Earnings Call Transcript - TME Q4 2023

Millicent Tu, Head of IR

Good evening, good morning and welcome to Tencent Music Entertainment Group's Fourth Quarter and Full Year 2023 Earnings Conference Call. I'm Millicent Tu, Head of IR at TME. We announced our quarterly financial results today before the U.S. market opened. An earnings release is now available on our IR website and via Newswire services. Today, you will hear Mr. Kar Shun Pang, our Executive Chairman; and Mr. Ross Liang, our CEO, who will share an overview of our company's strategies and business updates. And then Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I refer you to our safe harbor statements in our earnings release, which applies to this call as we'll make forward-looking statements. Please note that the Company will discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under IFRS in the Company's earnings release and filings with the SEC. At this time, all participants are muted. After management's remarks, there will be a Q&A session. And please be advised that today's call is being recorded. With that, I'm pleased to turn the call over to Kar Shun, Executive Chairman of TME.

Kar Shun Pang, Executive Chairman

Thank you, Millicent. Hello, everyone, and thank you for joining our call today. 2023 marked our official transition at TME, as we remained dedicated to driving growth and prosperity across our music ecosystem while supporting the development of the entire music industry. Notably, our subscriber count surpassed the 100 million milestone in 2023. We added 18.2 million subscribers for the full year, up from 12.3 million in 2022, a compelling testament to our content leadership, platform value, and high-quality user experience. These streams show consistent growth in music paying users and per user spend, anchoring our subscription revenues and accelerating year-over-year growth throughout the year. In particular, in the fourth quarter of 2023, online music recorded faster than expected revenue growth. Paying users and ARPPU rose by over 20% year-over-year to RMB107 million and RMB10.7 respectively. These results mitigated the top-line headwinds from the social entertainment business and reasonably contributed to a lift in net profit for the quarter and the full year. Entering 2024, we are also seeing strong momentum in subscriber growth in the first quarter. Such solid performance was driven by our powerful content and platform dual engines. Now, I'd like to share this aspect of our content development efforts during this robust and sustainable growth. First, by leveraging and deepening partnerships with domestic and international record labels, we consistently reinforce our competitive edge with an ever-growing selection of copyrighted music. As a result, by the end of 2023, we had over 200 million music and audio tracks on our platform. In addition, self and co-produced content further differentiated our offerings, increasing our popularity among users. Lastly, our rich foundation of content and relationships with label partners empowered us to capture diverse opportunities across the user industry, amplifying the content's value. Let me walk you through some concrete examples. On content coverage and appeal, we recently renewed our multiyear partnership with Universal Music Group, UMG, to bring users ongoing access to a response and growing music catalog as well as a notable sound quality upgrade with music streaming in Dolby Atmos and high-definition formats. Taylor Swift's recorded album 1989, Taylor's version, topped the all charts in the first week of its release on our platform in October. We also capitalized on this success and further promoted fan engagement with a series of customized interactive song guessing contests. In addition, we renewed the collaboration with Pickup Records, the record label for renowned artist Phoenix, deepening cooperation across head start song releases, physical albums, and various other artist-related services. We further enhanced our content appeal and leadership across pop, rock, and Chinese ancient style music genres, allowing us to better attract and retain young users. Next, on differentiated content offerings through in-house and collaborative creation. For mid to long-tail music content, we leveraged our wealth of multifaceted resources to enrich our offering and promote its prosperity. As of the year 2023, over 480,000 Indian musicians had contributed over 3 million songs across multiple genres on Tencent Musician platform. By providing comprehensive music training programs and other support, we effectively adopted their creativity and nurtured their music careers. To accumulate our music access in different genres, we are partnering with our strategic partner's artists. For these more mature artists, we push their popularity and their clients' career through increasingly tailored support. For example, this quarter, we assisted singer Liu Le with her EP production and release, greatly raising her profile and strengthening the fan-artist relationships. Our in-house and collaborative content continues to grow from strength to strength. As a case in point, we had 10 songs showcased during China Media Group 2024 Spring Festival Gala. Our self-produced song 'She Bobbing in the Light' was once sent out. Such performances generated massive social buzz, pushing user engagement on our platform and greatly enhancing our national influence. Another notable example is our self-produced hit song, performed by our strategic partner artist Hailiang Mu and covered by our popular Chinese crosstalk performer Yue Yun Peng. This song went viral, totaling over 1 billion streams on our platforms as of March this year. Last but not least, on maximizing content value through innovation, we scaled up our live performance business through diverse event formats in 2023, capitalizing on the resurgence of offline music events. We hosted a growing number of offline music tours, festivals, and live performances to meet strong demand. In the fourth quarter, we hosted worldwide last-demand DJ Alan Walker's six-city electronic music tour in China. During the tour, we facilitated unique offline and online services encompassing interactive fan activities, artist merchandise, ticket sales, and performance management, which in turn boosted our industry influence. In the fourth quarter, we collaborated with high-end entertainment to launch a line of artist merchandise for K-pop fans such as 17 and 18's. Diversifying our offerings of content-related roles in various formats. As a result, revenue from artist merchandise recorded a robust year-over-year growth. Moving on to our continued commitment to social responsibility. In the fourth quarter, in collaboration with local government agencies, we conducted a series of music events to promote cultural and economic development in ethnic minority regions. For example, we partnered with Tencent Charity to organize the 2023 Shenzhen-Linzhi Music Festival, leveraging offline music performances to help rejuvenate the rural economy with increased tourism. These initiatives not only broadened music's reach geographically but also expanded its positive impact across industries, maximizing its societal value. In conclusion, we're excited about the vibrant growth of the music industry for the years to come. Our powerful content and platform dual engines, underpinned by online music's relatively cyclical nature, will enable us to capture more multifaceted opportunities in 2024 and beyond. Now, I would like to turn the call over to Ross for more insights into our platform development. Ross, please go ahead.

