Earnings Call Transcript - DOYU Q1 2022

Operator, Operator

Good morning and good evening, ladies and gentlemen. Thank you and welcome to DouYu International Holdings Limited's First Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. Please note, today's event is being recorded. I would now like to turn the call over to the first speaker today, Ms. Lingling Kong, IR Director at DouYu. Please go ahead, ma'am.

Lingling Kong, IR Director

Thank you. Hello, everyone. Welcome to our first quarter 2022 earnings call. Joining us today are Mr. Shaojie Chen, Chairman and Chief Executive Officer; Mr. Mingming Su, Chief Strategy Officer; and Mr. Hao Cao, Vice President of Finance. You can refer to our first quarter 2022 financial results on our IR website at ir.douyu.com. You can also check a replay of this call when it becomes available in a few hours on our IR website. Before we start, please note that this call may contain forward-looking statements made pursuant to the Safe Harbor provision for the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statements, risk factors and details of the Company's filings with the SEC. The Company undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call. I will now speak on behalf of our Chairman and CEO Mr. Shaojie Chen.

Shaojie Chen, Chairman & CEO

During the first quarter, we continued the steady development of our core business, while adjusting our business operations and executing on our selective copyright procurement strategy. Mobile MAU for the quarter was 55.1 million. Total net revenues were RMB1.8 billion and quarterly average paying user accounts reached RMB6.4 million. Gross margin increased to 13.6%, demonstrating the effectiveness of our selective copyright procurement strategy. In addition, our successful implementation of a series of cost control measures has increased our offering efficiency, driving our adjusted net loss down to RMB52.5 million. During the quarter, our average MAUs decreased by 6.8% year-over-year to 55.1 million, a change that was within our expectations. We believe that there are two factors at work. First, as we strive to improve operating efficiency by executing on our selective copyright procurement strategy, we have finished acquiring overpriced content rights for eSports tournaments, which have negatively affected our MAU. However, the level of the decrease was, in fact, better than our expectation, and MAU has stabilized and stayed within a narrow band. Additionally, our data analysis shows that high-quality content from streamers and self-produced tournaments in different game segments successfully attracted new users, regardless of the absence of content from selected eSports tournaments. Second, the new games that belong to our platform in 2021 enabled us to continue to increase our MAU, partially offsetting the impact of terminating content rights for selected eSport tournaments. Despite a slow pace of the launch of new games last year, we were able to attract and retain users by offering them high-quality gaming content within our collaboration with game developers and refining our customized operations for each game. Turning to our content updates. In the fourth quarter, we mentioned our effective execution of our strategy of building a game-centric comprehensive content platform. We further refined our content offerings, integrating live streaming, video, graphics and interactive communities for both eSports and non-eSports categories, while enhancing collaboration and investment in self-produced content. Furthermore, we extended our collaboration with game developers and distributors to secure our advantage in high-quality content and gaming operations by enhancing the customized and refined operations of different game segments. During the quarter, we increased investment in self-produced content and produced close to 160 eSports tournaments. We consistently try to enhance the value of our self-produced tournaments by developing a centralized production and management process and establishing a diversified tournament content system. By hosting LoL Teamfight Tactics, our official collaboration tournament with Tencent, we have discovered many new gaming talents, who eventually became professional players. Among all the major new games launched last year, our self-produced tournament for NARAKA: BLADEPOINT was selected as one of its official tournaments. DouYu LoL Wild Rift Master Legends series was also incorporated into Tencent official professional tournament system. Meanwhile, our self-produced tournaments enabled us to support and calculate our streamers by providing them with animated levels of exposure and engagement. As we improve our recruitment and training system for streamers, we are able to not only offer our streamers greater career development opportunities on our platform, but also refer our high potential streamers to professional eSports teams. In addition to our advanced system for in-house tournaments, we are producing customized entertaining tournaments and shows based on the features of individual game segments, and streamers during holidays, major events and new game version launches. For example, we self-produced an all Dota 2 tournament for LoL, inviting top streamers, and other tournaments in different game segments, which encourage gamers and users to participate. Our differentiated offerings of professional tournaments and entertaining game content cater to diversified innings of both hardcore and mid-core gamers. Importantly, we also mentioned improving our production of engaging and novel video content. We produced an innovative variety show called All About Games that evaluates