Netease executives interpret financial reports: Japan market has greater potential to tap

Analyst Alex Poon: the company has entered the Japanese market for several years, and has achieved very good results in the recent year. What is the company’s business development goal and investment direction in Japan? Another question is whether the online strategy of Harry Potter will be listed in both domestic and overseas markets? If you compare the domestic market potential of this game with that of overseas market, which one is bigger? Ding Lei: we have achieved good results in Japan, but we think that there is still more potential to explore, and we need to continue to explore the Japanese market. We are not satisfied with the current situation. As for the “Harry Potter” game, we will launch it to the world after we are fully prepared. It is not very important whether the game is launched at the same time. The key is that the product itself should be recognized by users, which is very important. Alicia Yap, Citi analyst: will the company’s new contract with universal music affect the profit margin of cloud music? Can this contract help companies create more cash flow patterns? In addition, the cost of sales in the second quarter increased more, what are the specific reasons? Do you include any one-time expenses? Or are they all routine expenses? Will this growth trend continue in the second half of the year? Ding Lei: at present, the contract itself will not, because it is still relatively short, only one year. It should not have a great impact. The key is to do our own business model to realize the whole flow of cloud music. We have many works that are more and more popular with users. We also see that more Chinese users will become members and pay monthly fees for music. This is a relatively healthy business model. Of course, we think that it is not enough to maintain a balance only by members. We also need to deeply explore other service contents, so that users are willing to pay and have a healthier business model. There are two main reasons for the increase of marketing expenses. One is the promotion cost of the new game release, especially the H5 mobile game of dream journey to the west, and the promotion of Youdao online education summer program. This is a seasonal expenditure, and the marketing expenditure of the whole education industry in the summer is the largest. Marketing expenditure accounted for 12.8% of the total revenue in the second quarter. These expenditures are also for the sustainable growth of revenue in the next few quarters. Compared with the annualized figures of the past three years, this figure is not a high proportion. Alex Yao, JP Morgan analyst: two questions. The first one is to follow up Alicia’s question just now. Mr. Ding said that he wanted to do some more excavation in the realization of music. Then, apart from the current monthly members, can you share with us the other cashing directions? The second question is about the company’s overseas game development strategy. In fact, we have a lot of games adapted based on excellent overseas IP, such as “big pineapple” and “Harry Potter”, which are more suitable for overseas distribution. However, considering the current situation in China and the United States and the attitude of the United States towards some Chinese Internet companies, will the company take it How to adjust the overseas development strategy? Ding Lei: at present, we are exploring other ways to realize the music business. We believe Netease can invest more resources in China to support and cultivate more excellent and original Chinese music works, making Chinese pop songs a major form of music content in the world. The business model itself needs to be explored, but our attitude towards the development of content itself will not change. Second, although the whole international environment has been complicated recently, I believe that the game itself is a way of entertainment loved by people all over the world. Our long-term investment in this area will not be affected by short-term changes in the situation, and we will continue to invest in considering the preferences of global users for our works. The games we have developed are not only for Chinese consumers, but also for consumers of other nationalities and countries in the world. Eddie Leung, BofA Merrill Lynch analyst: two questions. After joining the company for a few years, will the video content of our company become the first one related to the music business. Will we think about the possibility that the video content of our company will become the first one in the past few years? On the other hand, we have observed that some game products of the company still perform very well after a long time, because of the increase in the number of paid users? Or an increase in average revenue per user? Ding Lei: first of all, I think you should understand that music products are different from short videos. A short video usually takes less than a minute, but a song or a chapter takes about three minutes. In fact, the short video intercepts the climax part of a three minute work, or the main melody and chorus part. In this way, we can use the background music with the video to package the content of a short video. However, if users really want to listen to a complete work, including the prelude, the middle chorus and climax, and the ending part, they will actually come back to our platform to listen to the work. There is also a short video is actually user-made content (UGC). The quality of its works is different from music works. The production of each song is very complicated. It is not easy for someone to compose words, compose music, compose music, record, mix and so on. Every song is a professional production content (PGC). I think the existence of short video content can help promote the music industry. Conversely, if there is no background music for short video content, short video will have no value. Without music, the value of short video content will be much less. < / P > < p > with regard to the trend of game consumption, there are actually more and more users paying for the game, and the polarization of consumption is more obvious. Some users have better economic conditions and will pay more money. In this game work, they can better achieve the purpose of entertainment, and some people will spend less. They may be very happy to become a member. I see that the payment situation of the whole game industry has changed a lot. People are more willing to pay, and more and more people pay. But from the average value, it may not necessarily be < / P > < p > Jeffery analyst Thomas Chong: a question about the company’s overseas game strategy. In the past, we have IP authorized adapted games, and also have our own developed games. After this listing in Hong Kong, will the company consider more M & A opportunities? IP licensing, self research and M & A, which aspects will the company pay more attention to in the future? Ding Lei: in fact, we are doing all the problems you mentioned, but we have not announced them to the public. The company’s overseas development strategy is not only to use the IP authorization of other companies, but also to obtain some IP through M & A to try to achieve success in the overseas market. Our entire strategy team has been doing these work. < / P > < p > Thomas Chong: another question is that the user payment rate and average revenue contribution per user in Japan are very high. Is it possible for the domestic user payment rate and average revenue per user to reach the level of the Japanese market? Ding Lei: I think every country has certain differences, which is normal. As long as the whole economy is developing, users are willing to spend more on entertainment. At least one thing we can see is that Chinese consumers pay the same amount of money for a movie in the first tier cities as for a movie ticket in the United States, which shows the same spending power. (Tian Heng)