Ross Liang, CEO

Thank you, Kar Shun. Hello, everyone. Our laser focus on execution resulted in a year of solid music growth and efficiency gains. Our platform's strength, our insights into users and content, and our dedication to innovation were crucial in achieving this success, all translating into enhanced music journeys for users. Now, I would like to elaborate on three areas we prioritize to enhance user experience. First, we expanded the user privileges. This included more industry-leading song quality selections, rich song effects, more individualized players, new skins, and additional interactive features. For example, we amassed China's largest Dolby Atmos music library, offering users a more immersive listening experience. Currently, our Dolby Atmos music service is available on mobile, in car, and PC platforms, enabling a higher quality music experience across more comprehensive use cases. Furthermore, we hosted a dedicated online Amway premium event for Jay Chou's new single, Christmas Star, promoting closer fan-artist bonding and a deeper sense of community. Millions of viewers signed up for the event within 24 hours of the registration opening. We also launched an AI-powered feature for this single to further boost user engagement. Thanks to these tailored activities and features, we have recorded a total of over 100 million streams from tens of millions of users. Second, we deepened connections with users through major upgrades across smart device experiences. QQ Music launched a significant upgrade on mobile and PC in December last year, offering customized user interfaces and music players. As part of Chinese Lunar New Year's offerings, we introduced an annual music reports feature that captures each user's unique music journey. Tens of millions of QQ Music users joined this annual review activity. This comprehensive report reflects the important personalized mutual bonds that we have built with users on a massive scale. They highlight how and when a user connected with us emotionally from special moments captured, artist favorites, story discovery, and the songs streamed to time spent. We also enhanced in-car music entertainment services. For example, we recently upgraded the QQ Music in-car app for Tesla, bringing users a more intelligent interface with better recommendations. Kugou Music newly added the Viper 3D music library to its in-car offerings, especially optimizing audio performance in a closed cabin environment. Furthermore, we maintained our leadership in smart vocal coverage and recently renewed our partnership with Li Auto. Last but not least, our technology infrastructure continued to play a vital role in content promotion, distribution, and discovery. More accurate recommendations drove greater content consumption, effectively improving our user conversion and retention. We are pleased to share that in the fourth quarter, both QQ Music and Kugou Music recorded another record high share of music streams from recommendations. Finally, AI. We continue to expand AIGC applications to enhance user experience and foster artist music creation while improving efficiency. On the product side, we integrated AIGC into music streaming and creation as well as singing and socializing, creating an increasingly intelligent and personalized music experience for users and creators. For example, by enhancing QQ Music's AI-enabled listening together feature with additional virtual DJs specializing in different music genres, we have made music discovery faster and more personalized. Furthermore, we launched an AI compensation tool in Venus supporting artists' music creation using their original text prompts or rhythm clips. Lastly, we integrated our AI streaming function into Kugou and WeSing. Initial results suggest that users are increasingly willing to pay for this function as it enables easy creation of sound sources in market sales and different languages. On the operations side, we are using AIGC to make our advertising more efficient and effective, allowing us to better target and convert users. We are also leveraging our AI tools to better promote and distribute new songs. They help us analyze songs' audio characteristics and identify the content that resonates most with users. To sum up, we will continue to leverage technology to achieve more efficiency gains in the future. Our dedication and passion for serving hundreds of millions of music users will further inspire us to deliver more compelling music entertainment experiences seamlessly across a broader range of user cases. With that, I will turn the call over to Shirley, our CFO for a deep dive into our financials.