new games during their promotional period. The show's content includes fresh highlight of new games, discussion of trending topics, game reviews, and other exclusive features. In addition, we also invited famous streamers and other gaming industry related figures to participate in the show. Production of this type of content enhances the community experience as we develop high-quality content to enrich our game segments and boost our user engagement. Moreover, we found that game developers were willing to cover some of the production cost of this show as a new channel of promotion. As a result, we not only built a brand new collaboration model with game developers, but also optimized ROI for those game segments. Turning to our cooperation with game developers and distributors. We continued to deepen our cooperation on monetization with game developers and distributors. For instance, we launched a variety of promotional activities with both Tencent and other partners to bolster user activity and encourage users to make in-game purchases by offering task-based rewards of in-game items. Moreover, we are consistently devising and exploring new methods of cooperation with game developers. Using DouYu as an example, we cooperated with game developers to share partial gaming data. This data helps develop a number of practical functions. This includes real-time display of gamers' performance, gaming data analysis, and the broadcasting to allow streamers' performance in the same game to be viewed simultaneously. Enhancing the display function for analyzing streamers' game strategies allows us to provide an optimized user experience. Looking ahead, we will further improve our operating efficiency by launching attractive distribution algorithms, which direct appropriate levels of exposure to individual streamers based on historical data. As a game-centric platform, we deliver value to our users through consistent production of high-quality content and our exceptional operational capabilities. Building on our advantage in high-quality content and refined operations will increase ROI by reducing production costs and operating expenses, utilizing resources, joint operations and more. Going forward, we will continue to evaluate and execute on potential monetization optimization while improving our platform's overall operating efficiency by enhancing each game's ROI. Now turning to monetization. Our total number of paying users in the first quarter was 6.4 million with an average quarterly ARPU of RMB270. The year-over-year decrease in both the number of paying users and quarterly ARPU is a result of our proactive operational adjustment and future updates in anticipation of a tightening regulatory environment. As we continue to develop the paying behavior of our core users and enhance engagements with more casual and mid-core gamers through sustainable operating strategies and promotional campaigns that are customized based on the preferences of different groups. Our paying users are able to sustain a stable pay user base and a healthy range for our ARPU. Meanwhile, we persisted in our exploration and development of new revenue streams. For example, following our in-depth analysis of the engagement between streamers and viewers, we are upgrading our membership system, offering members more customized privileges and additional functionalities to interact with streamers. Utilizing our self-produced content with such promotional campaigns, we are able to improve the subscription rate of our membership services within certain game segments. Going forward, we will continue to cultivate and expand our membership program as we leverage games' unique features and our individual streamers' distinctive characteristics. In terms of products and technology, we are continuously developing our game's interactive community as a product branch. To meet our users' growing demand for gaming content and walkthroughs, we recently launched an innovative function called streamer content. For this function, we carried out big data analysis to gather hot topics from our bullet chat and discussion forums, which would impact in-game experience. Streamers then take the tasks and record themselves answering the questions and showcasing DouYu's game tactics and strategies. Finally, this content can be added into show movies that are available for users to view on demand. By leveraging natural language processing technology, we are able to understand and extract relevant content from bullet chats. This then allows us to push the specific content to users who are asking similar questions. This streamer-produced show rating further utilizes streamer-generated content and enhances the engagement between streamers and users. To summarize, we have executed a robust and sustainable offering strategy while maintaining our leading position in the traditional live streaming industry. Leveraging our outstanding content management team and comprehensive training resources, in our extensive gaming operating experience, we are able to consistently upgrade our accounting offerings and optimize our operational innovation. At the same time, we have deepened our cooperation with game developers in multiple dimensions to provide users with content that seamlessly integrates live streaming, video, graphics and interactive communities. In addition, we continued to augment our user engagement and consumption capabilities while exploring diversified monetization models and improving our financial performance. With that, I will now turn the call over to our Vice President of Finance Mr. Hao Cao, to go through the details of our financial performance in the quarter.

