Spotify and Tencent Music look set to acquire a stake in each other

Spotify and Chinese giant Tencent look set to own a stake in each other’s businesses.

That’s according to a new report from the Wall Street Journal, which cites sources who say Tencent’s Music company and Spotify AB are in talks to acquire 10% of each other – ahead of both parties floating on the stock market next year.

One mutual perk of the deal is that both companies could align when entering licensing negotiations with major music labels and publishers.

The agreement will reportedly be structured with Tencent paying Spotify a lump sum to balance the books: Daniel Ek‘s company has a higher current valuation than the Tencent Music Entertainment Group.

(But not the main Tencent parent company, obviously, which is worth over $400bn according to its current market cap.)

Tencent Holdings Ltd reportedly plans to spin-out Tencent Music into a public company in 2018, either in New York or Hong Kong.

A recent round of financing reportedly upped Tencent Music’s valuation to $10bn.

Spotify, meanwhile, was recently valued at $16bn in private trades.

Despite the obvious global synergies between the two companies, WSJ’s sources say that Spotify has no plans to enter the Chinese market.

Tencent spent big last year to acquire a majority stake in $2.7bn-valued China Music Corp, taking control of two key music platforms – Kuwo and KuGou.

Added together with its own QQ Music, Tencent services reach over 700m monthly active users.

Speaking to MBW earlier this year, Tencent Music VP Andy Ng said: “We don’t have the expertise needed to run a music label business. We don’t have knowledge about A&R, management and physical CDs. I feel pretty strongly about avoiding owning a majority stake in a music label.

However,  we wouldn’t mind exploring an investment, like owning a small portion of a music label’s shares – 10/20/30%.

“We’d consider investing in a really important music label that could create different strategic partnerships with, not only for our music service, but also using the IP of artists in the games or filming business.”

Tencent, of course, currently has multi-year agreements with all three major labels to represent their catalogues in China.Music Business Worldwide

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