Shirley Hu, CFO

Thank you, Ross, and greetings to everyone. I will now turn to our financial results. Our strong financial results for the year 2023 reflected success in effective monetization for our music services and operational efficiency management, with accelerating year-over-year growth in subscription revenues throughout the year. Our online music services delivered faster than expected revenue growth. We've largely mitigated the revenue decline in social and consumer services and others. IFRS net profit and non-IFRS net profit were RMB5.2 billion and RMB6.2 billion respectively, up by 36% and 27% respectively on a year-over-year basis. In the fourth quarter of 2023, our total revenues were RMB6.9 billion, down by 7% year-over-year, primarily due to declines in revenues from social entertainment services and others. Our online music revenues in Q4 2023 increased by 41% to RMB5 billion on a year-over-year basis. This surge was driven by the strong expansion of our music subscription and advertising business, supplemented by an increase in artist-related merchandise sales. Delving deeper into our music subscription performance for Q4, music subscription revenues reached RMB3.4 billion, which is a 45% increase year-over-year and a 7% rise sequentially. Our refined operation allowed us to expand our online music paying user base while enhancing monthly ARPPU. The number of online music paying users expanded to 106.7 million, representing a 21% increase year-over-year, with a quarterly net add of 3.7 million users. The monthly ARPPU rose to RMB10.7, up by 20% year-over-year and by 4% sequentially, marking the segment's success in growth and setting another record. The continued growth in our paying user base was largely attributable to our enriched content offerings, enhanced member privileges such as industry-leading sound quality selections, rich sound effects, individualized players, new skins, and interactive product features such as in-car investment and interactive features for The Dark Plum Sauce, WeSing, Christmas Star. Our advertising revenue also had strong growth year-over-year and sequentially, supported by our diversified product suite and innovative advertising formats. Advertising-supported revenues delivered strong performance this quarter as interest rates improved significantly. Additionally, the new e-commerce sales event generated a higher demand for advertising and contributed to a sequential increase in advertising revenues. Social entertainment services and other revenues were RMB1.9 billion, down by 52% year-over-year. This was mainly due to adjustments in certain live streaming interactive functions and stringent compliance procedures. As we implemented several service enhancements and risk control measures in the past couple of quarters, we continue to innovate for social entertainment services and have seen growth in advertising revenues and VIP membership revenues this quarter. Our gross margin for Q4 stood at 38.3%, marking an increase of 5.3 percentage points year-over-year and an increase of 2.6 percentage points sequentially. The increasing user base, along with higher monthly ARPPU, growth in advertising revenues, as well as ramping up our own content, have enabled us to move to a healthier margin model. Additionally, we have built win-win relationships with labels and artists and managed the content costs more efficiently using a ROC approach. These efforts have collectively resulted in the increase of our gross margin year-over-year. Moving on to operating expenses, in the fourth quarter of 2023, they amounted to RMB1.3 billion, representing 18.4% of our total revenues compared with 18.3% in the same period of last year. Selling and marketing expenses were RMB255 million, down by 4% year-over-year. Our marketing strategy is ROI-focused, where we allocate the budget towards areas with long-term growth prospects. We strategically curtailed expenses for promotion channel fees associated with live streaming and increased expenses to promote our own content. As our music service continues to grow rapidly, we will continue to invest in channel promotions for these areas. General and administrative