Hao Cao, Vice President of Finance

Thank you, Lingling. Hello, everyone. During the first quarter, we have been focusing on improving our operating efficiency through ROI enhancement and cost controls and achieved encouraging results. The Company's gross margin improved and adjusted net loss narrowed significantly on a year-over-year basis. Total net revenues in the first quarter of 2022 decreased by 16.6% year-over-year to RMB1.8 billion. Livestreaming revenues were RMB1.73 billion, a decrease of 13.6% from RMB2 billion in the same period of 2021. The decrease was due to the implementation of prudent operating strategies, such as adjustments to certain interactive features and the related operational efforts. Considering the tightening regulatory environment, we have been making operational adjustments and feature updates in advance to comply with regulatory requirements for the long-term development of our platform as a result of these adjustments. Virtual gifting interactions were partially impacted, which caused decreases in both the number of paying users with lower ARPU and the quarterly ARPU. Our quarterly ARPU was RMB270, a 5.5% decrease from RMB286 in the same period last year. Based on our analysis, the size of our core paying users largely remained stable. We continued to stabilize the paying habit of our core users and cultivate the paying willingness of mid to long-term paying users. Advertising and other revenues were RMB68.4 million, compared with RMB154.1 million in the same period of 2021. The year-over-year decrease was primarily attributable to the continued exploration of new commercialization models by utilizing a portion of advertising traffic that could have been directly monetized, as well as the soft demand for advertising caused by macro challenges and regulations aimed at the gaming industry. Cost of revenues in the first quarter of 2022 was RMB1.55 billion, a decrease of 18% compared with RMB1.89 billion in the same period of 2021. Revenue sharing fees and content costs decreased 19.2% to RMB1.34 billion from RMB1.66 billion in the same period of 2021. The decrease was mainly due to the reduction in revenue sharing fees, which is in line with the decreased livestreaming revenues and a significant decrease in the cost of broadcasting rights, as we ceased acquiring overpriced content rights for eSports tournaments and adopted our selective copyright procurement strategy. Other content costs also showed a year-over-year decline as we continued to optimize enhanced content production efficiency. Bandwidth costs in the first quarter of 2022 decreased by 11.8% to RMB151.9 million from RMB172.1 million in the same period of 2021. The decrease was mainly due to the year-over-year reductions in peak bandwidth usage, absence of purchased eSports tournament copyright, given our bandwidth costs are generally billed based on peak bandwidth usage. Meanwhile, the lower per unit bandwidth costs, which benefited from our improved procurement efficiency with major suppliers also contributed to the decrease in bandwidth costs. Gross profit in the first quarter of 2022 was RMB243.8 million, compared with RMB260.2 million in the same period of 2021. Gross margin in the first quarter of 2022 improved to 13.6% from 12.1% in the same period of 2021. This margin improvement was primarily due to the significant decrease in the cost of broadcasting rights as a percentage of revenues as we ceased acquiring overpriced content rights for eSports tournaments. Sales and marketing expenses in the first quarter of 2022 were RMB186.4 million, a decrease of 11.2% from RMB209.9 million in the same period of 2021, which was mainly attributable to the decreased personnel-related expenses and branding expenses. Research and development expenses in the first quarter of 2022 were RMB116.3 million, representing an increase of 4.5% from RMB111.3 million in the same period of 2021. The increase was primarily attributable to additional investment in technical personnel as the Company continues to invest in product upgrades to support its game-centric content strategy. General and administrative expenses in the first quarter of 2022 were RMB90.1 million, increasing by 2.3% from RMB88.1 million in the same period of 2021. Adjusted operating loss in the first quarter of 2022, which adds back share-based compensation expenses, was RMB68 million, compared with RMB91.8 million in the same period of 2021. Net loss in the first quarter of 2022 was RMB86.9 million, compared with RMB101.8 million in the same period of 2021. Adjusted net loss in the first quarter of 2022, which excludes share-based compensation expenses, share of loss in equity method investments, and impairment loss of investments, was RMB52.5 million, compared with RMB70.7 million in the same period of 2021. For the first quarter of 2022, basic and diluted net loss per ADS were RMB0.27 and RMB0.27, respectively. While adjusted basic and diluted net loss per ADS were RMB0.16 and RMB0.16, respectively. As of March 31, 2022, the Company had cash and cash equivalents, restricted cash, short-term and long-term bank deposits of RMB6,315 million, compared with RMB6,643 million as of December 31, 2021. We would also like to provide an update on execution of our share repurchase program announced on August 30, 2021, in which the company may repurchase up to US$100 million of its shares until August 2022. As of March 31, 2022, the Company had repurchased an aggregate of US$33.9 million worth of its ADS under this program. Going forward, we will continue to increase operating efficiency as our top priority in order to reach non-GAAP breakeven by narrowing losses through cost optimization and improvement of monetization efficiency. Along with the continued improvement of our overall ROIs, we will continue enhancing our monetization capabilities to explore sustainable development of our platform. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator, Operator

Today's first question comes from Lei Zhang with Bank of America Merrill Lynch. Please go ahead.

