Inquired about subscription tiering split, growth status of ad-supported subscription users, their retention rates, and the contribution/growth potential of newer subscriptions like fan clubs and bubbles to blended ARPU. Also asked about plans for long-form audio post HMA transaction approval.

Management stated they do not disclose retention rates but emphasized a multi-tier member system to meet diverse user demands, from light users (free/ad-supported) to deep value users (FinCloud bubbles). They believe IP-based music and audio subscriptions (including book listening, kids audios) will create bigger commercial opportunities and improve retention. The core strategy is to build an IP-based one-stop music service platform to enhance user retention and tap more business opportunities. “I believe in the future, the IP-based music subscription, not just music subscription but also the auto subscription business, including like book listening or kids audios, this IP-based content will create bigger commercial opportunities and also improve our retention.”

Noted a slight quarter-over-quarter decline in member services revenue despite strong YoY growth, asking if it was due to seasonality, competition, user churn, or package downgrades, and requested future guidance.

Management clarified the decline was not due to SVIP members downgrading or user churn, as SVIP growth remained steady. The Q-o-Q decline was attributed to intense competition in music streaming, particularly for free and ad-supported members, where competitors use aggressive strategies and AI-filled libraries to divert traffic. They emphasized focusing on a comprehensive music service platform and leveraging flexible pricing for light users on the CUBE platform, while QQ Music remains steady. They highlighted offline performance and multi-device user experience as competitive edges. “Well, as you mentioned, this Q-o-Q slight decline is mainly because of the completion on the streaming, music streaming business and especially for those free and ad-supported members.”

Asked about the Q1 GP margin increase, if it changes the full-year guidance (which was previously flat/slightly decreasing), and if the increase in selling expenses was due to Tencent ecosystem collaboration, questioning if it's a one-off cost.

CFO Min Hu explained the Q1 GP margin increase was due to continuous growth in membership and ads business, rapid growth of IP-related brokering business with near-zero impact on GP margin, and rigid cost control. The Q-o-Q rise was also seasonal, with Q1 IP-related business contribution lower than Q4. For the full year, they expect Q2 GP margin to be on par with last year and anticipate a slowdown in membership/advertising growth but will maintain profitability through rigid cost control and focus on proprietary IP. The 36% YoY increase in selling expenses was due to intensifying competition and strategic user acquisition, not a one-off, but the growth rate is expected to normalize for the full year. “Well, if you look at Y-o-Y in Q1, we've had a very good GP margin, mainly because of the following risks. Number 1 is in Q1, we see a continuous growth of membership and ads business, which contributes positively to our market.”

TME

Tencent Music Entertainment Group (TME) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Communication Services· May 12, 2026

Source: earnings call transcript

Executive summary

Tencent Music Entertainment Group Q1 FY26 — Diversified Monetization and AI Strategy

Tencent Music Entertainment Group delivered steady Q1 FY26 performance, driven by diversified monetization and a focus on IP expansion. The company is navigating intense competition and the challenges of AI-generated content by strengthening copyright protection, deepening integration with the WeChat ecosystem, and evolving into an IP-based, one-stop music service platform. Management remains confident in long-term growth through comprehensive IP monetization and strategic partnerships.

Highlights

Overall revenue grew 7% year-on-year.
Revenues from membership services grew 7% year-on-year to RMB 4.6 billion.
Off-line concert related business achieved triple-digit year-on-year growth.
Adjusted EBITDA increased 10% year-on-year to RMB 2.8 billion.
Gross margin improved by 0.8 percentage points year-on-year to 4.9%.

Concerns

Revenues from social and channel services and others decreased 11% year-on-year to RMB 1.4 billion.
Operating expenses as a percentage of total revenues increased to 50.3% from 15.5% in the prior year, primarily due to increased channel spending.
Sales and marketing expenses rose 36% year-on-year to RMB 271 million due to intensifying competition and user acquisition efforts.
Competitive pressure, including price competition and pirated AI-driven content, introduced uncertainties for traditional streaming services' revenue growth.
Short-term volatility is expected in the growth rate for membership and advertising businesses for the remainder of the year.

Guidance & targets

Category	Target	Timeline	Confidence
Gross Margin	on par with last year medium materiality	Q2 · FY26	High
Membership and Advertising Business Growth Rate	short-term volatility high materiality	FY26	Medium
Comprehensive IP-based Monetization Growth	maintain steady growth high materiality	Long-term	High
Selling Expense Growth Rate	reasonable rate medium materiality	FY26	High

Product announcements

Product	Type	Timeline
TME Connect	launch	Q1 FY26
Kugou Music Live House on Effects	launch	Q1 FY26
On-ground Cloud Romance Universe with Silence on Monsoon	launch	Q1 FY26

Deals & partnerships

JV Music, Ninfa Records, Monkey Baby Music Limited Renewed contracts to secure continued access to iconic catalogs from artists such as Jo Joan, Karen Moran way Haining, and Angolan hub.

Enhanced classic music catalog by renewing contracts with these labels, reinforcing leadership in premium copyrights.

TF Entertainment Deepened strategic partnership providing users with a 30-day head start benefit for upcoming releases and exploring collaboration across physical products, live performances, and other IP-related opportunities.

Strategic partnership deepened to enhance content offerings and IP-related opportunities.

Sony Pictures Collaboration on the China theme song for 'Star Fixes', choosing Sinderen for the project Helmer, performed by Jose.

Collaboration for a movie theme song, which gained strong traction and topped multiple charts.

J. Chao Collaboration on his digital album 'Children of the Sun', launching packaged offerings combining the album, SVIP memberships, and physical collectibles, supported by a nationwide offline campaign across 45 cities. RMB 100M in sales

Key example of strengthening strategic partnerships to extend IP value chains through integrated virtual and physical offerings.