expenses were RMB1 billion, down by 8% year-over-year, primarily driven by lower employee-related expenses, partially because we incurred expenses related to the audio acquisition in Q4 2022, but such expenses did not recur in Q4 2023. Our effective tax rate for Q4 2023 was 17.3%, compared to 12.2% in the same period of 2022. This increase was primarily attributed to the accrual of withholding tax related to earnings to be remitted by our PRC subsidiaries to offshore entities. For Q4 2023, our net profit and net profit attributable to equity holders of the company were RMB1.4 billion and RMB1.3 billion, respectively. Non-IFRS net profit and the non-IFRS net profit attributable to equity holders of the company were RMB1.7 billion and RMB1.6 billion, respectively. Our diluted earnings per ADS reached a record high this quarter at RMB0.83, up 15% year-over-year. Non-IFRS diluted earnings per ADS increased to RMB1, up 10% year-over-year. These results demonstrated our robust financial performance, enhanced operating efficiencies, and the positive impact from our share repurchase program. As of December 31, 2023, our combined balances of cash, cash equivalents, and term deposits were RMB32.2 billion, as compared to RMB31 billion as of September 30, 2023. This combined balance was also impacted by changes in the exchange rate of the RMB to USD at the given balance sheet dates. Under the share repurchase program announced in March 2023, as of December 31, 2023, we had repurchased 25.3 million ADS from the open market for total cash consideration of US$175 million, of which approximately US$72 million were repurchased in the fourth quarter. Next, I'll briefly discuss our performance for full year 2023. Total revenues were RMB27.8 billion, down by 2% year-over-year. Revenues from online music services were RMB17.3 billion, up by 39% year-over-year. The increase was driven by strong growth in music subscription revenues and revenues from advertising services, supplemented by growth in other music services. Our music subscription revenue was RMB12.1 billion, up by 39% year-over-year, driven by growth in both paying users and the monthly ARPPU. Revenues from social entertainment services declined by 34% year-over-year due to adjustments in certain live streaming interactive functions and more stringent company as procedures as we implemented several service enhancement and risk control measures in the past couple of quarters. Gross margin in 2023 was 35.3%, up by 4.3% year-over-year due to the reasons discussed earlier. Total operating expenses for 2023 were RMB5 billion, down by 10% year-over-year. Selling and marketing expenses in 2023 were RMB0.9 billion, down by 20% year-over-year, largely due to more efficient, ROI-focused promotional strategies. General and administrative expenses were RMB4.1 billion, down by 7% year-over-year, primarily due to reduced employee-related expenses, including expenses related to the audio acquisition and the expenses related to the Hong Kong secondary listing incurred in 2022. In 2023, we achieved the highest level of profitability in our company's history. Net profit and net profit attributable to equity holders of the company was RMB5.2 billion and RMB4.9 billion, respectively. Non-IFRS net profit attributable to equity holders of the company was RMB6.2 billion and RMB5.9 billion, respectively. Finally, I'll conclude with some remarks on our outlook for 2024. We are excited about the growth of the music industry and remain dedicated to driving our growth across our music ecosystem. We will continue to focus on impactful monetization and operational efficiency while exploring new growth opportunities and expanding our pursuit of monetization towards customized artists, merchandise, concerts, etc. Additionally, we will continue to invest in high-quality content and original content productions, as well as new products and technologies such as AIGC. We are confident about the long-term healthy growth of the music industry and our company. We remain focused on providing high-quality investment returns for our shareholders. This concludes our prepared remarks. We are now ready to open the call for questions.