Lei Zhang, Analyst

Thanks, management, for taking my question. My question is mainly regarding the regulatory environment, specifically the regulatory restrictions in rankings and their future activities. So could you please share with us your view on the overall regulatory environment in China and how we should look at the impact on our business? Thank you.

Mingming Su, Chief Strategy Officer

Let me answer your question. This ongoing development of our regulatory guidelines for the live streaming industry requires industry players to probably implement measures and refine operations to comply with regulatory requirements. As of date, there is no strategic change mentioned in the recently announced regulatory notice. Despite this, we have been making operational adjustments and data updates. This year, we are adopting a more prudent operational standard and stricter deal policy to improve our platform's community building and ensure the long-term development of our platform. In addition, in later April and early May, we implemented a series of measures on our platform to promote rational consumption among our users. These include setting up limits on similar transactions on virtual gifts and requesting a second confirmation for each transaction. We have projected the financial impact of such adjustments in our 2022 forecast. As for the regulations announced in March, they restate previous policies. The policies are related to online games, gaming content, and the protection of minors. We have been adjusting our operations accordingly on this forefront, particularly concerning unlicensed games. For example, we have been gradually redirecting traffic and streamers to licensed games of similar genres since the third quarter of 2021. This approach ensures proper traffic allocation between different game segments while maintaining streamer income levels. The impact of these adjustments is reflected in our past quarter's performance. Regarding appropriate creator content and minor protection, we have established a long-term streamer reminder system and a notification mode that are continuously evolving as the industry develops. We are carefully monitoring any regulatory changes and maintaining close communications with regulatory departments to ensure we can react appropriately in the event of any changes. Thank you.

Lei Zhang, Analyst

Yes. Thank you. Very helpful.

Operator, Operator

Thank you. Our next question today comes from Thomas Chong of Jefferies. Please go ahead.

Thomas Chong, Analyst

I will first translate Thomas's question. Sorry, can you hear me?

Operator, Operator

Yes. This is the operator. We can hear you.

Lingling Kong, IR Director

Okay, great. I will first translate Thomas's questions. Thomas's question is regarding the changes in our copyright procurement strategy. What will happen after the change of procurement strategy in the absence of large scale eSport tournaments? How will the company adjust its operations to ensure advantages in content and operations? The second question is regarding whether the shift in the copyright procurement strategy will impact the sustainability of our platform's streamer resources. I will first address the first question for Mr. Chen.

Shaojie Chen, Chairman & CEO

First, we adjusted our strategy to selectively purchase copyrights not only because some of the content is overpriced, but also as an operational adjustment in reaction to the changes in the game livestreaming industry. Our industry has already transitioned from competition in game livestreaming to gaming content. While users face more and more varying options, we believe that differentiated content and refined operations are key to our platform's healthy and sustainable growth. On the content front, we extended our offerings from livestreaming to videos and communities, integrating various content to meet our users' diverse needs. Although we decided not to obtain selected overpriced copyrights, we continue to purchase cost-effective copyrights for certain tournaments. For the purchased content, we are integrating official tournaments with our livestreaming video and graphical operating activities as well as community discussions to increase user engagement and attract users. For example, we have launched multiple self-produced shows for the purchased KPL tournament, and we are actively exploring more collaborations with game developers to enhance the ROI for this copyright. Meanwhile, we increased our investment in self-produced content. For traditional eSports games, we have been hosting tournaments for professionals and amateurs, ensuring a consistent supply of high-quality content while boosting the scalability of our platform's traffic and increasing users' retention rates. For new games, on one hand, we recruit and guide a large number of new streamers to ensure content supply. On the other hand, we enrich our content offerings by producing more diverse TJC and UGC content. Leveraging our integration of livestreaming video content and community interactions, we can attract more users with our diverse content offerings. On the operation front, we are deepening our cooperation with game developers and distributors beyond content production. Our cooperation includes assisting game distributors to find appropriate marketing strategies, discovering professional game players for game developers and distributors, evaluating new sales models for in-game items, leveraging data sharing between games and our platform to improve our user livestreaming experience, and more. For the upcoming game, LoL eSports manager device developed by Riot Games, we actually partnered with game developers to promote the game pre-registration and achieved a high number of pre-registrations before the game is officially released. Thank you. That's the first question.

