Tencent’s proposed $3bn investment in Universal to be challenged by Independent music companies

Helen Smith, IMPALA

Belgium-based, independent music trade body IMPALA has said that it is ‘gearing up to oppose Tencent’s buyout of a 10% stake of Universal Music Group.’

The European organization argues that ‘the impact of such a sale would change the whole music ecosystem’, and that smaller companies will be at a competitive disadvantage.

In a statement issue today (November 26), IMPALA, which represents over 4,000 independent music companies and national associations, says that it is also ‘concerned about who might buy the additional UMG stakes that are up for grabs’.

Tencent Music Holdings is the majority shareholder of Tencent Music Entertainment (TME), which owns QQ Music, Kugou and Kuwo and has an estimated 90% market share of digital music in China.

According to TME’s latest Q3 results, it reached a total of 35.4m paying music subscribers in the three months to end of September, while the firm’s online music services – including both streaming and downloads – generated RMB 1.85bn (US $258m) in the quarter.

TME also confirmed during its Q3 earnings call that it made Taylor Swift a priority in the quarter, highlighting the promotional power it can offer an artist from outside China.

“International artists enjoy and benefit from our promotional capabilities, which allow them to connect with music lovers in China,” said Cussion Pang, CEO of TME.

Added Pang: “A case in point, the title song of Taylor Swift’s new digital album, Lover, sold nearly 6 million copies [in China] within 24 hours on our platform after release.”

It’s worth noting that UMG, which TME-majority owner Tencent Holdings Ltd is currently in talks to acquire a minority stake in, is Taylor Swift’s global recorded music partner.

Said Impala in a statement: “UMG is the world’s biggest music company and Tencent currently owns four out of five of the leading music apps and has an estimated 90% market share in the growing Chinese market for the retail of digital music, with strong presence in other key markets.

“The fact that the Chinese competition watchdog is already looking into Tencent Music’s licensing deals with the majors underlines the importance regulators attach to ensuring fair play, and other regulators have raised the alarm about the power of online services and media giants.”

“Even at a low level of shareholding, we believe the risk of harm for consumers and competitors from such a transaction would be a concern because of the impact in both the digital market and the music sector, with independents being squeezed further and artists also losing out.”

Helen Smith, IMPALA

IMPALA’s Executive Chair Helen Smith (pictured), said: “Even at a low level of shareholding, we believe the risk of harm for consumers and competitors from such a transaction would be a concern because of the impact in both the digital market and the music sector, with independents being squeezed further and artists also losing out.

“We also need to see how the plan to sell the rest of the UMG shares available plays out. There could be any number of outcomes.

“We would expect regulators to also be concerned about the Spotify-Tencent link. We believe it would be difficult for Tencent and other companies with power in a vertical market to acquire influence over the world’s biggest set of repertoire.”Music Business Worldwide

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