Operator, Operator

And the first question comes from Alex Poon from Morgan Stanley.

Alex Poon, Analyst

My question is regarding our 2024 and first quarter revenue growth expectation. Can you share some color, particularly about the music segment?

Kar Shun Pang, Executive Chairman

Thank you, Alex, for your questions. In year 2023, I think our online music business has consistently delivered a very strong performance, and our total monthly subscribers have reached 107 million already, which is a new milestone for us. And the total revenue from the music subscriptions has grown by 39% year-over-year. The reason behind it basically due to the very efficient execution of TME's content and platform dual engine strategy and the countercyclical nature of the music industry. We believe that the fourth quarter's accelerated growth in subscription revenue really lays a strong foundation for this year's growth. We are optimistic about the industry's future and believe that our user-centric operations and expertise will continue to drive the business forward. We are committed to building a popular all-in-one music and audio platform. From the product point of view, we will use industry-leading technology and know-how to provide the best user experience for our users. From a content point of view, we will continue to provide the best coverage of songs and also explore new formats like live performances, concerts, and music festivals. So, in a nutshell, I think for this year, we are confident that the online music business will maintain solid growth with subscription services serving as a primary driving force while continuing to explore new opportunities in advertising and artist merchandise to grow the business. As part of our holistic user ecosystem, our social entertainment side will focus on better serving our core users, and the revenue from this part will be relatively stable this year.

Operator, Operator

And the next question is coming from Alicia Yap from Citigroup.

Alicia Yap, Analyst

I have two very quick questions. One is just curious if management can elaborate a little bit, in terms of the user profile for those that are newly converted to the membership subscription in the past 12 months. Any colors in terms of the geographic location, cities, tiers, age group, and the song library that they tend to prefer. Anything you can share would be helpful. And then very quickly, my second question is, if you can update on any upcoming strategies and expectations for the long-form audio in terms of the user adoption rate and also the revenue trends.

Ross Liang, CEO

Actually, our user base is already more than 100 million, as I mentioned in the presentation. So the demographic profile of our user base is very aligned with the population demographic structure in China. From the activity of the user, we can see that the most active users, or the largest group of our users, are still aged between 18 to 30 years old. We can also say that our subscription users are still very active among all the user groups we have. In regards to user profile and their allocation geographically, it mirrors the demographic allocation of China. We have a more active user base in the first-tier cities, while the majority of our users are still distributed in Tier 2 and Tier 3 cities in China. In our future operations, we're going to keep an eye on and be more focused on young user groups because they hold the most potential for us to tap. Regarding your question about long audio, our current strategy is still to make long audio fully integrated with our music platform, QQ Music and Kugou Music. So far, we find that the strategy is very effective. At the same time, we are also monitoring the market for long audio, especially how active it is and its monetization capacity. We also plan to leverage the ROC framework to source the most popular content in the market. For long audio, we intend to accelerate its penetration into the in-car market as we have observed that content such as novels is very popular for in-car applications. Overall, we see 2023 as a very important year for long-form audio, transforming its distribution and commercial efficiency within our music platform.

Operator, Operator

The next question comes from the line of Lincoln Kong from Goldman Sachs.

Lincoln Kong, Analyst

My question is on the margin, especially the gross margin side. We have seen in the fourth quarter, accelerating gross margin expansion on a quarter-on-quarter basis, more than 200 basis points. Could you elaborate in terms of what are the reasons for that? And when we're thinking about 2024, what will be the key drivers for further gross margin expansion in terms of gross operating leverage from content cost and minimum guarantee, or increasing mix of our self-produced content? What will be the ceiling or medium-term sort of target for our music business gross margin under this context?