Hao Cao, Vice President of Finance

As to the second question, I will discuss the impact on streamer resources. We have further stabilized and enhanced our streamer resources by signing long-term and exclusive collaboration agreements with our premier streamers, which has led to better support from game developers and distributors. These agreements bind top streamers to our platform, preventing them from switching between different platforms and helping us maintain a competitive edge. Second, the MAUs impacted by our copyright strategy adjustment were generated by users who mainly view official tournaments, not streamers' livestreaming content. Therefore, the traffic generated by streamers was not significantly impacted by our selective copyright procurement strategy. I would like to emphasize that our relationship with streamers is not limited to cooperation agreements. We also deepen our collaboration with streamers and enhance operations in the following ways. First, in terms of overall operating strategies for streamers, we continue to offer high-quality content and opportunities for users to interact with streamers, while maintaining or improving both the level of engagement and streamers' willingness to stream. For example, we collaborated with Tencent and Riot to host the League of Legends scale. We invited top-tier streamers to watch the trailer and interact with users in our self-produced shows, creating a secondary promotional layer for our platform. As a result, the level of engagement in the LoL game segment was boosted significantly, as evidenced by increases in the number of top streamers' livestreaming sessions and interactions related to topics in our community channel. Meanwhile, we further explored streamer commercialization opportunities. For example, we recently upgraded our membership system, allowing users more customized privileges and additional functionalities to interact with streamers. As a result, interactions between streamers and users increased, and streamers gained more diverse sources of income, further deepening their bond to the platform. Second, we leverage big data analysis to refine in-house operations. For example, we motivated mid-tier and long-term streamers to remain active by directing appropriate traffic to them and increasing their involvement and exposure on our platform by engaging them in our self-produced tournaments. Therefore, mid-tier and long-term streamers are able to earn a competitive income. We believe those streamers are highly valuable to the platform and expect to attract more talented and high-potential streamers to livestream on our platform. Overall, our platform's streamers are the foundation of our high-quality content. We have a comprehensive streamer resources management system that includes recruitment, training, management, and collaborations. Our system increases streamers' willingness to stream and ensures that they receive reasonable income. Meanwhile, as we have continued to refine our operations, we have deepened our relationships with our streamers.

Operator, Operator

And our next question today comes from Yiwen Zhang with China Renaissance. Please go ahead.

Yiwen Zhang, Analyst

Thank you, management, for taking my question. I have two questions. In your prepared remarks, you mentioned that 2021 titles have successfully retained new users. Can you elaborate on that? Meanwhile, I want to check the game license approval assumptions and its impact on operations. Secondly, you mentioned that we're exploring a more diversified monetization model. Can you discuss that more and provide our expectations for the future? Thank you.

Mingming Su, Chief Strategy Officer

Let me answer your two questions. For your first question about new games, it's well-known that new games were released last year, even with fewer games such as those from our lines, like Peacekeeper, leading to user growth on our platform. In this environment, we created a rich content system that integrates livestreaming video content and graphics, underpinning our diversified game segment operations. We have achieved promising results by implementing sophisticated strategies and successfully building and developing new game segments. Let me share some achievements with new games launched in 2021. For NARAKA: BLADEPOINT launched in July, our user engagement remained robust as a result of our efforts in recruiting and training new streamers and producing related tournaments and shows. Total viewing time for NARAKA: BLADEPOINT ranked within the top 10 games on our platform for three consecutive quarters. Traffic ranking steadily increased on our platform. For LoL Mobile, launched in November, the upgraded membership system targeted our core user base, contributing to healthy quarter-over-quarter revenue increases in this game segment. Looking into 2022, we will focus on improving operating efficiency for each game segment as part of our KPI and evaluate the ROI on a real-time basis, especially for those new game segments, to ensure effective ROI improvement. At the same time, we are pleased to see that game licenses have resumed approval. We consider this a signal that the quality of games is becoming more important than quantity. This trend benefits the gaming industry in the long run and of course for us as well. As a game-centric integrated content platform, high-quality games and their users are the most critical resources for our content generation and user growth. Based on the ongoing trends in the gaming industry, we upgraded our strategy to build a game-centric content platform and refine our operations. We also expanded our coverage of game genres to several more varied user cohorts. At the same time, by leveraging our experience with new games, we expect to generate more traffic for our platform from upcoming new game releases. Regarding your second question about commercialization, we are always exploring new commercialization models. Let's look at some examples. In terms of advertising models, our previously mentioned smarter distribution system represents our innovation toward traditional direct response advertisement and display advertising. Our smart distribution system enables game developers to release promotional tasks while connecting streamers to choose their preferred method for promoting games. Our primary aim is to improve the effectiveness of advertising by increasing downloads and activations through this system. Due to the delay in new game uploads, this project is proceeding relatively slowly. However, we expect that our smart distribution system will augment our advertising efforts once the release of licenses for new games resumes. Turning to virtual gifting, our traditional model generates revenue from interactions between streamers and users and is part of our innovation along with our new commercialization channels. We are currently optimizing our memberships to increase gifting revenue. For this purpose, we have enhanced our membership system, encouraging our users to subscribe to become members. Under the new system, members receive more value-added service and opportunities to interact with exclusive streamers, providing exclusive surveys and rewards for time spent with fans. In games like LoL and Crossfire, our membership service has already achieved promising results. By the end of March, the number of membership subscriptions in these game segments increased by more than 50% from the end of December last year. The revenue generated from the renewed membership service has also significantly increased quarter-over-quarter.