WeChat Channels Deep partnership entered in April 2026, integrating short-form video with music consumption, allowing WeChat users to jump directly to QQ Music with one click for seamless discovery to listening.

Strategic integration with the Tencent ecosystem to broaden reach and streamline user conversion.

SAMR (State Administration for Market Regulation) Received notice of approval from SAMR for the HMA transaction.

Approval received for the HMA transaction, with TME and Tencent Group committed to strictly follow requirements of trader commitments.

Risks & headwinds

Competitive landscape in music streaming Ongoing

Intensifying competition, price competition

Mitigation:Building a more resonant platform, transitioning to a membership-based model, deepening integration with WeChat ecosystem, leveraging AI for recommendations and engagement.

Unauthorized AI-generated content and piracy Ongoing

Ramp issue of pirated content driven by AI, introducing uncertainties regarding future revenue growth of traditional streaming services.

Mitigation:Working closely with creators, rights holders, and regulators to lead copyright protection efforts; establishing a dedicated rights production mechanism to safeguard legal interests; suppressing 'some washing' and other infringing behaviors.

Short-term volatility in membership and advertising business growth Remainder of FY26

Expected some short-term volatility in growth rate for membership and advertising business.

Mitigation:Proactive copyright safeguarding, diverting more traffic from the Tencent ecosystem, rigid cost control measures, reducing resource allocation to low-value content.

User churn and price sensitivity for light users Ongoing

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

Mitigation:Using a free and ad-supported mode to reduce barrier to entry; adopting more flexible pricing and content to retain light users; leveraging offline performance and multi-device user experience as competitive edges.

Increased operating and sales & marketing expenses Q1 FY26, expected to normalize for full year

Operating expenses at 50.3% of total revenues (vs 15.5% in prior year); Sales and marketing expenses up 36% YoY to RMB 271M.

Mitigation:Strategically increasing expenses for user acquisition and content promotion; expecting a 'reasonable rate' for selling expenses for the full year, not growing as fast as 36%.

What to watch in Q2 FY26

Gross Margin Trajectory

Q2 FY26

Current 4.9% (up 0.8 percentage points YoY)

Target On par with last year

Why it matters

Indicates the company's ability to maintain profitability despite competitive pressures and increased expenses.

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

Find out whether TME delivers this. Inve re-checks your case every morning.

Q&A highlights

Asked for revenue guidance for the remainder of 2026, key drivers for membership business growth, and an update on how the Tencent ecosystem (specifically WeChat Channels approval) will improve performance.

Management acknowledged short-term volatility in membership and advertising growth due to competition and AI-driven pirated content. They outlined three key operational areas: strengthening copyright enforcement against AI infringement, expanding traffic through deeper integration with WeChat Channels, and leveraging the ecosystem to solidify a one-stop music consumption mindset via IP expansion and value chain deepening. They confirmed SAMR approval for the HMA transaction and commitment to regulatory requirements.

“Looking at a year as a whole, we expect some short-term volatility in growth rate for membership and advertising business due to competition, but we will try to be proactive in state guarding our copyright try to divert more traffic from the ecosystem.”

asked by Lincoln Kong · answered by Unknown Executive

2 min read 6 chapters

Detailed narrative

Diversified Monetization and IP Strategy

TME is shifting beyond traditional streaming to an integrated music ecosystem, focusing on diversified monetization across the music value chain. This includes optimizing classic music catalogs, enhancing in-house new releases, and expanding IP value chains through integrated virtual and physical offerings. The strategy aims to deepen engagement and expand user wallet share by leveraging premium music IPs and original human creativity as ultimate differentiators.

AI's Dual Impact and TME's Response

AI is both an enabler and a challenge. While it accelerates content production and enhances user experience, it also introduces market noise and unauthorized content, undermining creators' rights and diluting music value. TME is actively working with creators, rights holders, and regulators to champion robust copyright protection.

The company uses AI to stimulate songwriting, revitalize classic IPs through AI covers, and reinforce the value of premium human-created content.

User Growth and Ecosystem Integration

TME is building a more resonant platform through a content and platform dual engine, driving user acquisition, engagement, and lifetime value. Key initiatives include deepening integration with the WeChat ecosystem, allowing seamless transition from short video music discovery to full playback on TME platforms. AI is also leveraged for improved recommendation systems and personalized features to drive engagement and retention.

Membership-Based Model and IP-Driven Offerings

The company is transitioning to a membership-based concept that goes beyond content subscriptions, offering enriched content and immersive music experiences. SVIP memberships show strong adoption, enhanced by strategic partnerships and expanded fan-based benefits. TME is also pioneering IP-centric memberships like the 'on-ground cloud romance universe' and expanding artist reach through features like 'incadea functionality' to capture diverse user demands and increase lifetime value.

Financial Performance and Cost Management

TME delivered 7% year-on-year revenue growth in Q1 FY26, driven by membership services and off-line performances. Gross margin improved by 0.8 percentage points year-on-year to 4.9%. Operating expenses increased significantly, primarily due to higher sales and marketing spending for user acquisition amidst intense competition.

The company plans rigid cost control measures, reducing resource allocation to less effective content and leveraging the Tencent ecosystem for promotional efficiency.

Strategic Partnerships and Offline Expansion

TME is strengthening strategic partnerships with labels and artists, extending IP value chains through integrated virtual and physical offerings. Examples include collaborations with J. Chao for digital albums combined with physical collectibles and nationwide offline campaigns. The company also delivered multiple flagship concerts, attracting over 10,000 attendees, and is cultivating its primary access to amplify the global footprint of Chinese music through world tours and large-scale shows.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.