Shirley Hu, CFO

Yes. Gross margin is 38.3% in Q4, increased by 5.3% year-over-year. The main factors are as follows: first, music subscription revenues have shown significant growth, with a higher monthly ARPPU and paying user base growth both positively impacting our gross margin. Additionally, the robust growth of advertising revenues has also favorably impacted gross margin. Third, we have gradually ramped up our own content, which benefits our gross margin. We are seeing that the piece of our own content is increasing rapidly in Q4. Lastly, we have been focused on ROCE to manage content more efficiently and build win-win relationships with labels and artists. Our online music revenues' gross ratio grew faster than the ratio of content costs. Regarding gross margin, in Q1 2024, we expect our gross margin to keep increasing, though the rate may be lower than that in Q4 2023. However, with our subsequent revenue growth and expected increase in advertising revenue, we believe that gross margin will be enhanced in Q1 2024.

Operator, Operator

The next question comes from the line of Fang Wei from Mizuho.

Fang Wei, Analyst

I have an ARPPU related question. So looking at your music ARPPU trajectory, you guys finished the year with 16% year-over-year growth, and I believe your largest peer also delivered positive growth. But despite that, I think your paying user growth maintained very solid expansion, right? So it looks like consumers are happily paying up. I was just wondering if management can help elaborate on your techniques behind this and whether it is fair to assume continued momentum into 2024.

Kar Shun Pang, Executive Chairman

I think for the ARPPU, we have adopted a holistic approach to grow the subscription revenue with flexibility in balancing between the growth in subscribers and also the ARPPU expansion. We have a strong start in subscriber growth in Q1 2024, partially because of the impact of promotions during the transitioning year. Therefore, minor fluctuations in ARPPU are to be expected. However, I believe that for the remaining policy in 2024, overall, the trend should be slightly upward. We will monitor and also manage it wisely to ensure a good balance between subscriber growth and ARPPU expansion. But you're right; we believe that after years of education, music lovers in China now see the value of music and they are willing to pay more in the future.

Operator, Operator

The next question comes from Zhang Lei from Bank of America Merrill Lynch.

Zhang Lei, Analyst

Two questions here. First, I think you have pretty good margin and cash flow trends, so do we consider any shareholder returns in the future? And secondly, it's about the user trend in Q4, which saw slightly quarter-on-quarter decline. How should we look at the user trend for 2024?

Kar Shun Pang, Executive Chairman

I think that for the share buybacks, we're actively doing this in the last, especially in Q4 2023, and we'll continue doing this under the currently existing share buyback plan that we have, and I think that we have already made really good progress in it. I'll let Ross talk about the user trends.

Ross Liang, CEO

Thank you very much. I'd like to say the same as the trend a few years ago in Q4. The key reason is because of students going back to school as the school year opens. At the same time, we also saw some impact from short-form video on our mobile business. From the data analytics, we can see that regarding the loss of users, especially according to the days of activity, the majority of them leaving us are actually those low-active users. Still, we maintain our highly active users, and they are quite stable. From practice, we can also say that in the year 2023, we further downsized our marketing expenses, which is another reason we reduced channel promotion. However, we are also keeping our eyes on some traditional and emerging channels, including PC end, in-car channels, and IoT channels. We want to improve our omnichannel user base. At the same time, you can also say that regarding IoT we still enjoy steady growth. For the PC end, including the Windows and Mac systems, we're still aiming for stability and our intent is to roll out new versions to explore new opportunities on the PC end. However, regarding the trend of 2024, at the very beginning of the year, we will be impacted by the Spring Festival in China. So during the Spring Festival, people tend not to use music apps, which is why in Q1 2024, we may see a slight decrease in MAU due to the Spring Festival. In the following quarters, we expect the impact from our major version update regarding QQ Music and Kugou Music to contribute positively. I believe, compared to 2023, our marketing strategy will show ROI-based improvements, focusing on new user engagement and the return of old users back to our platform. We expect MAU improvement in the upcoming quarters.

Kar Shun Pang, Executive Chairman

In response to your first question, besides the share buyback, we are also proactively looking into dividend possibilities as well. We are working on detailed plans and would like to improve shareholder equity benefits in the future.