Operator, Operator

Thank you. Our next question today comes from Alex Poon of Morgan Stanley. Please go ahead.

Alex Poon, Analyst

My question is related to content purchasing and strategy changes. Can management explain the change, the impact on user scale and their engagement so far, and what we should expect in the future? Thank you.

Shaojie Chen, Chairman & CEO

Thank you, Alex. As we mentioned previously, we executed our selective copyright procurement strategy by ceasing to acquire overpriced copyrights for certain eSports tournaments. We anticipate increased MAU under this strategy and have preemptively addressed a series of matters, such as increasing our investment in self-produced content to stabilize our traffic. The results have been positive and reflected in our operations. MAU were in fact better than our projection. We kept tracking data and analyzed the impact of our strategy to seize acquisition of those overpriced content rights. Our data shows that most of the traffic loss was from users who primarily viewed tournaments on our platform. However, most of our returning traffic was contributed by users who watched our livestreaming content consistently. This large quantity of high-quality users is characterized by their retention rates and longer video hours and engagement related to high-quality livestreaming content. Maintaining a steady stream of resources has allowed us to stabilize user viewing time and interactions on our platform quarter-over-quarter. Using our LoL segment as an example, despite the absence of LPL copyright, MAU generated by single generated content and its total viewing hours increased on a quarter-over-quarter basis. As we emphasized earlier, terminating our acquisition of overpriced copyrights does not imply a decrease in our investment in content. In fact, we self-produced nearly 150 tournaments during the quarter. For game segments where we did not purchase the copyright of official tournaments, we continue to deliver high-quality self-produced and streamer content.

Operator, Operator

Thank you. And our next question today comes from Ritchie Sun of HSBC. Please go ahead.

Ritchie Sun, Analyst

Can management talk about the cost decline across the lines, including revenue sharing, content costs, sales and marketing? Can management explain what will attribute to those declines and how much of these declines come from license content savings? How should we assess the full-year trends in terms of these costs? Thank you.

Hao Cao, Vice President of Finance

The decrease in cost of revenues is mainly attributable to the 19.2% year-over-year decrease in revenue sharing fees and content costs. Revenue sharing fees decreased in line with the decrease in livestreaming revenues, while our overall revenue sharing ratio remained stable. The decrease in content costs mainly resulted from lower copyright fees, optimization of streamer payroll, and a reduction in self-produced content costs. The reduction in copyright costs was primarily due to us ceasing the acquisition of large-scale tournament content rights, such as LPL. In terms of streamer payroll, we have optimized our streamer resources in certain game segments, leading to significant year-over-year decreases in the first quarter. On the self-produced content front, we have utilized various measures to reduce our costs, such as the integration of partner resources and joint operations. As a result, we were able to launch more self-produced tournaments while lowering production costs on a year-over-year basis. Looking ahead, we will prudently evaluate our procurement decisions for large-scale tournaments, optimize our streamer payroll structure, and increase our investment in self-produced tournaments and PGC content while controlling their related production costs. We expect to see a decline in our content costs this year. Overall, we expect our gross margin to improve at a modest pace throughout 2022.

Operator, Operator

Thank you. That's all the time we have for questions. I will now turn the call back over to management for closing remarks.

Lingling Kong, IR Director

Thank you for joining our call today. We look forward to speaking with everyone next quarter.

Operator, Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.