Tencent could be hit with $1.5bn fine and forced to sell two music apps in China (report)

Jay Chou

Tencent and its majority-owned subsidiary, Tencent Music Entertainment (TME), are facing a potential battering in China as part of an antitrust clampdown by the nation’s regulators.

Tencent was investigated a couple of years ago by anti-competitive watchdogs in China for striking exclusive licensing agreements with the three major record companies in the territory.

Tencent Music’s previous deals with Universal Music, Sony Music and Warner Music, enabled TME – the owner of China’s largest music streaming services – to license the majors’ music for its own platforms, but also to exclusively sub-license these catalogs to local rivals.

However, the anti-competition investigation into Tencent was paused after the firm agreed to strike differently-structured music deals.

In TME’s latest licensing agreements with Universal and Warner, each announced in the past eight months, Tencent no longer possesses an exclusive sub-licensing right, allowing these companies to also strike separate direct deals with TME rival NetEase Cloud Music.

According to a new report from Reuters, though, this concession from Tencent Music hasn’t gone far enough to satisfy regulators.

It reports that China’s State Administration of Market Regulation (SAMR) is set to “make an example” of Tencent, and that the company should expect to be stung with a fine of at least 10 billion yuan ($1.54 billion) as a result.

Tencent will be raked over the coals for “anticompetitive practices in some of its businesses”, says a Reuters’ source, “with music streaming in particular focus”.

That’s partly because, despite giving up its exclusive sub-licensing right with the major labels, Tencent Music has continued to hold exclusive rights deals with some individual artists, including Taiwanese pop superstar Jay Chou.

Reuters’ sources suggest that Tencent will now be forced by SAMR to relinquish these rights, and – in an unprecedented move – may also be forced to sell off two of its music apps, Kugou and Kuwo, to competitors.

Tencent Music’s main competitor in China is NetEase Cloud Music, which loudly complained about TME’s previous exclusive sub-licensing deal with the majors.

TME’s other main competitor, Alibaba‘s Xiami Music, was shut down in February. (Alibaba became an investor in NetEase Cloud Music in 2019.)

In addition to Kugou and Kuwo, Tencent Music runs music apps in China including its flagship music platform, QQ Music, plus online karaoke service, WeSing.

Tencent Music started trading on the New York Stock Exchange under the symbol TME in late 2018. It currently carries a $31.8 billion market cap.

A Tencent-led consortium – including Tencent Music – has acquired 20% of Universal Music Group over the past year.

Tencent and/or Tencent Music also owns minority stakes of varying sizes in music companies such as Warner Music Group, Spotify, A&R app Instrumental, and India’s Gaana.

As part of its latest agreements with major record companies, TME is launching new JV record labels with both Universal Music Group and Warner Music Group in China.

It already runs a JV label, Liquid State, with Sony Music, which is headquartered in Hong Kong.

Music Business Worldwide