Operator, Operator

The next question comes from Xueqing Zhang.

Xueqing Zhang, Analyst

Thanks for taking my question and also congratulations on the strong quarter. My question is about AIGC. As you mentioned in the prepared remarks, can management elaborate a bit more about that? How do you leverage AI in your business, and how does AI empower products contribute to subscriber conversion and retention?

Ross Liang, CEO

We have been closely monitoring the latest development of large language models and integrated them into music recommendations, creations, as well as singing and socializing. Unlike other companies, we aim to focus more on large language model application use cases. Regarding these applications, I have three points to share with you. First, we look to leverage large language models to make our product more appealing and attractive, providing users with a brand-new experience. This is why in our latest version, we updated the listening together functionality; users in QQ Music can now create profiles and through these profiles, they can find recommended music that really fits their mood and emotions—leading to more content consumption. Additionally, we are implementing another product in QQ Music where we will leverage large language models to improve conversations and dialogue, enhancing user companionship. The second point concerns leveraging large language models to enhance creation efficiency for content. We provide effective tools for music creation for creators; recently, we have enabled a separation function in our music capabilities to allow for vocal separation from songs, which musicians find very valuable. Furthermore, we launched AI-based compensation functionalities in WeSing and Kugou; users can now create preferred sounds or compositions according to their preferred style. Through these features and tools, we believe there are promising commercial prospects as users are willing to pay for songs produced with AI tools. Regarding customer acquisition, we can also leverage AIGC to generate various promotional materials, and we find that allocating those materials enhances conversion rates. Additionally, after applying large language models, we notice a significant improvement in music recommendations within the app. Overall, we believe AIGC is benefiting our industry and helping enhance the performance of our products. We will keep a close eye on the latest developments, including solar and other technologies, to adopt them into our products as soon as possible.

Operator, Operator

The next question comes from Thomas Chong from Jefferies.

Thomas Chong, Analyst

I have a question regarding how we should think about NetEase. Given the solid performance that we're seeing in Q4, how should we look at the NetEase trend coming into Q1 2024? And over the long term, how should we think about our music subscriptions number?

Shirley Hu, CFO

Well, you can say that we provided a high-quality product to the market, and after years of educating users, they are now happy to pay for our services and products, as the user base becomes more mature. I think we are now stepping into the season of harvest. In the year 2024, we are going to keep an eye on the ROC and also try to further enhance our products and marketing strategy. We hope those high-potential customers can access our high-quality services and products, and our established content library and platform will retain those users. So this is indeed the strategy we have for this year. In H1 of 2023, following the reopening post-pandemic, travel was allowed, and offline musical events were restored, creating an enabling external environment for our business. Along with our strong operational capacity and robust execution, we will be able to accumulate many paying users based on this favorable environment and faster conversion rates. In 2023, the net aided value for our subscription users reached 182 million, which lays a solid foundation for us to further expand the user base in the near future. In 2024, we are going to finance NetEase and other initiatives, and we are confident we will maintain the online music business and subscription revenue at a very healthy level. As we enter 2024, we expect that our product innovation and the expansion of user privileges, along with our robust execution strategy, will yield better-than-expected performance. We have high hopes for the healthy development of our business in 2024.

Kar Shun Pang, Executive Chairman

In the near future, we will keep an eye on the operation and development of super users, or high-activity users. These users are key, and we will expand their experience in other channels, including in-car experiences and the Kiwi users. We hope that by managing them well, we can improve our RF for the music business. But more importantly, I should emphasize that our priority is to ensure steady and robust growth for subscription revenue.

Operator, Operator

Thank you. We are approaching the end of the conference call. I'll now turn over to Kar Shun for closing remarks.

Kar Shun Pang, Executive Chairman

Thank you everyone for joining us today. If you have any further questions, please feel free to contact TME's Investor Relations team. This concludes today's call, and the company looks forward to speaking with you again next quarter. Thank you so much, and goodbye.