terms of service set forth in detail prohibited content and actions, including but not limited to, provocative or inflammatory language, full or partial nudity, sexually suggestive language and body movements, abusive language or actions towards other users, acts and threats of violence, and information facilitating or promoting illegal transactions or activities. The company also monitors live performance delivered on its platform using a combination of human and machine screening in order to identify and remove any illegal or inappropriate content in accordance with applicable laws and regulations, as well as any content that violates the intellectual property rights of other parties. Users can also report any violations of the company’s terms of service or other inappropriate behavior using the ‘report’ function within the company’s mobile apps.

Intellectual Property

As of December 31, 2022, the company had applied for the registration of 4,406 patents, among which 2,503 patents have been granted by the National Intellectual Property Administration and overseas. One of the company’s patents has been recognized with the Nineteenth China Patent Award and one of the company’s patents has been recognized with the Twenty-second China Design Award by the National Intellectual Property Administration. In addition, one of the company’s patents has been recognized with the Eighth Guangdong Patent Silver Award by the People’s Government of Guangdong Province. As of December 31, 2022, the company had applied for 5,857 trademarks, among which 3,998 had been registered with the Trademark Office of the National Intellectual Property Administration and overseas. The company had also registered 612 software copyright with the Copyright Protection Center of the PRC. The company’s Kugou trademark has been recognized as a well-known trademark by the Beijing Higher People’s Court.

Research and Development

The company’s R&D expenses were RMB2,580 million (U.S.$374 million) in 2022.

Regulations

The company engages in business activities that are value-added telecommunications services as defined in the Telecommunications Regulations of the PRC and the Catalog of Telecommunications Business.